Insolvency - at what cost?

The insolvency profession is a dynamic and highly specialised field.

ASIC is concerned by the proliferation of pre-insolvency advisers.

By Adrian Brown and Dr John Purcell

CPA Australia members who are registered liquidators and advisers represent a key stakeholder group for the Australian Securities and Investments Commission (ASIC). Registered liquidators administer about 24,000 to 25,000 external administrations at any point in time.

The wider CPA Australia community intersects with the insolvency market in the ordinary course of advising clients; particularly when corporate clients become financially distressed or insolvent. As a professional you know that your clients rely on you to provide accurate and honest advice regarding their options if in financial distress. Failure to do that could damage the profession’s reputation and undermine confidence in the market.

One of ASIC’s current concerns is the growth in the so-called “pre-insolvency adviser” (PIA) market. PIAs build relationships with accountants with a view to them referring financially distressed clients with promises of saving their business.

"A small minority of PIAs facilitate transactions designed to defeat creditors' interests and rely on an accountant or registered liquidator to help facilitate that."

Some PIAs form “unhealthy” relationships with so-called “friendly” registered liquidators on whom they rely to act in the interests of parties other than the creditors. ASIC is concerned that PIAs frequently have few, if any, qualifications. Some simply have personal experience of the insolvency process.

Glossy websites offer “solutions” to a company and its directors facing financial ruin, enticing the unwary and the vulnerable. Frequently, advice comes at considerable cost.

Advice offered to directors varies significantly in quality. There is concern that some PIAs may encourage directors and their accountants to transfer assets to new entities for less than market value, or to destroy or alter company records – and these actions may break the law.

Upskill: Insolvency and reconstruction - 5 topic package - Learning manual

Members need to warn their clients of the potential impact of the risks of such actions. Organisations such as CPA Australia promote professional and ethical behaviour, thereby limiting inappropriate and unlawful advice when a company faces insolvency. It is an unfortunate reality that a small minority of PIAs facilitate transactions designed to defeat creditors’ interests and rely on an accountant or registered liquidator to help facilitate that.

The market has a right to rely on CPA Australia members, acting as both registered liquidators and advisers, to do the right thing. CPA Australia can refer you and your client to specialist insolvency practitioners if needed.

CPA Australia’s and ASIC’s oversight programs aim to promote high standards and good practice. This, in turn, promotes confidence in the market.

Failing to uphold standards undermines confidence in the broader market and also damages your reputation. In some cases, you can expose yourself to liability if you aid and abet the commission of an offence.

CPA Australia and ASIC acknowledge the importance of co-regulation and meet regularly to discuss and resolve insolvency-related issues, and to share outcomes of their respective quality review/practice review programs, education and other oversight programs.

Adrian Brown is a senior executive leader, insolvency practitioners, ASIC. Dr John Purcell is a policy adviser ESG, external positioning, CPA Australia

Need to know

ASIC structures its “directed registered liquidators regulation” largely to target misconduct in the areas of:

  • independence
  • competence
  • improper gain

The insolvency profession is a dynamic and highly specialised field. CPA Australia offers a self-paced insolvency and reconstruction learning program, designed both for those who are entering the profession and existing practitioners who need to refresh their knowledge of this specialised field.

Read more:

October 2021
October 2021

Read the October 2021 issue of INTHEBLACK magazine.

Each month we select the must-reads from the current issue of INTHEBLACK. Read more now.