ASIC roundup: Failed audit partner, and straw director’s failings

The Australian Securities & Investments Commission’s latest actions and news, September 11 – 15, 2023.

Audit partner failed to meet minimum standards – September 12, 2023

James Mooney, an audit partner of BDO East Coast Partnership, has been ordered by the Companies Auditors Disciplinary Board (CADB) to not perform as an auditor until 2024 after failing to meet minimum standards in his audit of ASX-listed technology company Engage: BDR Limited (Engage). 

The CADB’s decision follows an ASIC investigation and application, where CADB found that Mooney failed to meet the minimum requirements under the Australian Auditing Standards (ASAs) when he “failed to obtain reasonable assurance that Engage’s 2018 financial statements were free from the risk of material misstatement”. 

Mooney has also voluntarily acted in line with the orders, and agreed to have another registered company auditor review his first three company audits from January 1, 2024, and to complete 20 additional hours of professional development. He will also pay ASIC’s costs of A$175,000 ($112,105).  

“Failure to comply with the ASAs in relation to significant disclosure matters such as revenue has the potential to impact Australia’s capital markets and undermine confidence.”

The Companies Auditors Disciplinary Board

Straw director disqualified for five years – September 11, 2023

Sam Casella, a former electrical services director, has been disqualified from managing corporations for five years due to his involvement in the failure of three companies.

Between December 2015 and March 2023, Casella was a director of Roundelectrics Pty Ltd, Spec Electrical Group Pty Ltd, and Quattro Constructions Pty Ltd.

According to ASIC, Casella failed to meet his director’s obligations and acted improperly by:

  • agreeing to become the “owner” of assets and failing to properly consider what would be required of him;
  • being unaware that he was director of Roundelectrics between August 26, 2016 and March 1, 2022;
  • signing documents regarding Roundelectrics on instructions of an alleged shadow director without reading the documents;
  • having no knowledge of the affairs of Roundelectrics; and
  • failing to have control and accountability with Roundelectrics which led to him being involved in:
    • the failure to keep proper records;
    • transferred assets without proper consideration;
    • insolvent trading; and
    • owing large debts to statutory bodies.

ASIC news week 37

Last week, ASIC released Consultation Paper 372 Guidance on insolvent trading safe harbour provisions: Update to RG 217, and is seeking feedback from the industry and other interested stakeholders on its proposals.

The updated consultation paper is based on a Review Report from 2022, where an independent panel identified a lack of awareness and understanding by directors and their advisers of a director’s duty to prevent insolvent trading (and the related safe harbour provisions). They then suggested that ASIC update RG 217 “to refer to the insolvent trading prohibition, and the safe harbour provisions, together with general guidance on the operation of the relevant provisions”. 

The Consultation Paper is seeking feedback on the proposed approach to: 

  • update the current guidance to include information about when a holding company may be liable for debts that incurred by a subsidiary when it has continued to trade while insolvent;
  • provide information and guidance about the safe harbour provisions and the factors ASIC will consider when assessing whether safe harbour protection is available to a director; and 
  • provide guidance on the key principles to directors of what they should consider in carrying out their duty to prevent insolvent trading. 

Comments can be sent until October 26, 2023. The current Regulatory Guide 217 Duty to prevent insolvent trading: Guide for directors (RG 217), can be found here.

Remakes three ‘sunsetting’ class orders for managed funds

ASIC has also announced a remake of three class orders that were due to expire (‘sunset’) on October 1, 2023 have been remade under the Legislation Act 2003, which are:

The new legislative instruments that replace these class orders will sunset on October 1, 2028.

Going further, the Commission will also update Regulatory Guide 134 Funds Management: Constitutions shortly to align with the new instruments. 

ASIC has also released its full program to the ASIC Annual Forum 2023, which will take place on November 21–22, 2023. The full program and speaker line-up can be found here.

At the time of ASIC’s decision, the three companies owed a combined total of A$1,521,320.21 ($975,505) to creditors, including A$1,048,044.2 ($1,048,044.2) to the Australian Taxation Office and other statutory creditors.