Senate Committee pushes for crackdown on dodgy insolvency practitioners

Industry experts have given a mixed response to a Senate Committee’s recommendation that the Australian Securities and Investment Commission should be stripped of regulatory oversight of the insolvency profession, with power handed to a new body attached to the Insolvency and Trustee Service of Australia.

The Senate Committee on Economic’ report was prompted by a series of controversial incidents involving rogue liquidators, such as banned NSW insolvency professional Stuart Ariff.

After an 18 month investigation, the Committee has made 17 recommendations designed to improve regulation of the sector including:

• Creating a new body called the Australian Insolvency Practitioners Authority to oversee the sector.
• The establishment of a “flying squad” to investigate insolvency practitioners who are identified as high risk.
• The establishment of a fidelity fund set up by the Chartered Accountants of Australia, CPA Australia and the National Institute of Accountants to ensure that creditors are insured for fraud and wrongdoing.

The Committee also singled out ASIC for particular criticism over the Ariff.

“The regulator’s lack of responsiveness is most damning in the Ariff case. The committee queries why both ASIC and the IPAA took so long to identify Mr Ariff as a practitioner, that should be investigated.”

Insolvency Practitioners Association of Australia has welcomed the report, with president Mark Robinson agreeing with the Committee’s position the reform was necessary to ensure confidence in the sector.

The IPA also says it “looks forward to the opportunity to discuss and consider detailed proposals” in relation to the creation of a new regulator for the sector.

“Certainly we are keen to explore any potential benefits that may flow from a single insolvency focus in practitioner regulation,” Robinson says.

But Tony Schiffmann, national chairman of accounting firm BDO, is less positive and has questioned whether the regulator is necessary – and whether it can be resourced properly.

“In BDO’s view, ITSA and ASIC have both been trying to fulfil their responsibilities with limited funding and resources. This has required these organisations to choose their legal battlegrounds very carefully, and sometimes this has been to the detriment of creditors,” Schiffmann said.

“Creating yet another regulator, and forcing ASIC to provide it with funds and resources, will not solve the core problems, which is having sufficient resources to pursue the one or two bad apples in a highly regulated industry.”

The Government will now consider the Committee’s recommendations.