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ECONOMICS REFERENCES COMMITTEE
23/06/2010
Liquidators and administrators

CHAIR —We welcome Dr Colin Anderson from the Queensland University of Technology and Dr David Morrison from the University of Queensland. Would you like to make an opening statement?

Prof. Morrison —No, thank you—the submission is fairly clear. We would be happy to take questions.

CHAIR —You do not want to make an overview comment? It might be of assistance to the committee. We are leading you into it, but if you would like to do so please proceed.

Prof. Morrison —Our basic position is that, first, the terms of the inquiry are quite wide, and therefore make it difficult to precisely address a specific problem. To the extent that they appear directed to behaviour as in the case of Ariff, we feel that more information is required in order to make a generalisation from a specific case. Particularly, we note in our submission that there is an almost complete lack of information around the sort of detail that would be required to make an informed decision about the state of insolvency practitioners professionally. The matters that we address in our relatively short submission go to that very point.

CHAIR —Thank you. That sets the scene for your submission. I would like to ask you a couple of opening questions. You argue in your submission:

... there is scope within Australia for a body to be established along the lines of the Australian Institute of Criminology that independently gathers, analyses and researches data relating to corporate law and corporate operations (including insolvency).

Do you want to elaborate on this idea for the purposes of the committee? Would it be adequate for a new insolvency regulator to have a unit responsible for the collection and analysis of insolvency data?

Prof. Anderson —Our point of view is that if you rely upon data which is coming from the regulator then it always raises the question of whether you are being told only what you want to hear. I am not saying that either ASIC or ITSA are doing that, but it raises that potential problem. It seems to us that in an important area like the regulation of the economy through corporations and through insolvency there is room for some way of funding information in an independent way. Maybe the Institute of Criminology is not a perfect method for doing that in the circumstances. It is just a suggestion as to the type of thing, whether it be funded completely independently of those regulators or whether it be funded as part of those particular regulators. It is just a way of raising the issue.

Critically, if you go back to the Harmer report or to the parliamentary joint committee report, they are saying they have got very little data to work on. Now we have another parliamentary inquiry and again there is no data. If we do not change things now, maybe in 10 years time there will be another inquiry saying, ‘There is no data.’ That is our view on that. I do not know whether David has anything to add to that.

Prof. Morrison —What Colin is saying is saying about the need for independent data is absolutely right. If you look at the data that is available now, it is astonishingly incomplete, and I think that goes in some way to the width of responsibility that ASIC has. For ASIC, insolvency is only one small part of all of the things that it has to do, so there is not a lot of focus. But if you want data from ASIC, if you are an academic and you would like to look at something independently, unless it is a priority area that is presumably flagged between the government and ASIC, ASIC cannot provide it to you. If you want to pay to get data at ASIC, even if you can afford to pay for it—and most of us cannot, of course, because we are employees of the government and therefore paid small amounts of money—the records they have are based on paper and microfiche, so you have to pay a search fee every time you want something and you have to go into quite an archaic set of files. So, even if ASIC wanted to help people with independent information, they actually do not have the technology to do it, and that is in very stark contrast to ITSA, the bankruptcy regulator.

CHAIR —That is quite an interesting answer because there has been concern expressed to this committee that ASIC’S brief was perhaps too broad and that perhaps it has not been possible for ASIC to pay enough attention to insolvency issues. That leads to a couple of other issues, I suppose. Firstly, do you believe that ASIC probably does receive data on insolvency and that it is not collated properly—or not perhaps to a degree that would be regarded as useful by people like you in providing an overview of the insolvency industry—and that if they did not have such a broad range of responsibility they might do that more effectively? Or should another body be responsible for overviewing insolvency issues?

Prof. Morrison —I think this is a very difficult question to answer because we actually do not have the information to be able to assess it. If you look at what ASIC asks a company to report on an annual return, it is a very small amount of data. Yet the annual return is a significant processing document tendered on a regular basis monitored by the organisation. So without knowing that, we do not know whether ASIC has got too much on its plate or too little. It suffices to say that this is also connected with how ASIC is funded. I do not know the answer to this question but if you have got a certain amount of limited funding then you can only do so much. Whenever I have asked commissioners for assistance with things they talk about limited funding and they talk about priorities, which are presumably at least partly set by the political process. Therefore their direction is towards things which are immediately required and for which there is funding. I think there is a lack of funding.

The other part of your question is whether or not there needs to be a separate body. It would not take you long to actually have a look at some stage on the internet and search asic.gov.au for insolvency data and then dial up itsa.gov.au, the bankruptcy regulator, and have a look a look at what they have got. I think the contrast would be quite remarkable. If you wanted to look at another agency that is very large, there is the Australian Taxation Office, which has quite a remarkably well set up and resourced website. So it is possible for government to provide relevant, accurate and timely information to anyone who wants to look. ASIC is not doing that and that might be for a host of reasons. We are not in a position to comment on that, nor are we in a position to suggest that it is anyone’s fault. We are simply saying that it is absolutely essential to have more information. An increase in information would give us the ability to ask better questions and to find answers.

One of the things that we have suggested is that we believe there is some merit in at least considering a joint regulator for these matters. At the moment they are only separate by historic accident—namely, there is a Commonwealth Bankruptcy Act and therefore a regulator, and a Commonwealth Corporations Act in cooperation with the states and therefore a regulator attached to that body. But if you look at this in terms of subject matter and you look at the issues that are being raised by people who deal with that subject matter, what difference does it really make whether or not my business is incorporated? The difference it makes is that if my business is incorporated then ASIC deals with me and if my business is not incorporated then it is a bankruptcy matter. But from the point of view of outsider, the person who deals with the business, and from the point of view of my conduct or the insolvency professional that manages it in the end game, it is all the same.

Prof. Anderson —I would just add that, in terms of the information that is actually collected, I think if you look at the reports that liquidators have to put in to ASIC, there is clearly a lot of information going into ASIC. But we do not see a lot of that information coming back out in terms of data for all the sorts of reasons that David has talked about. There certainly are a lot of accounts and so on that have to be presented to ASIC. It is not as though you need to ask liquidators to incur more costs to provide information. It is more a matter of collating and sorting the information that is there.

CHAIR —Thank you very much. This committee sees a bit of ASIC and we do have a view about their resourcing in general terms.

Senator XENOPHON —Dr Morrison, I want to pick up on your evidence that ASIC does not seem to have the same level of information or there appears to be a paucity of information compared to ITSA and the tax office, even though they are dealing in a different field. Can you give an opinion as to whether you think that is due to a lack of resources or a systemic problem within ASIC? It does seem to be almost anomalous when you compare the information you get can from the ITSA website compared to ASIC’s.

Prof. Morrison —I do not know the answer to that question for all of the reasons that I have given. I do not think I can help you further with the answer to that. However, because ASIC is covering such a broad field, it may be that in total information terms ASIC is in the ballpark. I do not know. I do not think it is easy to properly understand it. I certainly could not pass any comment on whether it is a systemic problem. But if you look at ITSA, it is quite focused on one thing, and it does that one thing very well, in my view; so, too, the ATO. I look at sites all around the world when I am looking for data or speaking to other academics and I am always struck by the lack of adequacy in terms of the provision of data for ASIC. As Dr Anderson points out, there is plenty of information going in. There are good ways to collect more general information, as I have suggested, by way of the annual return.

Senator XENOPHON —You would say, though, that the paucity on the information on the ASIC website is not good in terms of policy formulation or it is not good in terms of ensuring we have the best set of rules in place because there appears to be that lack of information compared, for instance, to ITSA. Is that what you are suggesting?

Prof. Anderson —Yes, that is what we are suggesting. Obviously because we do not have the information we cannot say whether our current system is working well or is not working well. We have anecdotal information. We have Stuart Ariff type situations and other situations. I am not saying that everybody is happy with it but, certainly from an international perspective, Australia is seen to have a good profession that is professional in that sense. It is just simply not possible to be rigorous about the evaluation of our law in this area without that sort of information. Certainly when we look at other jurisdictions we see much more rigorous evaluation in their legislation in terms of actual empirical data.

Prof. Morrison —I might just add one thing. These bodies government funded. That means that they are funded by the public purse, and it just strikes me as odd that we would not want more information in the public arena. The greater the volume of information, the more likely it is that it can be properly commented on by anyone with a vested interest, or without one—and that can only add to better decisions, such as those that are being contemplated by this committee.

Senator XENOPHON —Thank you.

Senator FIERRAVANTI-WELLS —In your submission, you talk about the paucity of information. You refer to the Parliamentary Joint Committee on Corporations and Financial Services report of 2004, then you go on to say:

If there is one positive outcome above all others that the inquiry could promote to improve the quality of our insolvency system, it would be to recommend the independent collection of data associated with business failure and the operation of our insolvency regimes.

Could you be a little more specific about the data and where you see that there is a paucity, and how would you collect it?

Prof. Anderson —The data is perhaps already there in the sense that liquidators present reports and so on. For example, one of the things that seems to be important in all jurisdictions—not just Australia—and certainly seems to be a matter of interest to the committee, is the issue of cost and how much the liquidators are being paid as opposed to how much is getting back to creditors. The information with respect to that is that we have no information in Australia about how we rate. I mentioned in the submission that there has been a large study in the US so we have started there about how much the costs are. You could make those sorts of international comparisons if you had that data here. As I understand it, liquidators have to put in an account or report at the end of each administration and within that is included things like fees and costs. It would appear to us that at least a start could be made on collating some of that information if it were used. It seems that it is purely a regulatory thing from ASIC’s point of view anyway—if there is a complaint then individuals get investigated. That sort of information needs to be more readily available.

Our suggestion in our submission is that if there were some funding specifically for the collection of this data in a general way, and if technical issues of how it is collated with electronic data et cetera could be worked through, then that would be a way forward—if we started looking at those sorts of things. As it is now we do not seem to be going forward at all.

Prof. Morrison —I will add one thing here. You asked: what do we need to get? That is a big question because we do not really know the totality of what we can find out because we do not have enough information to even get started. How would we go about getting it? If you make it a statutory requirement for a person to submit certain information with signs and all the usual bells and whistles attached to it being incorrect, and you make that information available for people to access, then the analysis will commence; and if there is more information needed about one aspect of it, it will be pressure we brought to bear. But we are nowhere near that right now.

Senator FIERRAVANTI-WELLS —If I understand correctly, your complaint is twofold; firstly, it goes to the nature of information that is sought and, secondly, to the lack of analysis of it?

Prof. Morrison —Firstly, we are not complaining; we are suggesting in response to the inquiry. The second thing to appreciate is that we would be happy at this stage just knowing the information that is being submitted—for that to be made available. Thirdly, if we got really desperate we would say that we would be happy for that information to be made available to a select group of independent researchers who would then feed that back to the government before making it public, if it is that sensitive.

Senator FIERRAVANTI-WELLS —You make a series of recommendations, one of which is to look at the process of reporting complaints and how those complaints are dealt with. Could you elaborate on that?

Prof. Anderson —What appears to happen now with the complaints system, as we understand it, is that it all has to be channelled through ASIC. ASIC will then investigate, and if they choose to, they bring the matter before the CALDB. We felt that perhaps there may be a way of short circuiting that in a sense if there were the potential for someone like the ITSA—and I know they have a view about this and the limited resources they have—to make a complaint directly to the CALDB. It just seems to us that there is a fairly slow process now where there might be a bit of action in relation to a particular practitioner; it takes a while for that to build up into something, then a complaint is made to the ITSA and they look at matters little. Then, perhaps, someone makes a complaint to ASIC—it just seems to be a very long winded process at the moment. I really think we should be looking at ways of bringing those complaints before the board a little more quickly than they happen now.

Senator FIERRAVANTI-WELLS —I want to ask a couple more questions. You say that you strongly argue for the development of a registering authority for all insolvency practitioners, separate from ASIC. In other words, you are saying one body for both—

Prof. Anderson —Essentially, what we argue is that the people who are registered as trustees and the people who are registered as liquidators are generally the same people. Why aren’t they being registered by the same body? When you look at the requirements for registration in the two areas they are almost identical, and yet, as David says, for historical reasons we have divided them up into two separate registration bodies. It seems to me that if a person was not performing as a registered liquidator then there is probably a good reason for them to be struck off as registered trustees as well. As I said there is no real connection between those two at the moment.

Prof. Morrison —That is exactly how I feel.

CHAIR —Thank you very much gentlemen for appearing tonight. That concludes this segment.

Senator FIERRAVANTI-WELLS —I must say, it is appropriate that we are talking liquidators this evening when there are other liquidations happening elsewhere!

CHAIR —So it would appear, yes. An historic evening.

[8.58 pm]