Auricht v A Committee: Disciplinary Sanctions for Liquidators Drawing Funds Without Authorisation
One of the key ways a liquidator receives remuneration is to draw this from the funds it accumulates in winding up the company to which they are appointed. However this can only occur in specific circumstances.
The case of Auricht and A Committee Convened under s 40-45of the Insolvency Practice Schedule (Corporations) [2026] ARTA discusses the consequences for a liquidator if remuneration is not drawn in accordance with legislative requirements.
Background
Richard Auricht (Applicant) was an accountant and registered liquidator.
The Australian Securities and Investments Commission (ASIC) formed concerns over the conduct of the Applicant in relation to six (6) of his appointments as the administrator or liquidator. The concerns included that:
The Applicant made a series of withdrawals for renumeration regarding the administration of Ultimate Air Control Pty Ltd (UAC) without approval by creditors or the court at the time they were made. These amounts included:
$179,182.49 drawn without authorisation before 16 January 2016 and not approved by a court until 28 January 2016.
$118.803.18 drawn without authorisation before 10 March 2017 and not approved by a court until 8 February 2023.
The Applicant repeatedly failed to lodge forms in compliance with their reporting obligations to ASIC. They were said to have been sent by post but were never received by ASIC.
The Applicant knew since at least 2016 that the payments amounting to $118,803.18 were unauthorised. Despite this, the applicant did not seek creditor approval until 2018. Court approval was not sought for another 4.5 years.
In 2022, ASIC issued a show-cause notice under s 40-40(1) of the Insolvency Practise Schedule (IPS) in which ASIC alleged that the Applicant:
was not a fit and proper person;
had failed to adequately and properly carry out his duties as liquidator in failing to lodge documents with ASIC; and
no longer had the qualifications, experience, knowledge and abilities necessary under the IPS.
ASIC was not satisfied with the Applicant’s response to the show cause notice and formed a committee (Committee) under s 40-45 of the IPS to determine the registration of the Applicant.
In doing so, the Committee determined the following issues:
Did the Applicant draw renumeration without being entitled to do so? Correspondingly, what did “entitled” mean in this context?
If the answer to (a) is yes, did the applicant gain an advantage for himself in making the drawings?
Did the Applicant fail to apply for court approval of his remuneration in a timely manner?
Did the Applicant fail to address ASIC’s concerns regarding renumeration in a timely manner?
If the answer to any of the previous questions is yes, did the Applicant improperly use his position as an officer of UAC to gain an advantage for himself in breach of s 182(1) of the Corporations Act2001 (Cth)?
If the answer to (e) is yes, did this make the Applicant not a fit and proper person to be a registered liquidator?
Did the Applicant fail to lodge two notices of meeting of creditors with ASIC?
Did the Applicant fail to lodge documents related to the Show Cause Notice with ASIC?
If the answer to (g) or (h) is yes, does this constitute a failure to carry out adequately and properly his duties as a liquidator?
If the answer to any of the previous questions is yes, does the applicant no longer have the qualifications, experience, knowledge and abilities prescribed under para 20-20(4)(a) of the IPS
The Committee determined all the above issues in the affirmative. It subsequently decided to cancel the Applicant’s registration under s 40-55(1) of the IPS. Following this decision, the Applicant applied for a review of the decision to the Administrative Review Tribunal (ART).
Key Issues at the ART Review
Did the Committee have the authority to make the decision?
Were its determinations open and appropriate in the circumstances?
What, if any, was the appropriate sanction?
Findings of the ART
Did the Committee have the authority to make the decision
The Committee could not have been lawfully formed unless ASIC issued a valid Show Cause Notice and either failed to receive an explanation or was unsatisfied by it.
It was not contentious that ASIC was unsatisfied by the explanation, however the applicants argued that the show cause notice was not valid.
This was based on the requirement the Show Cause Notice be based on “beliefs” held by ASIC as opposed to mere “concerns”. The applicant alleged that ASIC did not have enough evidence to reasonably form a “belief” on the alleged misconduct.
The ART rejected this argument, finding that while the word “concerns” had been used in correspondence from ASIC, it was clear from the circumstances that ASIC held beliefs in relation to the alleged misconduct. ASIC was found to have undergone a sufficient process of analysis that these beliefs were reasonable.
The ART also found that the eventual court approvals for the Applicant’s renumeration did not give rise to any pre-litigation estoppel that prevented the Committee from making findings.
Neither ASIC nor the Committee was party to either of the court determinations.
Were the Committees determinations open and appropriate in the circumstances?
The ART found that the Applicant made the drawings without entitlement, as he would only have been entitled to the remuneration following a renumeration determination by the creditors or a court.
In doing so, the ART rejected the Applicant’s argument that he already had an entitlement to the money prior to the renumeration determination which merely fixed its quantum.
The ART subsequently found that being able to make payments without authority is an advantage the Applicant gained. The failure to obtain approvals reduced the funds available to creditors, and deprived creditors of the opportunity to scrutinise the value of the Applicant’s work.
The ART did clarify that it was not the Committee’s role to conclude on whether there was a breach of s 182 of the Corporations Act. The role of the Committee is only to determine if circumstances exist which warrant sanctions against a liquidator or otherwise make a decision as required by s 40-55 of the IPS.
However, the finding that the Applicant gained an advantage for himself in making the drawings while he was an Officer of UAC did point towards a lack of fitness and propriety to act as a liquidator
The ART also noted that failing to abide by relevant professional Codes of Conduct could be considered in determining if a person was “fit and proper”.
It was of particular concern that under the Australian Restructuring Insolvency & Turnaround Association Code of Professional Practise (ARITA Code) cl 5.8, a practitioner must immediately repay fees that have been improperly drawn. The Applicant breached the ARITA code in failing to do so.
In addition, several factors increased the severity of the misconduct by the Applicant:
the unauthorised drawings occurred on numerous occasions across an extended time-period;
the applicant failed to repay funds upon becoming aware that they were drawn without authority; and
that court approval was sought on two occasions.
While the Applicant alleged that the relevant forms had been posted to ASIC, the ART found that that it was incumbent on the Applicant to check if they had been received and re-submit if necessary.
The ART considered the Applicant’s failure to do this, or take any action to rectify the situation before the show cause notice was issued, to be a failure to carry out their duties as a liquidator.
The factors raised by the Applicant in explaining his delays were found to be insufficient.
These included the illness and death of his father, the ongoing impact of the Covid-19 pandemic, and the unexpected unavailability of his lawyers.
It was stressed that an experienced and competent liquidator would have quickly appointed alternative lawyers. These failures indicated that Applicant no longer held the qualifications, experience, knowledge and abilities prescribed by the IPS.
What was the appropriate sanction for the Applicant’s misconduct?
Section 40-55(1) of the IPS outlines a list of sanctions that the Committee may impose, ranging in severity. These include: cancellation of registration, suspension, public admonishment, and the imposition of certain conditions.
Ultimately, the ART reduced the original sanction of cancellation to a 5-year suspension of the Applicant’s registration.
While the ART acknowledged the seriousness of the Applicant’s misconduct, it stressed the lack of dishonesty exhibited.
This suggests that arguments in respect of cancellation, as the most severe sanction available, would generally require an element of dishonesty to be imposed.
Key Takeaways
Liquidators should be careful in ensuring that they are always in strict compliance with the IPS and ARITA Code to avoid potential sanctions from ASIC and promptly respond to any issues that arise.
In particular arising from this case:
Drawing renumeration without approval will lead to disciplinary action, even if the amounts are later approved.
If a practitioner becomes aware funds were drawn without authorisation, they should return them immediately.
In lodging documents to ASIC, it is incumbent on the practitioner to verify that they have been received.
For the most serious sanction of cancellation, a component of dishonesty will generally be required.
If you have any queries or would like to discuss the above further please contact:
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E:ahill@sladen.com.au
