Artcile from SMH by Adele FergusonCritical time for ASIC under...

Artcile from SMH by Adele Ferguson

Critical time for ASIC under siege
June 22, 2010

AS ASIC chairman Tony D'Aloisio jetted into Sydney at the weekend, his focus was on two potentially explosive events: the outcome of an application in the Federal Court to force the regulator to release certain critical documents relating to collapsed property group Westpoint, and the final sitting of the Senate inquiry into liquidators.

The Australian Securities and Investments Commission has requested an adjournment of the application by Westpoint founder Norm Carey, but if the court decides to order the release of the documents that could lead to some interesting questions over the regulator's handling of the Westpoint collapse in 2006. The hearing is set for July 7.

The requested secret documents include internal minutes and other internal ASIC correspondence relating to the Westpoint case, as well as an independent solvency review by Deloitte into Westpoint, commissioned by ASIC, shortly before ASIC sought a wind-up order in the Federal Court.

If the Deloitte review found that the Westpoint entities as a whole were solvent, then why didn't ASIC mention the existence of a review, even if it wasn't yet final, to the court when it made its wind-up application? And it raises the bigger question of whether the Federal Court would have issued a wind-up order if it knew of the existence and contents of the review, even if it was only in draft form.

Similar questions were raised by Senator Nick Xenophon at a Senate estimates session on June 1. "There is a perception amongst investors who have lost their money that ASIC timed their action to prevent the rollovers and repayments proceeding and that led to a chain of events that led to the collapse of this group when a solvency review found that the group was still solvent at that time," he said.

ASIC, after being questioned by BusinessDay on Friday, put out a statement to Westpoint investors on Sunday, stating that it did not act improperly in applying to the court to wind up the Westpoint companies.

On November 22, 2005, ASIC applied to the Federal Court in Perth for the appointment of a provisional liquidator to York Street Mezzanine Pty Ltd on the basis that it was insolvent. It made a similar application over another Westpoint entity on December 5.

In its statement, ASIC said that at the time it made its wind-up applications on the two mezzanine debt companies, Deloitte had not provided ASIC with a final review on the group's solvency. It also said that an affidavit sworn by a Deloitte partner did form part of the evidence ASIC relied on in its November 2005 liquidation application in relation to York Street Mezzanine. While this might be so, the report was about the solvency of the group, not one or two entities.

ASIC has also made it clear it will not willingly release the report unless ordered to. "The content and substance of Deloitte's views expressed to ASIC during 2005 are in ASIC's view privileged as they were obtained for the purposes of litigation," the statement said.

The Westpoint property group collapsed in 2006 and in the words of D'Aloisio: " There is litigation outstanding with the directors Indeed, one of the cross-claims that the directors have made is that the company should never have been put into liquidation and that if ASIC had not done that, the company would be solvent today."

Whether the Federal Court forces ASIC to release the secret documents, or politicians increase the pressure on the regulator to do it, ASIC would do well to consider the reputational risk of being seen to be holding out on transparency.

The final report into liquidators could also prove a headache for ASIC.

The inquiry wraps up tomorrow with an appearance from D'Aloisio and lobby group the Insolvency Practitioners Association of Australia.

The report is expected to be released before the election and the talk is that it will recommend stripping ASIC of its powers to regulate liquidators on the basis that the Insolvency and Trustee Service Australia, which regulates bankruptcies, would do a better job.

There is a lot of frustration over ASIC's approach to complaints, and the time liquidators take to get results.

In many of the big collapses, such as Babcock & Brown, Opes Prime and Storm Financial, ASIC was warned of problems well in advance, but did little. In many smaller cases, when a company was put into administration, its reaction was slow.

In the case of liquidator Stuart Ariff, complaints dated back to 2005, but it took ASIC two years to act, and another two years to ban Ariff for life as a liquidator and have the NSW Supreme Court order he repay $4.9 million after admitting to 83 counts of gross misconduct.

But it was a hollow victory. Victims have not seen a cent of the money he gouged and the bankruptcy trustee investigating his estate has now been notified that he is pleading ill health to try to stop a Federal Magistrates Court from examining him. As one victim of Ariff said: "I doubt he is as sick as he has made a lot of other people."

None of this is good for ASIC's image, which has sustained damage in the past few months over failed court cases and revelations that it has been deleting documents from its public database relating to exemptions it had given to administrators running collapsed companies.



Source: The Age