Insufficient disclosure when firms go belly up

THE information provided by company directors when their businesses fail is typically incomplete, inaccurate and unreliable, insolvency practitioners say.
Nanjing Night Net

Liquidators also believe the penalties imposed on directors who fail to disclose the affairs of their collapsed companies are too light, a study finds.

Under the corporations law, the directors of companies going into administration are required to fill out a ”report as to affairs”, or RATA, form, detailing the assets and liabilities of the enterprise, which is then filed with the Australian Securities and Investments Commission.

These reports are usually the first glimpse that creditors, employees and the general public get of a failed company’s financial situation. However, while failing to properly complete a RATA is an offence, BusinessDay has seen them filed blank, incomplete or, in one case, attached to a mass of management ledgers that were difficult to understand.

”They’re just not done properly and there doesn’t seem to be much concern on the part of the regulators,” said Peter Keenan, an accountant who conducted the study.

For his paper, published in the Australian Insolvency Journal, Mr Keenan surveyed 105 of the 523 official liquidators registered with ASIC late last year. Asked if RATAs were generally of an acceptable standard, 59 per cent of respondents said ”sometimes”, while a third said they ”rarely” were.

While 60 per cent of liquidators suggested ASIC ditches its present form, which is regarded as confusing, and switches to a questionnaire style form, as is used in New Zealand, Mr Keenan said he was undecided as to whether such a move would improve the quality of information provided.

”I don’t really buy the idea that because it’s a questionnaire more of them will be filled out,” he said. ”Directors have to prepare tax returns, which are very complex documents. I don’t see that a RATA shouldn’t be considered in the same light.”

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