It has recently been reported (see ASIC website) that Melbourne liquidator Paul Pattison has voluntarily resigned as a liquidator or administrator to over 80 companies as he is himself insolvent. He has given an undertaking that he will not accept further appointments until he can produce evidence that demonstrates that he has the practice and financial capacity to carry out duties as a liquidator. His actions were precipitated by ASIC investigations of his practice. No findings of impropriety of Pattison’s conduct as a liquidator were made.
It seems that there is a lacuna in the present law on cancellation of registration of insolvency practitioners leading to stronger calls for change to the overall registration system. These will not subside given ASIC’s reported increased surveillance of IPs. The Senate Report from last year recommended in Recommendation 5 and 6 that there be a licensing system introduced that provides a license for 3 years. There would be a fee for such license and surveillance of compulsory insurance cover. Furthermore, there would be power to suspend the IP if they had a matter referred to CALDB or they had no adequate insurance cover.
The existing provisions in the Corporations Act requires ASIC to grant an application for registration if the applicant holds certain accounting type qualifications, has experience and if ASIC is satisfied that the applicant is a fit and proper person to be registered. The registration will continue until the registered person requests it to stop or CALDB cancels or suspends based on contravention of lodging annual statements, residency, a failure to carry out duties adequately and properly, or in their opinion the liquidator is not a fit and proper person.
It has been reported in Business Day (9 Feburary) that Pattison has been operating insolvent for last 3 years and owes in excess of $4m. The causes of his financial difficulties are similar to any other small business namely ‘lack of cash flow, high overheads, insufficient working capital and poor strategic management’. Perhaps there is difficulty in running small insolvency practices. This raises the question of how is ASIC to know the financial position of all 700 liquidators. Their surveillance activities and reviews are pitched at the compliance and independence of files not the financial stability of the practitioner. It is too much to expect ASIC to require or conduct a solvency test on each IP, but maybe the idea of a bond as a precondition of licensing, and in the UK, would be worth exploring.
Comment has been made that Pattison has handed in the towel but with no penalty. What should be kept in mind is that such an outcome means less expense for ASIC than pursuing him through CALDB or the Courts. Hypothetically if his insolvency leads to his bankruptcy he will not have penal consequences. At this point his penalty is simply that he can no longer carry out the corporate insolvency work.
It is interesting to observe that ASIC had two pathways to choose, they could have taken Pattison to CALDB (s1292(2) for a suspension) yet for efficiency they presumedly used s536(1), which provides a power to inquire into a liquidator’s actions and subsequently the court can take such action as it thinks fit. Had Pattison become insolvent under administration ASIC could have directly cancelled his registration under s1290A.
Pattison was a member of the IPA and it has been reported in Business Day that the IPA is investigating the matter on disciplinary grounds. A negative finding against Pattison such as his cancellation of membership will not prohibit him from registration as there is no express requirement in s1282(2) for applicants for registration to hold membership of any professional body.
The Financial Review (Mon Apr 4, 2011) reports one opinion that opening up the insolvency profession from its ‘accountants club’ to lawyers and others in business would achieve genuine competition and see ‘these issues fall away’. This is highly debatable given the addition of more IP would surely mean more practices would suffer financial problems and IPs would have even greater pressure placed upon them. It is salient to remember that it was only a few years ago that the Law Council surveyed members on the question of whether lawyers would seek to become registered liquidators and the results where underwhelming.
During the Senate Enquiry criticism of CALDB in its non-audit role gained momentum. If the Pattison court approach has worked efficiently then perhaps it is time to remove CALDB altogether from the role of cancellation and suspension of registration of liquidators.