ASIC’s Senior Executive Leader of the Insolvency Practitioners team, Adrian Brown, said that despite a decrease in external administration appointments in May compared to the same time last year, these latest figures show the number of court liquidations and director initiated creditors voluntary liquidations have risen.

‘Statistics collated by ASIC up to and including May 2011, show court liquidations in Australia rose 8.6% and director initiated creditors voluntary liquidations rose 7.6%.

Western Australia is also seeing its fair share of corporate insolvencies, despite suggestions that it’s in the fast lane of a two speed economy,’ Mr Brown said.

‘Interestingly, receivership and voluntary administration appointments, Australia-wide, have fallen,’ Mr Brown added.

ASIC publishes monthly insolvency statistics detailing the number and type of corporate insolvency appointments. External administrators, (liquidators, receivers and managers and voluntary administrators) are obliged by law to advise ASIC of their appointments.

Further analysis of data received by ASIC appears below.

More information on ASIC’s insolvency statistics

Analysis by state – Financial year to date

For the 11 month period to May 2011, there have been 8,802 external administrations (EXADs) – a rise of 4.4% on the 8,433 EXADs for the same period last financial year. The table below provides a breakdown by State:

Companies entering into external administration

NB: ASIC notes that percentage changes in smaller states can be unduly influenced by a relatively small number of appointments

Victoria (+9.8%), South Australia (+13.2%), Western Australia (+20.7%) and Northern Territory (+55.0%) have also recorded an increase over the 11 month period compared to last year.

Queensland (-.04%) and New South Wales (+.09%) have been relatively stable over the same period while Tasmania (-6.6%) and ACT (-12.4%) experienced a decline in EXADs.

Analysis by appointment type – Financial year to date*

Companies entering external administration

(1) includes Provisional liquidations

(2) includes Receivers, Receivers & Managers, Controllers and Managing Controllers

*excludes Scheme Administrator and Foreign/RAB wind-ups

*excludes Members Voluntary Liquidation appointments as these relate to solvent entities

]]> http://www.liquidationdirect.com.au/blog/general/corporate-insolvencies-on-the-rise-asic/feed/ 0 http://www.liquidationdirect.com.au/blog/general/asic-wins-case-against-centro-directors/ http://www.liquidationdirect.com.au/blog/general/asic-wins-case-against-centro-directors/#comments Thu, 30 Jun 2011 06:01:25 +0000 http://www.liquidationdirect.com.au/blog/?p=1383 Continue reading →]]> Update A Federal Court judge has strongly warned the corporate regulator to ‘‘consider carefully’’ what it does with a decision handed down this morning that found directors of the Centro property group breached their duties when they failed to notice multi-billion dollar errors in the property group’s accounts.

Justice John Middleton said that in the reasons for his decision, which runs to 186 pages, he found the directors were ‘‘intelligent, experienced and conscientious’’ and that they relied on extensive advice and processes before approving erroneous financial statements in 2007.

He also said that ‘‘there is no suggestion that the directors were dishonest’’.

The Australian Securities and Investments Commission will make submissions about penalties on August 1. The corporate regulator could ask the court to ban the directors from managing or serving as directors, financial penalties, or ask for simple declarations.

Outside the court, a spokesman for the six non-executive directors said they were ‘‘disappointed’’ with the decision and would review the detail of the reasons.

Former chief executive, Andrew Scott, declined to comment. Centro’s former chief financial officer, Romano Nenna, was not in court. He has already made certain admissions about ASIC’s allegations.
Duties breached

Justice Middleton this morning found the directors breached their duties when they approved financial statements for 2006-07 which did not disclose that Centro was required to repay billions of dollars of debt within a matter of months.

The judge read 23 paragraphs of his decision in court today. He said the case was ‘‘not about a mere technical oversight’’ but that it went to the heart of whether directors of substantial publicly listed companies must ‘‘apply their minds’’ to their review of financial statements and the directors’ report in order to determine in the information is consistent with what they know and that it does not omit material matters.

‘‘The significant matters not disclosed [the short-term debt and post-balance date guarantees entered into by Centro] were well known to the directors, or if not well known to them, were matters that should have been well known to them,’’ the judge said.

He said considering the significance of the matters that they knew ‘‘they could not have, nor should they have, certified the truth and fairness of the financial statements …’’

‘‘If they had understood and applied their minds to the financial statements and recognised the importance of their task, each director would have questioned each of the matters not disclosed,’’ Justice Middleton said in his decisions.

‘‘Each director, in reviewing financial statements, needed to enquire further into the matters revealed by those statements.’’

He said what was required of directors was they read, understand and focus on the documents they approve ‘‘with the knowledge each director has or should have by virtue of his or her position as a director’’.

‘‘I do not consider this requirement overburdens a director, or as argued before me, was cause the boardrooms of Australia to empty overnight.’’

‘‘Directors are generally well remunerated and hold positions of prestige, and the office of director will continue to attract competent, diligence [sic] and intelligent people.’’

ASIC will hold a press conference in Sydney responding to the decision.
Centro Property Group shares, meanwhile, lost 0.3 of a cent, or 7.5 per cent, to 3.7 cents in recent trading, valuing the company at just $36 million. Centro Property shares peaked at just over $10 each in May 2007.

Possible bans
Eight of Centro’s current and former directors face possible bans and financial penalties following Justice Middleton’s findings. ASIC had claimed that the Centro directors fell short of the minimum standard of care expected from boardroom participants.

Centro directors, however, argued that while a mistake was made on their watch, they were entitled to rely on the specialist knowledge and advice provided by Centro’s accounting managers and by its auditors, PricewaterhouseCoopers.

They had claimed the regulator is trying to impose an impossibly high standard of perfection, one that would require every director to acquire a finely tuned knowledge of accounting standards and to understand how changes to those standards might affect figures in company accounts.

Centro directors in late 2007 approved financial statements that indicated the company had no short-term debt, when in fact it needed to repay billions of dollars of debt within 12 months, including a $1.1 billion J.P. Morgan facility by December.

$1.1 billion misinterpretation
The $1.1 billion error apparently arose because an accounting standard for short-term debt had been wrongly interpreted. The error was detected after the publication of unaudited preliminary accounts in August, but the court heard it was not brought to the attention of directors before they approved the final version of the accounts in September.

ASIC was suing Centro’s former chief executive, Andrew Scott; its former chairman, Brian Healey; current chairman, Paul Cooper; the former head of the audit committee, Sam Kavourakis; current non-executive director, Jim Hall; and former non-executive directors, Peter Wilkinson and Graham Goldie.

Centro’s former finance director, Romano Nenna, has already admitted some of ASIC’s allegations.
During a trial in April and May, the directors claimed they did all that could reasonably be expected.
The court heard some of the directors did not read the final version of the financial statements or that they did not examine them in detail.

It also heard that Centro’s final statements went through numerous changes.

In final submissions during May, counsel for ASIC, Mark Derham, QC, told the court the regulator expected a level of ”financial literacy” of directors, but not a working knowledge of accounting standards.

The 2006-07 accounts also did not disclose that Centro, after June 30, had guaranteed about $1.75 billion of US dollar liabilities for an associated US company.

When the share market in late 2007 learnt Centro was having difficulties refinancing its bank debt, the company’s share price plunged. It was not until early 2008 that Centro revealed it had understated its short-term liabilities by about $3 billion.

Justice Middleton will later preside over a directions hearing for two class actions in which investors are suing Centro for losses incurred as a result of the failure to properly disclose the debts. The class actions are not due for trial until March 2012.

Sydney Morning Herald - Leonie Wood

June 27, 2011

ASIC has also cancelled the Australian credit licence (credit licence) issued to Australian Lending & Finance Corporation Pty Ltd (ALFC), of which Mr Mordechai, 55, was formerly a director, on the grounds that its credit licence application was false or misleading.

Under the National Consumer Credit Protection Act 2009, the licence application process requires corporations to nominate a responsible person for the purpose of determining whether the corporation is competent to engage in credit activities. The responsible person nominated in ALFC’s licence application was ‘John Frederick Kennedy’, which was in fact an alias used by Mr Mordechai.

ALFC’s credit licence application stated that ‘Mr Kennedy’ had not within the last 10 years:

• been convicted of a criminal offence;
• been insolvent; or
• been known by any other name.

ASIC determined that the above statements were false.

In particular, Mr Mordechai had been convicted in 2007 and 2008 of numerous fraud offences, including possessing and using false credit and debit cards and false identification documents. He had also been declared bankrupt in 2006 under the alias ‘Jamal Almostafa’.

Mr Mordechai and ALFC have the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decisions.

Mr Kennedy, 44, appeared in the Brisbane Magistrates’ Court on Friday 18 March on 11 counts laid by ASIC of dishonestly obtaining a benefit of $728,000 under section 408C(1)(d) of the Criminal Code (Qld) and one count of carrying on an unlicensed financial services business.

Mr Kennedy did not enter a plea. The alternative 11 charges under the Corporations Act 2001 of dishonest conduct involving a financial service or product were not dealt with at this time.

ASIC alleges that First Foundation Developments Limited and Mr Kennedy offered securities in an unregistered managed investment scheme between October 2002 and April 2003. At the time, the scheme raised approximately $2.2 million from members of the public to allegedly finance various Gold Coast property developments.

Mr Kennedy has been in custody in Australia since his extradition from the United States of America (USA) in December 2010. He did not apply for bail. The matter will return to court on a date to be fixed.

Mr Kennedy had been incarcerated in the USA for fraud on an unrelated matter since July 2005. He completed that sentence on 24 November 2010 and remained in custody in the USA pending handover to Australian authorities.

Following Mr Pattison’s voluntary resignation, ASIC yesterday obtained orders by consent in the Supreme Court of Victoria appointing new liquidators or deed administrators to 80 companies which were formerly administered by him.

Mr Pattison resigned as liquidator or deed administrator of those companies and gave an undertaking that he would cease to carry out, consent to, or otherwise accept appointment as a liquidator, provisional liquidator, voluntary administrator, administrator of a deed of company arrangement or controller, until he produces evidence in a form acceptable to ASIC or to the Court which demonstrates he has the practice and financial capacity to adequately and properly carry out his duties as a liquidator.

Yesterday’s consent orders follow the commencement of ASIC’s action against Mr Pattison and Pattison Business Recovery & Insolvency Specialists Pty Ltd (PBRIS) in the Supreme Court of Victoria. On 7 February 2011, ASIC asked the Supreme Court to begin an inquiry into Mr Pattison’s conduct and his capacity to adequately and properly perform his duties as a liquidator. Upon making the orders by consent, the Court ordered that these proceedings be otherwise dismissed. No findings of impropriety as to the conduct of Mr Pattison as a liquidator were made.

ASIC’s investigation into the conduct and affairs of Mr Pattison, PBRIS and his former company, Pattison Consulting Pty Ltd, is continuing. ASIC will make no further comment on the investigation at this time.

Mr Pattison owes about $2.5 million to Bankwest and at least $1.5 million to the Tax Office for unpaid business tax, interest and penalties incurred in his practice, which until April traded as Pattison Consulting.

Mr Pattison still operates as a bankruptcy trustee and liquidator through his new practice, Pattison Business Reconstruction and Insolvency Services, and he controls at least 100 files on company insolvencies and hundreds more on personal bankruptcies.

But the Australian Securities and Investments Commission’s court move precipitated an urgent meeting yesterday of the board of the professional body governing liquidators, the Insolvency Practitioners Association of Australia (IPA), which immediately suspended Mr Pattison’s membership and began its own disciplinary proceedings against him.

Mr Pattison’s circumstances have underscored concerns about disciplinary procedures within the insolvency industry and refocused attention on a profession still reeling from allegations about rogue practitioners and adverse findings last year by a Senate inquiry.

One experienced practitioner said it ”beggars belief” that a liquidator could go broke and yet continue to practice.

The liquidator in charge of Pattison Consulting believes the practice may have traded while insolvent for almost three years.

Mr Pattison’s employees are claiming hundreds of thousands of dollars in unpaid wages, accrued leave and outstanding superannuation entitlements, and a further $105,000 is owed to an associated company, Pattison (Australia) Pty Ltd, which is also in liquidation.

ASIC is investigating Mr Pattison for possible breaches of sections 180, 181, 183 of the Corporations Act, which relate to fiduciary duties, 596AB regarding avoidance of employee entitlements, and 588G, which is the requirement not to trade while insolvent.

Under the Corporations Act, ASIC has two routes for disciplinary action: it can refer matters to the Companies Auditors and Liquidators Board; or it can apply directly to the Supreme Court.

ASIC wants the court to order Mr Pattison to stop practising until he can show he has the capacity to ”adequately and properly carry out his duties as a liquidator”. It also wants arrangements made for his current files to be distributed among other liquidators, and for a receiver to be appointed to his new PBRIS practice.

Neither Mr Pattison nor his lawyer returned calls or emails yesterday. ASIC declined to comment.

IPA president Mark Robinson said the IPA had been investigating Mr Pattison since November.

Mr Pattison has been a registered liquidator since 1984 and an official liquidator of the Federal Court and the Victorian Supreme Court for almost 20 years.

Pattison Consulting was put into what is known as a member’s voluntary liquidation in April 2010 on the understanding that it would repay its debts within 12 months.

Mr Pattison and Pattison Consulting’s then liquidator, Stirling Horne of Lawler Draper Dillon, agreed Mr Pattison could transfer all the insolvency and bankruptcy files of the old business to his new firm, allowing him to generate income to repay creditors.

But after Mr Pattison failed to remit any sums to Mr Horne by October, Bankwest appointed receivers and Mr Horne moved to appoint a new administrator, Peter Vince of Vince & Associates. Both Bankwest and Mr Vince opposed Mr Pattison’s plan for a deed of company arrangement, and creditors voted in early December to liquidate his firm.

Mr Vince told creditors the firm suffered from a lack of cash flow, high overheads, insufficient working capital and ”poor strategic management”, and that it may have been insolvent since May 2007.

Some insolvency specialists suggested that Mr Pattison, widely recognised as one of the more aggressive and litigious practitioners of the past two decades, had failed to adjust his business to suit the tough conditions experienced in the insolvency industry.

Insolvency specialists claim their operating margins have tightened in the past few years, in part because the financial crisis curbed lending and because banks in the past two decades have adopted more rigorous internal controls over problem loans. That means the small businesses that do tip into administration or liquidation tend to generate only slim returns.

The Senate inquiry last year recommended the responsibilities for supervising and disciplining liquidators and trustees, which now reside with ASIC, be transferred to Insolvency and Trustee Service Australia so as to form the Australian Insolvency Practitioners Authority.

IPA chief executive Denise North said the professional body was ”committed to maintaining the highest standards of conduct in the profession”.

Chartwell collapsed in April 2008, owing investors more than $60 million.

Mr Hoy, of Melbourne, Victoria, pleaded guilty to deception charges totalling in excess of $21.7 million in the Supreme Court of Victoria. Specific charge details are as follows:

Obtaining a financial advantage by deception (34 counts)

These charges relate to Mr Hoy dishonestly obtaining over $13.3 million from investors, in part on the basis of false representations made to them as to how their money would be used. Mr Hoy also pleaded guilty to obtaining in excess of $5.8 million on behalf of Black Swan Holdings Pty Ltd from the Commonwealth Bank of Australia based on false financial statements provided by Mr Hoy, also a director of Black Swan Holdings.

Obtaining property by deception (10 Counts)

These charges relate to Mr Hoy obtaining over $2.5 million from investors, in part, on the basis of false representations made to investors as to how their money would be used.

Dishonest use of position as a director (1 count)

This charge relates to Mr Hoy dishonestly using his position as a director of Chartwell to gain an advantage for Black Swan Holdings by executing a guarantee on behalf of Chartwell regarding an equipment loan between CBFC Ltd and Black Swan Holdings to purchase a yacht valued at approximately $6.9 million.

Carrying on a financial services business without a licence (1 count)

This charge relates to Mr Hoy aiding or abetting Chartwell in the carrying of a financial services business without an Australian financial services licence as required under the Corporations Act.

Engaging in dishonest conduct in carrying on a financial services business (1 count)

This charge relates to Mr Hoy aiding or abetting Chartwell to engage in dishonest conduct by providing false information to investors in relation to:

1. The reasons for delay in payment of interest payments
2. The security of their investments
3. The financial status of Chartwell and its prospects for future success.

My Hoy was bailed to appear in the Supreme Court sitting at Geelong on 25 January 2011 for further mention.

Background

On 19 August 2010, former Chartwell secretary, Mr Ian Rau was sentenced to two years and seven months imprisonment after pleading guilty to eight charges arising from ASIC’s investigation

Mr Patrick pleaded guilty in the Melbourne Magistrate Court to one charge of carrying on a financial services business without holding an Australian financial services (AFS) license and three charges of managing a corporation while disqualified.

ASIC found that between 1 August 2003 and 31 December 2006 Mr Patrick induced approximately 40 investors to invest in 3 property development schemes. E.K.B Properties raised approximately $4 million, Sandgrove Specialised Securities Ltd raised approximately $1.5 million and Cardinia Specialised Securities Ltd raised approximately $1 million.

None of the investors have been repaid.

The Commonwealth Director Public Prosecutions prosecuted the matter.

Background

In February 2007, following an ASIC application, the Federal Court appointed Simon Wallace-Smith and Timothy Bryce Norman of Deloitte as liquidators the entities controlled and/or managed by Mr Patrick and Mr Karl Heinz Veljkovic, of Beaconsfield, Victoria, , E.K.B Properties Pty Ltd, Sandgrove Specialised Securities Ltd and Cardinia Specialised Securities Ltd (refer MR07-29).

Mr Veljkovic and Mr Patrick also consented to Federal Court orders banning them from: carrying on a financial services business; parting with any funds that have come into his possession by issuing, selling or offering a financial product; and
managing corporations for a period of 20 years.

ASIC also announced that it will commence legal proceedings against parties, including Commonwealth Bank of Australia Limited (CBA), Bank of Queensland Limited (BoQ) and Macquarie Bank Limited (MBL) seeking compensation for investors arising out of the collapse of Storm. The compensation proceedings will not be filed immediately, in order to allow a short further period (no more than three weeks) for the commercial resolution discussions to continue.

ASIC’s Chairman, Tony D’Aloisio, said, ‘We have not, to date, been able to reach an acceptable commercial resolution with key parties on compensation which ASIC was prepared to recommend to investors. In the circumstances, it was not possible for ASIC to continue to defer the decision to commence legal proceedings. However, ASIC remains of the view that a commercial resolution is the preferable course.’

He went on to say, ‘The compensation actions we have decided to bring are complex, but we consider that it is in the public interest for ASIC to assist retail investors by bringing these actions. In addition to seeking compensation for investors, ASIC is pursuing regulatory outcomes in relation to those who implemented the Storm Model.’

Civil penalty proceedings against the Cassimatises

ASIC will allege that the Cassimatises breached their duty as directors by causing and permitting Storm to be exposed to legal liability arising from the implementation of a financial services business model (Storm Model) which involved providing commoditised financial advice to investors that failed to take into account the personal circumstances of individual investors.

The relief to be sought by ASIC will include orders that the Cassimatises each pay substantial pecuniary penalties which can be imposed in respect to each breach of duty, and that they be disqualified from managing corporations and be restrained from providing financial services.

Compensation proceedings against BoQ, Senrac and MBL

ASIC has decided that it will commence proceedings against BoQ, the owner and franchisee of the BoQ’s North Ward branch (Senrac Pty Limited (Senrac)) and MBL. The proceedings are proposed to be brought by ASIC in its own name and on behalf of two former Storm investors. ASIC will allege primary causes of action against BoQ and MBL based on:

• breach of contract (breach of Banking Codes of Practice);
• contravention of the statutory prohibitions against unconscionable conduct; and
• liability as linked credit providers of Storm under section 73 of the Trade Practices Act 1974.

The case against Senrac is based on its involvement in BoQ’s alleged contraventions.

ASIC will seek relief which includes declarations of unconscionable conduct, statutory and common law damages and compensation orders, and orders setting aside various loan transactions and securities.

Proceedings against CBA, BoQ and MBL – unregistered managed investment scheme

ASIC will allege that the conduct of the Storm Model amounted to the operation of a managed investment scheme that was required to be registered under the Corporations Act and was not registered. It will be alleged that CBA, BoQ and MBL participated in the operation of that scheme.

ASIC proposes to adopt a staged approach to proceedings in relation to the alleged scheme. ASIC will initially seek relief including declarations as to the existence of the scheme and the parties who participated in its operation.

If successful, ASIC will thereafter seek orders for the payment of compensation to investors to place them in the position that they would have been in now had they not invested in the Storm scheme (the ‘no transaction’ case for compensation).

Timing of ASIC proceedings and future of confidential commercial resolution

As the Commission decisions have been made to commence proceedings, ASIC will now move to complete the processes leading to filing and service of the legal proceedings. However, the proceedings will not be filed immediately to allow a short further period to test whether the commercial resolution discussions can achieve an acceptable outcome.

Mr D’Aloisio went on to say, ‘The commercial resolution discussions have been conducted in good faith by all participants in those discussions. Given the age and financial means of many investors involved in the Storm Model, a speedy commercial resolution should be what ASIC and all involved should continue to seek to achieve’.

Other proceedings against other parties

ASIC’s enquiries with respect to whether parties other than BoQ, CBA and MBL also participated in the operation of any unregistered managed investment schemes continues, as does ASIC’s work in connection with other investigations into the collapse of Storm, preparation of further potential legal proceedings and possible administrative action against former Storm advisers.

Mr Finnigan, 48, appeared at Sydney’s Downing Centre Local Court earlier today over ASIC allegations he dishonestly raised money from nine investors through three companies under his control between January 2003 and July 2006.

ASIC alleges that Mr Finnigan raised funds from investors through Financial Partners Pty Ltd, Venture Capital Management Pty Ltd and Biotech Solutions Pty Ltd after advising them that he would invest their money in shares, options, managed funds and property for returns of between 8 and 15 per cent. According to ASIC, Mr Finnigan then deposited the money into bank accounts he controlled and used the funds for the three companies and his own personal use.

ASIC estimates each investor lost between $120,000 and $500,000. All three companies are now under external administration. ASIC’s investigations in this matter were assisted by liquidators’ reports funded under the Assetless Administration Fund.

Mr Finnigan faces a maximum penalty of five years’ imprisonment, a $220,000 fine, or both, in relation to each charge.

Mr Finnigan was granted bail subject to a number of conditions including that he surrender his passports to ASIC. The matter returns to court on 14 December 2010.

The Commonwealth Director of Public Prosecutions is prosecuting the matter.