This company has been in voluntary administration since late last year. Prior to its going into administration, the ACCC launched proceedings against it regarding its disclosure in relation to its erectile dysfunction products. Those proceedings are ongoing.

Last week the ACCC obtained an interim injunction ordering the administrators to disclose that the company is in voluntary administration to those dealing with the, and that it should disclose that fact and their belief in its insolvent state when dealing with members of the public who are interested in the company’s product. Furthermore, over the next two weeks it must contact all those with whom it did business since the administration began, and inform them of the VA, and must put a prominent indication on its webpage of the fact of its insolvent status.(See the Press Release from ACCC set out below). The ACCC is concerned that customers will be lured into doing business with the company notwithstanding that, after the second creditors meeting in late July, the company might not be able to fulfil its obligations under those contracts, unless it is rescued through a DOCA.

As the press release states, this shows that just because a company is in administration, it does not mean it is not governed by trade practices law. But what the statement doesn’t discuss is an administrator’s obligation under insolvency legislation.

We refer to the section in Part 5.3A below, which requires a company in administration to state that fact on certain ‘public documents’. The latter is further defined in the Corporations Act. The section and the requirement is well-known as one of the first things to address on appointment as an administrator.

The company’s website is currently advertised on TV . A thorough search of the company’s website (www.amiaustrralia.com.au) , this weekend revealed that the fact that the company was in voluntary administration was mentioned in passing, tucked away half way down the narrative on the home page about its products rather than about its finances or corporate governance, and there was nowhere else on the company’s website that would suggest any formal insolvency was taking place in the Australian companies. The ACCC injunction will presumably bring about a change in that regard, as it orders the company to make the administration prominent on the website by the end of this week.

Here is the text from Part 5.3A and the relevant Corporations Act definition of ‘public document’:
“450E Notice in public documents etc. of company
(1) A company under administration must set out, in every public document, and in every negotiable instrument, of the company, after the company’s name where it first appears, the expression (“administrator appointed”).
88A Public document of a body corporate
(1) Subject to this section, public document, in relation to a body, means:
(a) an instrument of, or purporting to be signed, issued or published by or on behalf of, the body that:
(i) when signed, issued or published, is intended to be lodged or is required by or under this Act or the ASIC Act to be lodged; or
(ii) is signed, issued or published under or for the purposes of this Act, the ASIC Act or any other Australian law; or
(b) an instrument of, or purporting to be signed or issued by or on behalf of, the body that is signed or issued in the course of, or for the purposes of, a particular transaction or dealing; or
(c) without limiting paragraph (a) or (b), a business letter, statement of account, invoice, receipt, order for goods, order for services or official notice of, or purporting to be signed or issued by or on behalf of, the body.”

Breach of this provision is a strict liability offence. Unlike the equivalent provision in subsection (2) for Deeds of Company Arrangement, there is no ability for applications to the court for leave to dis-apply the provision. Thus, administrators are bound to apply it s450E in all VAs, on pain of committing an offence.

These days, a company’s website is the place most people go to, particularly, one might think, one might be directed to it if it is advertising erectile dysfunction products. One could argue, as a legal technicality, about whether or not a website is an ‘official notice’, but it is the public face of a company these days, so just as official as any other notice.

If it is not the case that this provision applies to a website, then it should be, because the need for the ACCC to obtain interim injunctions against the administrators shows that whilst a voluntary administration procedure might be regarded as ‘business as usual’ where the business is continuing, there is grave potential for misleading creditors and would-be creditors if the insolvent status of the company is not disclosed by the administrators. Whatever the legal technicalities, it seems outside the spirit of the above provisions for it not to apply to a company’s website, given the prevalence of websites as sources of information about corporate and marketing aspects of companies.

Why did the ACCC have to act on this? Isn’t ASIC supposed to regulate administrators’ compliance with their obligations? Did the two organisations talk to each other? One hopes so. Members of the Insolvency Practitioners Association, which covers at least 80% of IPs, are bound by its Code of Professional Practice. There are several aspects of the Code concerned with communication, and openness, but perhaps the most useful statement here is that ‘Practitioners have extensive powers and privileges and have commensurate duties and obligations. The cost of compliance is real, but the potential impact of non-compliance on public confidence is unacceptable for the provision and the insolvency regime’.

In the light of the recent Senate Inquiry into Liquidators and Administrators, and the Government discussion document released last week setting out possible options for tightening regulation of this sector, it certainly is not a good look when another government agency has to get involved in regulating administrators’ conduct which falls within the purview of ASIC. Perhaps this is a further example of why, as the editorial in yesterday’s Australian Financial Review states, the Government’s Options Paper is timely, provided any reforms also address the use of existing powers available to regulators.

Here is the ACCC Press Release available on the ACCC website:

ACCC obtains limits on AMI contracts
Today, the Australian Competition and Consumer Commission obtained interim orders by consent against Advanced Medical Institute Pty Limited (administrators appointed) and AMI Australia Holdings Pty Ltd (administrators appointed) – collectively referred to as AMI.
In proceedings filed on Wednesday, the ACCC alleged that AMI failed to advise existing and potential clients that it is in administration, is insolvent and may not be able to provide goods and services after determination of the administration period.
The ACCC also claimed that AMI had wrongly accepted payments in advance for treatments when there is a real risk that AMI will not be able to continue to supply its treatments, and that clients will not receive refunds claimed by them, after the conclusion of its administration.
Today the ACCC obtained orders by consent that AMI will disclose to clients that:
• AMI is in administration
• AMI is, in the opinion of its administrators, insolvent, and
• there is a real risk that AMI will not be able to continue to supply its treatments to patients and that patients may not receive refunds claimed by them, after the conclusion of its Administration.
The orders also require that AMI:
• over the next two weeks inform all existing clients who entered into or renewed a contract with AMI between 22 December 2010 and today
• post a prominent notice on each webpage which it operates or controls,
• add to each of its contractual documents clear notice of their insolvency and its risks for delivery of goods or services.
In addition, AMI is not permitted to enter into agreement or take any payment for delivery of goods and services beyond the date of administration, which is currently 20 July 2011.
“In these circumstances, the ACCC considered it vital to ensure that potential customers of AMI were clearly informed about the situation the company is in before they bought into any agreements,” ACCC chairman Graeme Samuel said.
“This case underlines the fact that companies under administration are not exempt from their obligations under the Competition and Consumer Act.”
AMI was placed into administration on 22 December 2010, the day after the ACCC instituted proceedings alleging the companies had engaged in unconscionable conduct towards consumers. Those proceedings are separate and still on foot.
Media inquiries
• Mr Graeme Samuel, Chairman, (03) 9290 1812 or 0408 335 555
• Mr Brent Rebecca, Media, (02) 6243 1317 or 0408 995 408
General inquiries
• Infocentre 1300 302 502
Release # NR 096/11
Issued: 10th June 2011

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