Assetless administrations and the role of the public liquidator – how does Australia compare to other jurisdictions?
This article was co-authored by Victoria Hoon
Why bother administering assetless companies?
To a creditor, it may seem futile to administer assetless/ low-asset companies as any prospects of recovery are likely to be minimal. However, there are strong public interest considerations in ensuring that there are mechanisms to discourage poor corporate behaviour, deter illegal conduct and ensure good governance and fair commercial conduct. Without such mechanisms, assets can simply be moved into another company or appropriated by an individual, without risk of scrutiny or any civil or criminal consequences.
Options for administering assetless companies
In its “Legislative Guide on Insolvency Law”, the United Nations Commission on International Trade Law identifies four potential ways of dealing with the administration of assetless companies:
- levying a surcharge on creditors to fund administration;
- establishing a public office or utilising an existing office;
- establishing a fund out of which the costs may be met; or
- appointing a listed insolvency professional on the basis of a roster or rotation system, where the insolvency practitioner is paid a stipend or costs are borne directly by the insolvency practitioner.
As identified below, most major jurisdictions have adopted one or more of these mechanism for administering assetless companies.
What is the current state of play in Australia?
Australia has established an Assetless Administration Fund (AA Fund) – being a public fund from which the costs of private liquidators appointed to administer low-asset companies are met.
The AA Fund is administered by Australia’s national corporate regulator, the Australian Securities & Investments Commission (ASIC), and funding is available:
- to determine whether to disqualify a person from being a director or otherwise managing a corporation;
- to investigate possible offences or misconduct that may warrant ASIC commencing its own investigation or taking enforcement action; or
- to recover certain assets, or for compensation for loss where misconduct has caused dissipation of company assets.
In FY2022-23, 215 grants were approved, totalling $5,840,058.32 in funding. In the FY2022-23 Budget, the Australian Government announced that, from 1 July 2023, it would provide an additional $20 million in funding over two years to the AA Fund.*
Recent review of Australia’s restructuring and insolvency laws
The July 2023 report from the Australian Parliamentary Joint Committee on Corporations and Financial Services (Report) examines the effectiveness of Australia’s corporate insolvency laws and makes several recommendations in relation to assetless administrations, including:
- expanding the design and purpose of the AA Fund;
- creating a “Public Interest Administration Fund”; and
- creating a public liquidator for corporate insolvency (akin to an Official Trustee in bankruptcy).
How do other jurisdictions deal with assetless companies?
United Kingdom
In the UK, the Insolvency Service is responsible for ensuring that insolvent entities are dealt with fairly and appropriately.
Where there are assetless administrations, a public official, being the Official Receiver can be appointed. Official Receivers have a duty to investigate the affairs of the company and may report any misconduct.
In addition, creditors seeking to wind up a company must pay a deposit, for the purpose of funding the Official Receiver’s costs. The deposit is only recoverable if there are sufficient realisations to otherwise cover the costs.
New Zealand
New Zealand, similar to Australia, has established the Liquidation Surplus Account (LSA).
A liquidator may apply to the Official Assignee for a payment of funds from the LSA. The Official Assignee will consider whether it is fair and reasonable for the LSA to cover the liquidator’s costs, including whether there is a public interest element.
The LSA is partly funded by unclaimed assets of a company after a liquidation. Where assets are recovered by a liquidator (who received amounts from the LSA), those assets must be used to reimburse the LSA as a first priority.
Singapore
In Singapore, the Official Receiver can be appointed as the liquidator of a company.
Where an Official Receiver is the liquidator and the company does not have sufficient assets, they are not liable to incur any expense in relation to the winding up. They can also seek early dissolution of the company if they have a reasonable belief that company’s realisable assets are insufficient to cover the expenses and if the affairs of the company do not require further investigation. There is no public funding available to meet the costs of the assetless administration for liquidations (although there is public funding for bankruptcies).
United States
Chapter 7 of the Bankruptcy Code deals with the liquidation of companies.
Private trustees administer bankruptcy estates under chapter 7 and are usually assigned through a blind rotation process. If the trustee determines that the company has no assets, they can deem the case a “no-asset case” and can file a report of no distribution (NDR). The NDR certifies that there are no assets to liquidate for the benefit of creditors.
Trustees can then be remunerated from the “Chapter 7 Trustee Fund”, which is available for fiscal years 2021 to 2026. The amount paid changes every year and depends on whether there are sufficient funds in the fund for the fiscal year. In FY2021, eligible trustees received $60. No amount was paid in FY2022.
We await the adoption of the recommendations in the Report. However, the management of assetless administrations around the world can provide helpful guidance to Australia as it considers reforms in this space.
