The office of Director is becoming more closely scrutinised by the Australian Securities and Investment Commission (ASIC), with ASIC now having a number of programs to monitor possible breaches of directors' duties, particularly in relation to insolvency related offences.
National Insolvency Program
Since July 2003, ASIC has established a program of reviewing companies which may be potentially insolvent. The program undertakes surveillance of companies which demonstrate signs of insolvency or potential insolvency, based upon complaints made by the public, such as credit providers and employees, listed company reports and liquidator's reports.
ASIC reports that since the inception of the program they have undertaken nearly 2,000 surveillance visits of companies which may have had potential insolvency or liquidity issues1. ASIC also notes that the purpose of its national insolvency program is to reduce insolvent trading, and to encourage directors of financially troubled companies to act properly and in the interest of creditors.
As a consequence of its program, ASIC reports that over 200 companies, which were investigated, have been placed in some form of external administration, either voluntarily or upon application by ASIC2.
Liquidator Assistance Program
Another initiative by ASIC to investigate and pursue possible breaches by directors has been the instigation of the Liquidator Assistance Program. This means ASIC provides assistance to liquidators to investigate possible breaches by directors and to pursue prosecutions for director related offences.
Since the inception of the liquidator assistance program, ASIC has instigated action against directors which has resulted in a total of in excess of 2,000 company officers being prosecuted from 2002 to date3.
Assetless Administration Fund
Another initiative to examine director conduct has been the establishment of a $23 million fund in February 2006.This is for the purpose of having liquidators undertake further investigations into the conduct of directors of companies which have been wound up and where there may be insufficient funds for a detailed investigation to be carried out.
Investigations are specifically focused on directors of multiple failed companies, whomay be subject to banning orders, insolvent trading and other contraventions of the Corporations Act. Since the inception of the Assetless Administration Program, ASIC has funded 170 matters to be investigated, resulting in banning orders against 35 directors.4
These initiatives implemented by ASIC are designed to protect the interest of creditors and other stakeholders dealing with a company. However it also places directors on notice to be vigilant, particularly in relation to insolvent trading and it should also encourage directors to seek expert financial advice to ensure they are complying with their responsibilities.
1From 1 July 2003 to 28 February 2007
2From 1 July 2003 to 28 February 2007
3From 1 July 2002 to 28 February 2007
4From 24 February 2006 to 28 February 2007
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