ASIC's Administration of Enforceable Undertakings - Audit Report tabled

In response to a request from the ANAO on ASIC’s use of enforceable undertakings in insolvency, including by reference to particular cases involving the CALDB, ARITA made a detailed submission on 26 September 2014.

The ANAO’s report has been released finding that, in general, ASIC has effectively administered the EUs it has negotiated and accepted. The report makes no comment about the issues raised by ARITA

ARITA's concerns

In particular ARITA has had concerns with some undertakings obtained against liquidators in relation to their inability to comply with the undertaking – for example that the liquidator undertake specific continuing professional education training which in fact is not available. This has occurred in a number of cases.

Our main concern however was that liquidators might enter any such undertakings without the benefit of legal or external advice; an issue also raised and discussed with the Law Council of Australia. 

In that respect, ARITA said we would have assumed that ASIC ensures that liquidators are made aware of their right to be properly represented – legally or otherwise - when enforceable undertakings are entered into.  However, in ASIC’s RG 100 – Enforceable Undertakings – in which ASIC explains its approach to these undertakings, there is no mention of the need for ASIC to ensure that the liquidator is advised that they can seek legal or other assistance.  Indeed, the RG is simply directed at what ASIC requires of the person giving the undertaking.  ARITA notes that ASIC has Commonwealth model litigant responsibilities.

ARITA members who find themselves in circumstance where such undertakings are proposed might like to have regard to the issues we raised in our submission. 

CALDB

Our submission did note that the CALDB is proposed to be abolished, under the Insolvency Law Reform Bill 2014, and replaced by a quicker liquidator discipline process similar to that now available in bankruptcy.  As ARITA explained in the submission, enforceable undertakings are not part of that bankruptcy process. That reform, if it occurs, may address some of the issues ARITA raised. 

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The Australian National Audit Office has been conducting a review of how ASIC administers "enforceable undertakings", these being a remedy available to ASIC for breaches of the legislation for which ASIC is responsible, including the Corporations Act and the ASIC Act.

Such an undertaking is an administrative settlement that ASIC may accept, and enforce, as an alternative to civil court action or certain other administrative actions, including actions before the CALDB.

ARITA gave submissions to the ANAO about ASIC’s use of such undertakings in disciplinary proceedings as, we are aware, the Law Council of Australia.

According to the ANAO, it is due to table its report in parliament in the winter sittings of this year. 

In the meantime, ASIC has updated its Regulatory Guide 100 Enforceable undertakings (RG 100) by including guidance about independent experts and publicity for enforceable undertakings.