You know the feeling. You bought some shares in a speccy miner, or a promising biotech. They fell, they dropped, they tumbled.

They were soon so worthless that you forgot about them as any transaction would hardly have been worth the brokerage.

Then one day you got some mail from the company. For a fleeting moment you hoped that they had struck gold, or a cure for cancer, and you were rich!

Alas, that only happens in a world without company promoters and insolvency people. Instead, there was to be a reconstruction. A reconstruction clothed in a “unique opportunity”.

Presto! Those 100,000 shares you owned in Going to the Moon Limited had been transformed into a rounding error. You now owned 147 shares in Surefire Solar Technology Global Limited.

This magical transformation might have been acceptable had the promoters and their handpicked voluntary administrators (who put the last company under) filed company accounts in accordance with the law.

This expeditious destruction of your shareholder wealth may have been palatable had the regulator, the Australian Securities & Investments Commission (ASIC), not provided the administrators with a special exemption from having to file company accounts.

You might even have been slightly more comfortable with being financial denuded had you been confident that your publicly-funded watchdog had not wiped its exemption orders for public companies from its public database so the information was no longer public.

Blame shift

Following the story last week in BusinessDay about Compass Resources, the regulator has agreed that there has been a failure of proper financial reporting. Unlike Compass’s administrators Ferrier Hodgson though, who blamed ASIC for this failure, ASIC has blamed Ferrier Hodgson.

“ASIC has advised Ferrier Hodgson that in our view they have not discharged their reporting obligations in accordance with Chapter 2M given the report has only been prepared for 42-day period,” a spokesman for the regulator responded in an email.

While it is comforting that ASIC has now identified this peculiarity – that is a 42-day rather than a half-year financial report – it will be interesting to see if anything is actually done about it. Talk is cheap.

You see, what we have here is an ongoing problem. This is not just a one-off. It’s not a story about Compass Resources. This is a story about whether investors can trust the regulators to properly carry out their duties. This is about the integrity of the market.

We await a revised compliant Compass Resources Ltd half-year report with some interest.

Although based on ASIC’s past form with insolvency practitioners – see Senate Inquiry Report 2010 which advocates the regulator’s powers be stripped – we are not holding our breath.

Failures aplenty

Where there is smoke there is almost always fire. And so we delved, with the assistance of some hardy and forensic contacts, to see if there were any other non-compliant financial reports arising from ASIC exemptions.

And what we discovered was not a backyard burn-off but a raging out-of-control hellfire of financial reporting failure.

Where there was Compass, there was also Transerv. Australia Limited.

This listed company entered into voluntary administration on December 30, 2005 with the appointment of Martin Jones and Darren Weaver of Ferrier Hodgson. That’s right, the same two insolvency practitioners who were involved with Compass Resources.

An ASX announcement dated July 19, 2006 notes that ASIC has exempted Transerv from preparing the half-year report for December 31, 2005 and the full-year report for June 30, 2006.

Around the same time Ferrier Hodgson sent a letter to Transerv shareholders notifying them of the details of a recapitalisation proposal for their approval. ASIC seems to have had constructive knowledge of this proposed recapitalisation because around that time it accepted documents from Transerv for its corporate transformation and fund raising.

This is critical. It means that ASIC has given Ferrier Hodgson a financial reporting exemption for Transerv when it was likely that Transerv was going to come out of administration and carry on business under the control of its directors.

ASIC policies in Regulatory Guide 174 clearly indicate that ASIC should not exempt a company from financial reporting in these sorts of circumstances. We await comment from ASIC on this matter, patiently.

The ASX announcement also notes that the ASIC order had been issued “pursuant to subsection 111AT(1) of the Corporations Act. Under this section, ASIC is required by law to make the order available to the public. For reasons unknown, however, it appears that ASIC has withheld the exemption order for Transerv.

Data holes

BusinessDay has not been able to track it down in the Gazette and it was also missing from ASIC’s public database before 2010, that is, before ASIC began wiping information from its public database.

Transerv’s first financial report after the end of the administration is for the half year to December 31, 2006, issued February 23, 2007. The attached audit report rings a bell because it is signed off by a Michael J Hillgrove, the same audit partner that signed off on the Compass 42-day, rather than half-year, financial report.

Just like Compass, the Transerv half-year report fails to comply with accounting standards by omitting comparative financial information. Once again this is attributed to an ASIC exemption order that is missing from the public record. ASIC gets the blame.

ASIC has informedBusiness Day in no uncertain terms that the Commission is responsible and accountable for ASIC exemption orders rather than individual ASIC officers.


In fact, we have been asked not to make public the names of ASIC officers responsible for signing documents. And we can sympathise with the lower-ranking regulators. There is some credibility to a Nuremberg defence.

The problem with this however is that – just as we append our byline to media stories that we have written – somebody other than a large, grey Soviet “Commission” has to take responsibility.

While it continues to hide its exemption orders from the public glaze, ASIC is unaccountable. And in the case of Transerv, it appears ASIC’s hiding of the exemption order is not just poor form for a corporate regulator but illegal.

Three from three

We now have established a pattern of missing accounts and questionable exemption orders.

  1. Evans & Tate – highly dubious ASIC exemption order given to Ferrier Hodgson and subsequent accounts with a $60 million accounting irregularity (BusinessDay last year).
  2. Compass Resources – highly dubious ASIC exemption order given to Ferrier Hodgson and subsequent 42-day financial report without comparatives.
  3. Transerv – highly dubious ASIC exemption order given to Ferrier Hodgson and subsequent half-year financial report with no comparatives.

Since we are on a roll, let’s make it four from four with Western Metals Limited and its failure to disclose comparative financial information in the half-year report for December 31, 2005.

Cosy ties

As usual, the missing financial information is preceded by an ASIC accounting exemption order given to Ferrier Hodgson.

There is something strange going on here. It may be no more than mere coincidence that there are four non-compliant financial reports arising from the accounting exemptions of ASIC given to Ferrier Hodgson.

Perhaps the failure in the financial reports runs deeper than that. Perhaps ASIC officers have just become too cosy with the people in the insolvency business they are supposed to be regulating.

This is certainly the view of Senator John Williams who headed up the inquiry into insolvency and is bringing legislation to reform this cosy industry.

Staff movements that provide bonds between ASIC and the insolvency firms is part of the problem. One source of bonding is ASIC’s secondment program where the staff of insolvency firms work at ASIC for short periods of time.

It is not hard to imagine where the loyalties of the seconded individuals turning up to the ASIC office block really lie. Follow the money trail. Liquidation is a path to liquid riches and one hardly impeded by the burdens of excessive accountability.

Let’s face it, doing a lousy regulatory job at ASIC could even be considered to be par for the course and it sure could hardly blot anyone’s copybook back at the insolvency firm.

Another source of bonding may be the future work opportunities outside of ASIC available to an ASIC officer. The recent head of the regulator’s national insolvency team, Stefan Dopking, is now making a living as a partner of Taylor Woodings, one of the firms that he was in-charge of regulating at ASIC up until recently.


Taylor Woodings and ASIC have a history when it comes to financial reporting by administrators. Taylor Woodings made a confidential submission to ASIC in October 2002 – the only confidential submission – when ASIC was developing new accounting relief policies.

Around the time of this confidential submission, Michael Ryan of Taylor Woodings was administering the Beaconsfield goldminer, Allstate Explorations NL, and this Company’s accounts for June 30, 2001 and June 30, 2002 were outstanding because Ryan was yet to lodge them with ASIC.

In fact, Allstate’s half-year reports for December 31, 2001 and December 31, 2002 are still missing from ASIC’s public data base. The Beaconsfield gold mine collapsed on April 25 2006 with Ryan still at the helm of Allstate.

This reporter can disclose an interest, an interest in the form of a defamation suit by Macquarie Bank which lasted four years until News Limited and The Australian newspaper won the case in court and vindicated the story. Macquarie, which had worked closely with Ryan, had sued over a newspaper report by your correspondent.

ASIC had briefly investigated the circumstances of Allstate’s demise, then gone quiet. It is still refusing to disclose documents under Freedom of Information laws to this very day despite an adverse judgement from the Commonwealth Ombudsman.

The Senate Report of 2010 into insolvency practitioners recommends that ASIC should be dismembered of its corporate insolvency arm.

The government has apparently rejected this recommendation. But perhaps the Treasurer and the government need to spend more time looking at the evidence and reconsider whether the Senate Report has got it right. In particular, Bill Shorten, the once self-avowed unionist protector of Beaconsfield employees, but now the assistant Treasurer, is well-placed to advocate reform.