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The Corporate Policeman: ASIC’s powers of investigation and prosecution

Australia’s negligent company directors might be quaking at the prospect of the corporate watchdog “knocking on doors in the middle of the night.” Or maybe not. In a speech to the Law Institute of Victoria in 2003, ASIC’s Professor Berna Collier was quick to dispel any notion that her organisation employed such tactics. But such are the potential powers of Australia’s corporate regulator that a bill has recently been passed allowing it to override a long-held common law right. Read on for a closer examination of ASIC’s powers.

What is ASIC?

The Australian Securities & Investments Commission (ASIC), an independent agency of the Commonwealth Government, is responsible for the ensuring the proper operation of company and financial services laws for the benefit of consumers, investors and creditors.

Since 1991, ASIC has regulated financial markets, securities, futures and 1.3 million corporations, successively adding superannuation, insurance, deposit taking and credit to its list of responsibilities.

ASIC’s powers

Legislation administered by ASIC includes, most importantly, the Corporations Act 2001 (Cth), as well as the Australian Securities and Investments Commission Act 2001 (Cth), the Insurance Contracts Act 1984 (Cth), the Superannuation Industry (Supervision) Act 1993 (Cth), and the Life Insurance Act 1995.

ASIC has the powers to investigate breaches and institute civil or criminal proceedings under these Acts. This includes actions against directors, companies or other implicated persons, for matters such as breach of duties, misappropriation, and insolvent trading.

Investigation

Section 13 of the ASIC Act empowers the regulator to conduct a formal investigation where it suspects a breach of the law is being committed. Once an investigation is underway, ASIC can require a person to appear (section 19) and give information relevant to the investigation, as well as give reasonable assistance.

Where investigating with an eye to court proceedings, ASIC usually requires original documents to be produced.

Under section 29, the watchdog can inspect a company’s books. If necessary, due to section 30, it can issue a notice demanding a company and certain persons to produce the company’s books. Such persons include officers, employees, and external administrators.(?)

If the company still doesn’t open up its books, ASIC is entitled to seek a search warrant from a magistrate or a justice of the peace. The watchdog can also obtain search warrants under the general powers in the Crimes Act 1914 (Cth), allowing warrants to be issued where there are reasonable grounds to suspect the premises contain evidence of a crime.

Enforcement

Mainly, this article looks at ASIC’s power to bring civil or criminal proceedings, but the watchdog has a whole arsenal of possible actions at its disposal, including administrative action, such as banning persons or companies from holding a financial services license, and court-enforceable undertakings from co-operating parties.

Criminal actions are usually referred to the Department of Public Prosecutions, or DPP, to conduct the prosecution. Under this arrangement, ASIC is obliged to provide to the DPP all material it has gathered that may be relevant to the defendants' defence in a criminal trial. However, the regulator will sometimes prosecute minor regulatory infractions of the law itself. This has led to speculation that ASIC prefers to bring civil proceedings it can undertake itself, rather than criminal ones it must hand over to the DPP, in matters where both are available. The regulator has strenuously denied these claims.

Civil action can lead not just to penalties, but also to court orders for injunctive relief, corrective action, compensation, and drastically, the winding up of insolvent companies. Because ASIC can bring criminal proceedings for conduct for which it has already obtained a criminal penalty (section 1317P Corporations Act), it will occasionally take civil action as an interim protective measure, while investigation of possible criminal matters is still on foot.

Of course, there are limits to ASIC’s jurisdiction – for example, it has limited powers to prosecute over get rich quick schemes. But don’t take this as a hint to start up a scam in the belief of impunity – because there is another regulator prowling this beat, the Australian Competition and Consumer Commission.

Take care

The James Hardie Act gives ASIC the power to require the production documents to which legal professional privilege applies – but only with regard to the James Hardie group of companies. Nothing to worry about yet for the rest of us. But it does demonstrate the way that regulators are creatures of legislation, and they can be empowered or enfeebled by the whim of Parliament.

So while ASIC is not likely to be knocking down company doors, Australia’s corporate regulator is not to be trifled with. Defendant companies are strongly advised to get legal advice from experienced practitioners like Lethbridges.

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