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ASIC shareholder engagement just a ‘tick-a-box’ exercise: CPA
30 November 2022
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CPA Australia says regulators such as ASIC view engagement with shareholders as a checklist exercise instead of an actual commitment.
In its submission to the parliamentary joint committee on corporations and financial services inquiry into corporate insolvency in Australia, CPA Australia said engagement needed to take place on a meaningful level earlier in the process.
“Currently, we perceive that ASICs stakeholder engagement occurs after decisions are made and is part of a tick-the-box exercise rather than an attempt at genuine engagement,” said CPA Australia’s executive general manager for policy and advocacy, Gary Pflugrath.
As part of the submission, Dr Pflugrath agreed with the Financial Regulator Assessment Authority’s effectiveness and capability review of ASIC which recommended that it engage with stakeholders appropriately when setting its strategic priorities.
CPA Australia also recommended additional changes to the Small Business Restructuring (SBR) reforms to improve the ability of SMEs to access insolvency laws without losing the goodwill of the business.
“Members are telling us that operationally there are some unintended consequences of the legislation that may be inhibiting access by SMEs,” said Dr Pflugrath.
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Issues raised by CPA Australia members included:
- Companies that use the legislation may lose insurance cover
- Clients who undertook an SBR had their merchant facilities cut off by their bank
- ASIC records showed that a company going through an SBR was under external administration, which was misleading to the solvency/viability of the company.
The alterations to the SBR that the association recommended included:
- A review of the current $1 million liabilities threshold
- The eligibility to undertake an SBR allow for outstanding superannuation to be brought up to date as a priority under the Plan
- Removal of the act of insolvency from Section 455A(2) of the Corporations Act 2001 and amend it to indicate that the act of insolvency should be if the terms of the plan are not made.
CPA Australia also said the burdens being placed on practitioners of SBRs were increasing the difficulty for businesses to access the SBR.
“Feedback from our members indicates that operationally, large institutional creditors such as the ATO, are placing an investigatory burden on a Small Business Restructuring Practitioner (SBRP) similar to the investigatory requirements of a voluntary administrator,” said Dr Pflugrath.
“Requiring such information and analysis from a SBRP is outside the practitioner’s experience and/or licensing requirements.”
“Should this type of creditor behaviour continue, we would recommend that only fully-qualified registered liquidators undertake SBR appointments.”
CPA Australia also reiterated its support for the introduction of director IDs as a method to assist with the reduction of illegal phoenixing.
“This is an important step towards reducing illegal phoenix activity,” said Dr Pflugrath.
“We wish to see the government invest into this functionality and expand the useability of the information which will enable registered liquidators and the broader public to utilise this information, to determine with whom they are doing business.”
The association also said illegal phoenixing was becoming increasingly common when businesses are limited in their restructuring options.
“Members have informed us that illegal phoenixing may occur when a business owner is faced with a lack of viable options,” he said.
“For example, businesses in the building and construction industry have limited options to restructure viable businesses due to state-based barriers to accessing the SBR or voluntary administration process.”
In the submission, CPA Australia also highlighted the importance of education for those in charge of businesses to understand the requirements and restrictions of the role.
“We also recommend that ASIC liaises with the accounting profession on the financial literacy of company directors,” said Dr Pflugrath.
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