It is noted that when a company goes into liquidation with few or no assets, a liquidator often performs only a perfunctory investigation, which may result in a failed company not being fully investigated to a deeper level that a creditor or stakeholder wishes. This can happen when a failed company has insufficient realisable assets to enable a liquidator to carry out full investigations into the circumstances of insolvency of a company or prepare reports for ASIC.
Consequently, ASIC and the creditors may not be properly informed of possible offences or other misconduct by company officers. As such, actions may not be able to be undertaken to recover assets for the benefits of creditors or where company officers have breached their duties.
In such circumstances, a liquidator in a creditors’ voluntary winding up or a court-ordered winding up can apply for assistance from the Assetless Administration Fund (“AAF”), which was established by the Australian Government in October 2005 and finances preliminary investigations and reports by liquidators into the failure of companies with few or no assets.
It aims to:-
- Curb fraudulent or illegal phoenix activity;
- Help close the regulatory gap that arises when a failed company is not properly investigated; and
- Help a liquidator to take actions to recover assets where fraudulent or unlawful phoenix activity is suspected.
Types of matters funded
As per Regulatory Guide 109 Asset Administration Fund: Funding criteria and guideline ASIC will consider funding the liquidator from the AAF for the following circumstances:-
1. S206F director banning proceedings may be appropriate;
A liquidator in these circumstances needs to lodge an initial S533 Report and then apply for funding. If the application is successful, a liquidator will conduct an investigation and prepare the supplementary S533 Report.
2. Court proceedings for serious misconduct under the Corporations Act may be warranted, including matters such as breaches of directors’ and officers’ duties, insolvent trading, and concealment, misappropriation or removal of company property.
A liquidator in these circumstances needs to lodge an initial S533 Report and then apply for funding. The liquidator may meet with ASIC to discuss the funding application in detail. If the application is successful, the liquidator will commence investigations and prepare the supplementary S533 Report.
3. Fund a liquidator to commence an action against a company or a company officer to try to recover assets where fraudulent or unlawful phoenix activity is suspected.
A liquidator in these circumstances needs to lodge an initial S533 Report and then apply for funding. The Liquidator may meet with ASIC to discuss the funding application in detail. If the application is successful, a liquidator will commence actions to recover assets and then provide agreed progress reports to ASIC.