Insolvency, Gazette and Company Status: Reading the Three Failure Tiles Together

Insolvency, Gazette, and Company Status are three critical tiles in Gumshoe's supplier due diligence suite. Together, they provide a comprehensive view of an entity's solvency and operational status, helping you identify potential risks before making a payment. In this article, we will walk you through each tile, explain how to read them together, and provide a worked example to illustrate their application.

What Each Tile Covers

The Insolvency tile checks the Australian Financial Security Authority's (AFSA) insolvency gazette for records of bankruptcy or insolvency notices. This includes notices of creditor's petitions, bankruptcies, and debt agreements.

The Gazette tile searches the same AFSA insolvency gazette, but also checks for additional notices such as applications for winding up, and appointments of administrators or liquidators.

The Company Status tile checks the Australian Securities and Investments Commission's (ASIC) register for the entity's current status, including whether it is registered, deregistered, or under external administration.

The Publication Lag: Why Gumshoe Checks Both Gazette and ASIC Records

There is often a lag between the publication of gazette notices and the update of ASIC records. This lag can range from a few days to several weeks, depending on the complexity of the case and the workload of the relevant authorities.

Gumshoe checks both gazette and ASIC records to provide a more comprehensive view of an entity's status. This helps to identify potential risks that may not be immediately apparent from a single source.

For example, a company may have been placed under external administration, but the ASIC register may not yet reflect this change. By checking the gazette, Gumshoe can alert you to this risk, even if the ASIC record has not been updated.

Preference Payment Risk Under s588FA

When paying an entity in administration, there is a risk of preference payment under section 588FA of the Corporations Act. This section allows a liquidator to recover payments made to a company in the 6 months leading up to its insolvency, if the payment was made with the intention of preferring one creditor over others.

Gumshoe's Insolvency and Company Status tiles can help identify this risk by alerting you to the entity's insolvency status and any external administration appointments.

By reading these tiles together, you can gain a more complete understanding of the entity's solvency and operational status, and take steps to mitigate the risk of preference payment.

Understanding the Gazette Tile

The Gazette tile provides information on any notices published in the Australian Government Gazette, specifically those related to insolvency, external administration, and deregistration. These notices are official announcements of significant events affecting a company's status.

A PASS status in the Gazette tile indicates that no relevant notices have been published. A WARN status suggests that there may be notices that are not directly related to insolvency or external administration, but could still impact the company's operations. A FAIL status indicates that there are notices related to insolvency, external administration, or deregistration.

Interpreting the Company Status Tile

The Company Status tile displays the current status of the company as registered with ASIC. This information is updated in real-time and reflects any changes to the company's status.

A PASS status in the Company Status tile indicates that the company is registered and active. A WARN status may indicate that the company is under external administration or in the process of being deregistered. A FAIL status indicates that the company has been deregistered or is no longer active.

Reading the Tiles Together: A Worked Example

Let's consider an example where the Insolvency tile shows a FAIL status, the Gazette tile shows a WARN status, and the Company Status tile shows a PASS status.

This combination of statuses suggests that the company is currently insolvent (FAIL in the Insolvency tile), but there are no relevant notices published in the Gazette (WARN in the Gazette tile). However, the company is still registered and active (PASS in the Company Status tile).

This information can help you assess the risk of dealing with this company and take steps to mitigate that risk.

Assessing the Risk of Preference Payment

When dealing with a company that is insolvent or under external administration, there is a risk of preference payment. This is where a creditor is paid in preference to other creditors, potentially unfairly.

To assess this risk, you can use the information from the three tiles to determine the likelihood of the company being wound up and the potential for preference payments to be made.

Assessing the Risk of Preference Payment

Insolvency Status	Gazette Notices	Company Status
FAIL	WARN	PASS
FAIL	FAIL	WARN
WARN	PASS	PASS
PASS	PASS	PASS

This table illustrates how the combination of statuses from the three tiles can help you assess the risk of preference payment. By considering the insolvency status, Gazette notices, and company status, you can gain a more complete understanding of the potential risks involved.

Uncommon Insights

When assessing a supplier's insolvency risk, many practitioners overlook the significance of ASIC's Form 509, which reports on the status of a company's deregistration. According to ASIC's Regulatory Guide 86, a company may be deregistered if it fails to pay its annual review fee or lodge its annual statements (Corporations Act 2001, s.601AG). A deregistered company may still be operating, but its assets are frozen, and it cannot enter into new contracts. Another critical aspect often neglected is the distinction between a company's 'strike-off' and 'deregistration'. While both terms refer to the removal of a company from the ASIC register, a strike-off is an administrative process initiated by ASIC (Corporations Act 2001, s.601AG(1)), whereas deregistration is a more formal process that involves a court order (Corporations Act 2001, s.601BD). A strike-off may not necessarily indicate insolvency, whereas deregistration often does. The Australian Taxation Office (ATO) also plays a crucial role in identifying insolvent suppliers. According to the ATO's debt collection policy, a company with a tax debt of over $100,000 may be considered insolvent (PS LA 2011/17). Furthermore, the ATO may issue a 'director penalty notice' to a company director if the company fails to pay its tax debt, which can result in the director being personally liable for the debt (Corporations Act 2001, s.596-2). In 2020, ASIC reported that it had deregistered over 1,300 companies for failing to pay their annual review fees, resulting in a total of $13.6 million in unpaid fees (ASIC Media Release 20-155). This highlights the importance of verifying a supplier's ASIC registration status and payment history.

Key Takeaways

• Verify ASIC registration status to ensure a supplier is not deregistered or in the process of being deregistered.
• Check for director penalty notices to identify potential insolvency risks and personal liability for company directors.
• Monitor tax debt and payment history to detect early warning signs of insolvency, such as unpaid tax debts over $100,000.
• Distinguish between strike-off and deregistration to accurately assess a supplier's insolvency risk.