Last month all ethical and responsible liquidators in Australia cringed with embarrassment for their profession on reading the judgment of Justice Bergin of the New South Wales Supreme Court, against insolvency practioner Stuart Ariff. His Honour found, on Ariff’s own admission, that Ariff was guilty of 83 counts of misconduct and declared that in relation to each of 16 companies Ariff had not faithfully performed his duties as a liquidator and that he had prejudiced the interests of creditors and member of the various companies. Ariff was ordered to pay $4.9 million in compensation to the companies involved and was banned from being a liquidator for life. It will be interesting to see if Ariff has the resources to meet the $4.9 million compensation bill.
Also, on 24 August 2009 Justice Bergin made orders, by consent, that Stuart Ariff be restrained from leaving Australia until 30 November 2009. This followed an application made by ASIC under section 1323 of the Corporations Act 2001 in respect of an ongoing investigation concerning Ariff. So perhaps we have not heard the end of this saga.
That the insolvency profession contained a bad apple is hardly surprising …. every profession, including lawyers, medicos, police and politicians has them from time to time. They are a fact of life and no amount of regulation can ever totally eliminate them.
What is surprising is that it took quite some time, and many instances, for Ariff’s misdeeds to come to light and to be acted upon. This is surprising because, in truth, the conduct of liquidators is capable of being subject to very close scrutiny. In every insolvency administration detailed reports of all receipts and payments must be filed with the ASIC every six months and those reports are available to the public. In creditors windings up annual meetings of creditors are required to be held, and in all liquidations it is open to the creditors to insist on committees of creditors being formed. Also any stakeholder can, at any time, ask the practioner for relevant information and if not satisfied can refer their concerns to the ASIC for further investigation.
Worrells takes transparency to new heights by disclosing on our web page full detail of all receipts and payments, fees accrued and drawn, minutes of meetings etc ,etc…. and all of this is updated daily and is available to stakeholders at any time. Creditors can even order up automatic updates to be emailed to them to save them the trouble of looking at our web site.
Perhaps part of the problem is that creditors often take the view that when a liquidation occurs all is lost and consequently it is futile for them to spend time monitoring what is happening in the liquidation. We often see this reflected in the difficulty met in getting quorums for creditors meetings. The truth is that sensible creditor involvement in the winding up process will provide better informed creditors and an improved outcome.
Perhaps too, as the control of most corporate insolvencies passed from official liquidators to registered liquidators in the 1990’s the ASIC was a little slow in recognising that the times called for increased involvement by the regulator. Today the ASIC has a far more active and informed Liquidators Surveillance team. That team includes many senior staff who have significant experience in the insolvency profession, who understand the liquidation process and who are ready to respond to issues as they arise.
With creditor involvement and the current ASIC’s liquidators surveillance team the likelihood of such long term misconduct going undetected in the future is greatly reduced.