Insolvency blues

Bottom feeders, ambulance chasers, corporate undertakers; the nicknames for insolvency firms fly thick and fast - and the complaints come even faster. The Australian Securities & Investments Commission (Asic) says 12% of its work is investigating complaints against liquidators and auditors. Asic monitors 1.4 million companies, 4000 licensed financial service operators, market conduct and director duties, but spends 12% of its time on auditors and only 757 registered liquidators, of which only about 500 are practising.

As Nicholas Way, Adele Ferguson and Beth Quinlivan report in this week's Cover Story, that figure could easily rise. They note: "Liquidators are under fire. A Federal Court judge, creditors, shareholders, unions, employees and politicians are queuing up to take shots at the insolvency industry, casting a huge shadow over how it operates and the professionalism of some of its members. The criticisms range from excessively high fees, overservicing, protracted settlements, lack of transparency, and conflicts of interest ... even the promotion of phoenix schemes that allow companies to be reborn soon after they fail."

The extraordinary strength of the Australian economy over the past decade has made life tougher for insolvency firms, and some may have become more aggressive with their fees to survive. The insolvency industry might argue that "the market sets the fees", but that assumes the market knows exactly what the fees are. A general complaint is that liquidators are not giving enough information to creditors on fees, and there are accusations that some insolvency firms deliberately run up fees to consume the assets of a failed company to the point where there is nothing left for creditors.

A committee headed by the Liberal senator Grant Chapman has recommended establishing a system where directors can call in administrators at an earlier date, and even opening up the insolvency industry to other professionals. The reforms are sorely needed, but after six inquiries into the insolvency industry in the past two decades there is little confidence the Government will fix things quickly.

[ bottom feeders ]