The research project examines how the Australian Securities and Investments Commission (ASIC) uses civil penalties as an enforcement tool against company directors. It identifies and critically evaluates the factors which impact upon ASIC enforcement decisions regarding civil penalties. The methodology employed for the research involved collection of data about the use of civil penalties and a series of semi-structured interviews with senior ASIC enforcement personnel from regional offices around Australia. Those interviewed included: National Director, Enforcement; Regional Commissioner; Regional Director, Enforcement; Regional Assistant Director, Enforcement; and Regional General Counsel. Civil penalties were introduced by the Federal Parliament in 1993 with the expectation that they would be a significant enforcement tool. On 1 July 1998, the Federal Parliament extended the application of civil penalties under the Corporations Law to a number of additional statutory provisions including provisions involving share capital transactions and the management of managed investment schemes. However, our research has found that ASIC has commenced only 14 civil penalty applications relating to 10 case situations since civil penalties were introduced in 1993. The research identifies a number of reasons for this: 1. Civil penalties are seen by many of those interviewed as being inflexible and having limited utility as an enforcement option. 2. There are a number of alternative remedies which, from ASIC's point of view, appear to be more viable than civil penalties. In particular, there are injunctions which provide a real remedy as well as section 600 of the Corporations Law which allows ASIC, in certain circumstances, to ban a person from managing a corporation. Section 600 is an effective remedy according to many of those who we interviewed as it does not require ASIC to bring court proceedings although the person banned may challenge the ASIC banning order in court. In order to ban a person from managing a corporation for breach of a civil penalty provision, ASIC must bring court proceedings. 3. A number of those interviewed expressed reservations about delays associated with use of the courts in the area of enforcement and, in addition, some of the difficulties of interpretation that have resulted from certain judgments of courts. These uncertainties in the interpretation of basic statutory provisions regulating directors' duties (which are civil penalty provisions) reinforce the trend to use alternative enforcement mechanisms. 4. There was some indication that many of those in the enforcement section of ASIC come from a criminal law background and therefore have a tendency to prefer criminal actions rather than civil penalties. The suggestion was that this would change over time as the personnel of ASIC changed. 5. Those interviewed indicated that the requirement to liaise with the Director of Public Prosecutions (DPP) over significant enforcement matters adds another level of complexity to the decision-making process. The consequences resulting from the requirement to liaise with the DPP was a recurring theme in the interviews. These consequences include (i) the requirement means that the DPP effectively has a veto over the use of civil penalties; (ii) the need for the DPP to satisfy itself that there is no criminal element in a matter may result in delay that can undercut the opportunity for a civil penalty action; and (iii) ASIC and the DPP have different enforcement objectives. The role of the DPP is to prosecute criminal breaches of the law while ASIC has broader objectives which include using civil remedies. These different objectives can impact upon the likelihood of civil penalties being pursued. 6. Unclear drafting of the civil penalty provisions, particularly regarding the elements that must be proved to satisfy the court that a breach of a civil penalty provision has occurred, limits the use of civil penalties. Where the same conduct may breach both a civil penalty provision and a provision in a State Criminal Code, there is an incentive to frame the legal action as a breach of the Criminal Code because of the uncertainty surrounding the civil penalty provisions.
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Jan 1, 2007
Solomon A Dersso 