#8577 - Corporate Regulation - Business Associations

What can ASIC do?

1. Enforcement of officers’ duties

2. Disqualification from managing companies

3. Corporate criminality

4. Criminal charges against directors

Possible remedies if breach of civil penalty provision:

• Prelim: Contravention of a civil penalty provision? S 180,181, 182, 183, (officers duties) s 209(2) (related parties rule), 588G(2) (insolvent trading)?

1. ASIC can apply for declaration (s 1317J), if court satisfied then it must make a declaration of contravention: s 1317E

2. Pecuniary penalty order: S 1317G (provided s 1317E declaration)

   1. If (a) declaration made; (b) contravention materially prejudices interests of corporation or scheme, or members, or materially prejudices the corporation’s ability to ay its creditors; or is serious: Court may order person to pay Commonwealth up to $200k: s 1317G(1)

   2. Punitive character, principally a deterrent, Capacity of D to pay is relevant, consider consequences of associated disqualification order for D, see whether order will prejudice rehabilitation of the D, size of penalty is discretion, (SEE FACTORS IN COMMENTARY ON PAGE 1397)

3. Disqualification order: s 206C (provided s 1317E declaration) (SEE 256)

   1. If (a) declaration made under s 1317E; and (b) court is satisfied disqualification is just, Court can disqualify person from managing corporations for a period that court considers appropriate: s 206C(1).

   2. Factors Disqualification orders designed to safeguard public interest and protect public from harmful use of corporate structure from use contrary to commercial standards:Adler.

      1. Will consider the character of offenders, nature of breaches, whether any honesty and competence, hardship to offenders, whether defendants have tried to reay amounts misappropriated.

      2. Eg in adler adler disqualified from managing own family cos

4. Compensation orders: s 1317H (even where no declaration of contravention of a civil penalty) – Asic or corporation can apply (s 1317J)

   1. Rule: Court can order person to compensate a corporation for damge suffered by the corp if: (a) the person contravened a corp civil penalty provision in relation to the corp; and (b) the damage resulted from the contravention. (Note that ‘damage’ suffered’ includes profits made by any person resulting from contravention): s 1317H

5. Relief from liability for contravention: s 1317S

   1. If eligible proceedings brought against a person, and appears to court that person has or may have contravened civil penalty, but: (i) acted honestly; and (ii) having regard to all circumstances person ought fairly to be excused for the contravention: s 1317S(2), court can relieve person either wholly or partly from liability to which person would otherwise be subject, or that might otherwise be imposed on person.

   2. Eg – if s 588G(2) Relevant matters for court in determining whether to fairly excuse person: any action person took with view to appointing administrator, when action taken and result: s 1317S(3)

6. Injunctions: S 1324 (on application of ASIC, or person whose interests have been or would be affected by conduct)

   1. Req 1# where person is engaging or is proposing to engage in conduct that constitutes a contravention, or attempting to contravene the act, or aiding/abetting/counseling/procuring a contravention, or inducing a person to contravene, or being in any way directly or indirectly knowingly concerned in or a party to contravention by person o the act, or conspiring with others to contravene the act:

   2. Req 2#: standing (asic, or person whose interests have been or would be affected by conduct)

   3. Req 3#: then court can grant application on terms as court thinks appropriate restraining first-mentioned person from engaging in conduct OR if it is in opinion of court desirable to do so requiring that person to do something.

• Functions of disqualification: such an order may serve four different purposes – including: preventing corporate fraud and mismanagement (and thus protecting the public: ASIC v Adler)

Effects of disqualification: there are several (s. 206A)

1. automatic loss of office

2. participation in decisions that affect a substantial part of the company’s business or its financial standing

3. communicating instructions or wishes to the directors with the knowledge or intention that they will be acted upon.

Introduction

(A) ASIC

Status: ASIC (the Australian Securities and Investments Commission) is an independent regulatory agency charged with legislative implementation and the routine administration of the Corporations Act, which would otherwise be beyond the capacity of government and the parliament.

Powers: ASIC has several categories of powers –

• market maintenance: to regulate companies’ performance, the markets in which they trade and their

• investors’ confidence, and to administer and enforce the corporations legislation

• investigative role: to investigate breaches of national law, take civil enforcement action, initiate criminal

• prosecutions (though usually the Cth DPP does this) and exercise some adjudicative powers

• discretionary: ASIC also has discretions, including the power to exempt certain persons and companies

• from compliance with particular provisions of the Corporations Act and to modify their operation

• takeovers: ASIC can apply for a declaration by the Takeovers Panel that a certain acquisition is unacceptable (though lawful), and has wide discretionary powers with respect to fundraising, takeovers and financial

• market regulation.

• Constitution: ASIC is a body corporate consisting of between three and eight members, appointed by the Governor-General on the nomination of the Commonwealth minister.

• Similar agencies: other bodies have different roles with respect to financial services –

o APRA: this has responsibility for prudential regulation (i.e. oversight of capacity to honour financial...