May 242010

Is it time for a “Guideline for Record Retention and Disposal” in corporate insolvency administration?

In Australia the insolvency practitioners association (the IPAA) has a Code of Professional Practice (COPP) of over 100 pages.   A lot of it refers to the importance of maintaining proper records, especially for calculating fees and documenting proceedings at meetings of creditors.  But there is no discussion or recommendation about what to do with books and records after the insolvency appointment ends.

The corporations law requires that books and records be retained for 5 years from the date of a company’s deregistration.  However,  when a company has been wound up under a creditors’ voluntary winding up, and creditors have directed that the books and records may be destroyed within those 5 years, the law permits early destruction in accordance with that direction provided the Australian Securities and Investments Commission (ASIC) gives its consent. [Corporations Act 2001, sec. 542]

Naturally, the IPAA expects insolvency administrators to comply with the law.  But the insolvency law  is dangerously  imprecise because it lumps together the  “books of the company and of the liquidator”.  

Insolvency practitiones should be asking themselves what they should regard as the meaning of the phrase “all books of the company and of the liquidator that are relevant to affairs of the company at or subsequent to the commencement of the winding up” . [sec. 542(1)] [emphasis added]

If there are practitioners who believe that once early destruction has been officially authorised by ASIC, this wording gives them carte blanche to destroy every record to do with the liquidation as soon as the shortened period has ended, a few words from the IPAA about exercising caution and prudence might be worthwhile.

In my view, if a shortened period for retention of the books and records is authorised  –  and that period is less than, say, 3 years  –  practitioners should nevertheless retain the core” books and records of the liquidation for a longer period .

 In deciding what are the “core” books and records, the liquidator should take into account particular events and problems occurring during the liquidation, and bear in mind the normal professional responsibility to possess evidence supporting transactions and justifying decisions. 

 Such core books and records may include:

  • Liquidator’s accounting records, e.g., bank statements, EFT transaction statements, cheque books/stubs, payment and receipt vouchers, employee and pay records, journals and ledgers.
  • Liquidator’s budgets and financial statements.
  • Liquidator’s checklists, diaries, project management tools, working papers and timesheets.
  • Liquidator’s lists of books and records received, showing where they are stored.
  • Liquidator’s notes of significant telephone conversations and events at meetings.
  • Important written contracts.
  • Accident and worker’s compensation records.
  • Minutes of meetings, attendance registers and proxies.
  • Proofs of debt.

By not pointing out to insolvency practitioners the dangers present in early indiscriminate destruction, the IPAA may be doing the profession a disservice by leaving its membership vulnerable to accusations of  questionable or unprofessional behaviour.


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