UPDATE 83
JULY 2013
ASIC CORPORATE INVESTIGATIONS AND
HEARINGS
Middleton
Highlights
Original updated commentary in:
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Chapter 1: Policy and Legal Framework
Chapter 3: ASIC Informal Inquiries
Chapter 4: Investigations
Chapter 5: Examinations
Chapter 8: ASIC Proceedings on Investigations
Corporations Regulations 2001 (Cth) amended
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Chapter 1: Policy and Legal Framework
Corporate Regulation Functions
[1.205] Promoting proper disclosure and greater transparency
The AAT’s power to stay the publication of ASIC’s banning order decisions
If the Administrative Appeals Tribunal (AAT) stayed the publication of ASIC’s
banning order decision in the Gazette, it would mean that the market is not fully
informed. In such a case the market would not be operating fairly or properly.
Persons who deposit money with a financial services provider are entitled to
know whether that provider has been the subject of a banning order. They
would be justifiably aggrieved if their investments were inappropriately dealt
with during the time that the banning order was not publicised (Liu v ASIC
[2013] AATA 117 at [26] – [30]). The AAT’s power to stay ASIC’s decisions
pending the outcome of the review application is discussed at [16.870].
[1.210] Regulatory overlap
In some cases the courts have erroneously concluded that the relevant
transactions did not involve financial services and have mistakenly applied the
Trade Practices Act 1974 (Cth) (now the Australian Consumer Law – Sch 2 of
the Competition and Consumer Act 2010 (Cth)) rather than the ASIC Act
(Quikfund (Australia) Pty Ltd v Prosperity Group International Pty Ltd (in liq)
(2013) 209 FCR 368; 295 ALR 472; [2013] FCAFC 5 at [114] and [127]).
ASIC and Foreign Jurisdictions
[1.1000] Judicial approach in Australia
The courts have indicated that “it is no light matter to enforce Australian laws in
circumstances which infringe the legislative policies of other countries”. In such
cases the court is required “to apply the principled approach of caution” and
consider a number of factors when deciding whether the interests that favour
the production of the documents outweigh the interests of preventing a person
from breaching a foreign law. Those factors include:
(a) the matter of comity;
(b) the nature, significance and seriousness of the proceedings before the
court;
(c) whether the documents are located in Australia or in the country whose
laws prohibit production;
(d) whether the proceedings have a public interest element (see [1.1300]);
(e) the nature of the foreign law and whether it applies to the citizens of
that foreign jurisdiction or only to persons who are not citizens of that
foreign jurisdiction; and
(f) whether any order for the production of the documents would risk
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undermining the “significant interests of the State involved”.
(ASC v Bank Leumi Le-Israel (1996) 69 FCR 531; 139 ALR 21 ACSR 474 at
552 (FCR); Hua Wang Bank Berhad v Commissioner of Taxation (No 2) [2012]
FCA 938 at [75]; and Hua Wang Bank Berhad v Commissioner of Taxation
(2013) 296 ALR 479; [2013] FCAFC 28 at [18], [30], [31] and [43]).
Chapter 3: ASIC Informal Inquiries
[3.500] Right of silence
The defendants’ right of silence in criminal proceedings does not give those
defendants the same protection in concurrent civil proceedings. The plaintiffs in
civil proceedings are not prevented from taking action in accordance with the
normal civil rules even though it may mean that the defendants are likely to
reveal (in those civil proceedings) what their defence may be in the related
criminal proceedings (ASIC v Craigside Company Ltd [2013] FCA 201 at [10]
citing McMahon v Gould (1982) 7 ACLR 202; 1 ACLC 98 at 206 (ACLR)).
Chapter 4: Investigations
Investigation of Suspected Phoenix Activity
[4.870] Directors’ duties and phoenix activity
Definition of phoenix activity
Phoenix activity occurs where a new corporation rises “from the ashes of its
failed predecessor”. Phoenix activity can take a variety of forms. It may involve
cases where a corporation that has liquidity problems is put into liquidation or
voluntary administration or is deregistered and its assets are transferred to a
new corporation for an inadequate consideration. Phoenix activity may also
occur within corporate groups where a subsidiary corporation with large debts is
liquidated and its business and assets (but not its debts) are taken over by
another subsidiary corporation. In both cases the purpose of the phoenix
activity is to defeat the claims of the creditors of the old corporation. This has
caused large losses to creditors including the Australian Taxation Office and
employees. In some cases there has been a failure to remit superannuation
contributions.
(See Anderson H, “The Proposed Deterrence of Phoenix Activity: An
Opportunity Lost?” [2012] 34 Sydney Law Review 411 at 412, 413, 416 and 422
and the authorities cited therein.)
Directors’ duties
Directors may breach their duties in ss 180–184 of the Corporations Act 2001
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(Cth) where they engage in phoenix activity. For example, where directors use
information about a corporation’s liabilities as the ground for their decision to
transfer the business and assets of that corporation to a new corporation for the
purpose of defeating the creditors of the former corporation, those directors are
in breach of their duties in s 181 to act “in good faith in the best interests of the
corporation and for a proper purpose” and s 182 to not make an improper use
of position to cause detriment to the old corporation. They would also breach
the duty in s 183 to not make an improper use of confidential information.
Directors may also breach their fiduciary duties where they have engaged in
phoenix activity. Where directors engage in phoenix activity, ASIC’s right to
commence proceedings for breach of the directors’ statutory duties does not
depend on whether the corporation continues as a going concern or is put
under voluntary administration. The directors could face severe civil penalties
for breaching their duties including pecuniary penalties (see [8.1500]),
disqualification orders (see [8.1560]) and compensation orders (see [8.1800]).
The directors may also face criminal consequences if they have acted with
intentional dishonesty or recklessness (see [4.580], [8.1380] and [8.3320]).
Anderson has indicated that the fact that phoenix activity is continuing raises
the question about whether ASIC is taking sufficient steps to detect and enforce
the relevant contraventions. Anderson suggests that the laws need to be
reformed to simplify detection and enforcement.
(See Anderson H, “The Proposed Deterrence of Phoenix Activity: An
Opportunity Lost?” [2012] 34 Sydney Law Review 411 at 419, 420 and 421 and
the authorities cited therein)
Disqualification – phoenix activity
The court may disqualify a person from managing corporations where that
person has been involved in two or more failed corporations in seven years and
it is satisfied that the way in which the corporation was managed by that person
was wholly or partly responsible for the corporation’s failure and the
disqualification is justified (see [8.1560]). ASIC may also make an
administrative order disqualifying a person from managing a corporation for up
to five years if that person has been an officer of two or more corporations that
have been wound up on the ground of insolvency and the liquidator has lodged
a report under s 533 of the Corporations Act 2001, as discussed at [9.104].
According to Anderson, these powers do not adequately prevent or deter
phoenix activity because “they cannot be used in the first resurrection of the
failed company”.
(See Anderson H, “The Proposed Deterrence of Phoenix Activity: An
Opportunity Lost?” [2012] 34 Sydney Law Review 411 at 419 and the
authorities cited therein.)
Chapter 5: Examinations
[5.1620] Admissibility of statement in proceedings
Section 68(2) and (3) of the ASIC Act provide that examinees are afforded “use”
evidential immunity (in relation to both their statements and the fact that the
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examinees have signed their records of examination) in subsequent penalty or
criminal proceedings provided they claim the penalty privilege or the privilege
against self-incrimination before making the statements that might tend to
incriminate them in such proceedings. The tendency of the statement to
incriminate the examinee is not determined at the time the statement is made at
the examination or by reference to the circumstances existing at that time.
Rather, the tendency of the statement to incriminate the examinee is a decision
that is made by the court in the subsequent penalty or criminal proceedings at
the time it is tendered as evidence. The court’s decision about the incriminating
tendency of the statement is made by reference to the allegations made against
the examinee in that proceeding and the facts and circumstances existing at the
time of that proceeding (R v Cantena [No 3] [2013] WASC 97 at [16] – [18] and
[22]). The admissibility of statements made at an examination is discussed
further at [14.1300].
Chapter 8: ASIC Proceedings on Investigations
CIVIL PROCEEDINGS
Winding up
[8.740] Phoenix activity
Winding up
It has been held that corporations with a history of phoenix activity may be
wound up on the just and equitable ground as such an order is “in the public
interest and conducive to commercial morality” (Deputy Commissioner of
Taxation v Casualife Furniture International Pty Ltd (2004) 9 VR 549; 55 ATR
599; [2004] VSC 157 and Deputy Commissioner of Taxation v Woodings (1994)
13 WAR 189; 16 ACSR 266; 13 ACLC 469 cited in Anderson H, “The Proposed
Deterrence of Phoenix Activity: An Opportunity Lost?” [2012] 34 Sydney Law
Review 411 at 421).
The Corporations Amendment (Phoenixing and Other Measures) Act 2012
(Cth) inserted s 489EA of the Corporations Act 2001 and gives ASIC the power
to make an administrative order that a corporation be wound up where it is not
carrying on a business. ASIC, rather than the court, will appoint the liquidator.
This administrative power reduces the costs and delay that is otherwise
associated with an application to the court for a winding up order. This
legislation is designed to address the problem of corporations remaining
dormant with unpaid debts in a situation where no creditor is prepared to
expend further funds to apply to the court for a winding up order. This reform is
also designed to enable the liquidator to uncover any phoenix activity and
commence relevant proceedings. The liquidation process will also enable
employees to make a claim under the General Employee Entitlements
Redundancy Scheme (a taxpayer funded scheme that enables employees of
insolvent employers to recover unpaid wages and other entitlements).
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(See Anderson H, “The Proposed Deterrence of Phoenix Activity: An
Opportunity Lost?” [2012] 34 Sydney Law Review 411 at 421 and 424–426 and
the authorities cited therein).
Corporations Act (Similar Names) Bill 2012
The Corporations Act (Similar Names) Bill 2012 (Cth) provides that directors
may be liable for the debts of a corporation that has a similar name to the preliquidation name of the failed corporation but only where the new corporation is
not carrying on business. The court or liquidator may make an exemption where
the director “has acted honestly ... and having regard to the circumstances of
the case, ... ought fairly to be exempt”. In making this decision, the court will
have regard to whether the assets of the failed corporation have become assets
of the new debtor corporation.
According to Anderson, given that the phoenix activity that caused the harm
related to the creditors of the failed corporation, it is anomalous that the Bill
imposes liability on the directors for the debts of the new corporation rather than
the failed corporation. The Bill does not apply where those who engage in
phoenix activity form a new corporation that has a different name to the preliquidation name of the failed corporation. According to Anderson, “it is absurd”
that the Bill is easily avoided by adopting a different name for the new
corporation. The Bill does not apply where a similar name is adopted for the
new corporation and the directors of the new corporation are related parties
(such as spouses or children) of the directors of the failed corporation.
(See Anderson H, “The Proposed Deterrence of Phoenix Activity: An
Opportunity Lost?” [2012] 34 Sydney Law Review 411 at 424, 427, 432 and
436.)
Phoenix activities - voluntary administration
The Corporations Amendment (Phoenixing and Other Measures) Act 2012
(Cth) and the Corporations Act (Similar Names) Bill 2012 (Cth) do not deal the
relationship between phoenix activity and voluntary administration. Phoenix
activity may be reduced in a voluntary administration by the fact that if the
creditors are not satisfied with the terms of the deed of company arrangement,
they may vote to wind the company up. However, phoenix activity may take
place in small family owned corporations where the majority of creditors also
control the failed corporation or where some creditors have made secret
arrangements with the controllers of the failed corporation to be paid from the
assets of the new corporation. While the court does have power to set aside a
decision of the creditors’ meeting where the vote has been determined by
related entities, this requires an expensive application to the court. This means
that in most cases such an application will only be made where there is a major
unsecured creditor such as the Australian Taxation Office.
(See Anderson H, “The Proposed Deterrence of Phoenix Activity: An
Opportunity Lost?” [2012] 34 Sydney Law Review 411 at 428–429)
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Injunctions under the Corporations Act and the ASIC Act
[8.980] Prohibitory or mandatory injunctions
Regulatory purpose
Section 1324 of the Corporations Act 2001 is a public interest provision as it is
designed to protect the public interest by preventing particular contravening
conduct. This means that the court will consider public policy factors including
ASIC’s regulatory objectives (see [1.400]) when deciding whether to grant the
injunction (Re Idylic Solutions Pty Ltd and ASIC v Hobbs [2013] NSWSC 106 at
[69]).
[8.1190] Injunctions and financial services
ASIC may apply for an injunction under s 1101B of the Corporations Act 2001
to restrain a person from carrying on a financial services business without a
licence in breach of Ch 7 (including s 911A) of that Act. Financial services
licences are discussed at [9.102]. The principles to be applied by the court in
deciding whether a director’s disqualification order should be made, and if so,
the period of disqualification (under s 206C of the Corporations Act 2001 – see
[8.1560]) enunciated by Santow J in ASIC v Adler (2002) 20 ACLC 1,146; 42
ACSR 80; [2002] NSWSC 483 at [56] equally apply to a financial services
disqualification order under s 1101B. This is because disqualification orders
under s 206C and s 1101B serve similar purposes including protecting the
public, promoting public confidence in the financial system, promoting specific
and general deterrence and punishing the defendants. Contraventions by
directors and financial services providers and consultants may potentially cause
significant financial damage and this also indicates that similar factors should
be taken into account in deciding whether to make disqualification orders
against such persons. To promote general deterrence, the defendants may be
permanently restrained from carrying on a financial services business or holding
a financial services licence under s 1101B (even if there is no risk that the
defendants will repeat their contraventions).
The court also has jurisdiction to grant a permanent injunction under s 1324 of
the Corporations Act 2001 restraining persons (who do not hold a financial
services licence) from providing financial product advice, or from dealing in
financial products, or from holding themselves out as being able to do so.
(ASIC v Cycclone Magnetic Engines Inc (2009) 224 FLR 50; (2009) 71 ACSR 1;
[2009] QSC 58; and Re Idylic Solutions Pty Ltd and ASIC v Hobbs [2013]
NSWSC 106 at [62] – [63], [88] – [91], [103] – [106] and [310]).
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Proceedings for Contravention of Civil Penalty Provisions – Civil
Penalty Orders
[8.1460] Declaration
Court’s power
The court has a wide discretion about whether to grant a declaration. The
applicant must have a real interest in raising the question before the court and
there must be a person who has a true interest in opposing the declaration
sought because judicial pronouncements should not be made unless the
circumstances require them to be made.
(Forster v Jododex Aust Pty Ltd (1972) 127 CLR 421; [1972] HCA 61 at 435–
436 (CLR); and Re Idylic Solutions Pty Ltd and ASIC v Hobbs [2013] NSWSC
106 at [26] – [28] and [120].)
Public interest
There is “utility” in making declarations where they promote personal and
general deterrence. The utility of the declaration may be measured by its
effectiveness in resolving the dispute and preventing further litigation (Re Idylic
Solutions Pty Ltd and ASIC v Hobbs [2013] NSWSC 106 at [33] and [120] and
the authorities cited therein).
Single vs multiple contraventions
As a general rule, the court should make separate declarations for each act or
default. However, in some cases, the court may consolidate the proposed
declarations of contraventions of different sections of the Corporations Act 2001
into one declaration of a single contravention. This occurs, for example, where
the same conduct should be treated as one contravention, rather than as
separate contraventions, of the directors’ duties in ss 180–183 of the
Corporations Act 2001. This approach recognises that the same conduct may
constitute a breach of the duty of care and diligence in s 180 as well as a
breach of the other statutory duties in ss 181–183 and that these duties were
not enacted to “create a regime of multiple jeopardy” or double punishment
(ASIC v Maxwell (2006) 59 ACSR 373; [2006] NSWSC 1052; and Re Idylic
Solutions Pty Ltd and ASIC v Hobbs [2013] NSWSC 106 at [38] – [39]).
Stay – concurrent civil and criminal proceedings
In the context of concurrent civil and criminal proceedings relating to the same
factual circumstances, the court has indicated that while it has jurisdiction to
make a declaration, it may refuse to make a declaration if it “in substance,
amounted to a declaration that a defendant had committed a crime”. The court
should not make a declaration that may be falsified by a subsequent acquittal in
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criminal proceedings between the same parties (ASIC v Intertax Holdings Pty
Ltd [2006] QSC 276; and ASIC v HLP Financial Planning (Aust) Pty Ltd (2007)
164 FCR 487; [2007] FCA 1868 at [54] cited in ASIC v Craigside Company Ltd
[2013] FCA 201 at [12]).
The declaration may be refused and the civil proceedings may be stayed when
criminal proceedings in respect of a related matter or the same matter are “on
the cards”. The court will order a stay where the facts in the civil proceedings
are in dispute, the civil case will be decided on evidence that would not be
available to the prosecution in the criminal trial and there is a real risk of
prejudice to the defendants in that their preparation for, and conduct of, the civil
proceedings may significantly compromise their legitimate (rather than tactical)
interests in the criminal trial (ASIC v Craigside Company Ltd [2013] FCA 201 at
[15] citing ASIC v HLP Financial Planning (Aust) Pty Ltd (2007) 164 FCR 487;
[2007] FCA 1868 at [59]; and Websyte Corporation Pty Ltd v Alexander (No 2)
[2012] FCA 562 at [117] – [122]).
The court’s power to grant a stay is discussed at [8.3120].
[8.1500] Pecuniary penalty order
Totality principle
While equal justice requires that “like cases be treated alike”, if there are
relevant differences between co-contraveners, then the court should make due
allowance for those differences. Such due allowance does not merely involve
the imposition of different penalties for each co-contravener. Rather, it requires
the court to consider “due proportion” in the penalties imposed on each cocontravener taking into account the different circumstances of each cocontravener and the different degrees of seriousness of their misconduct (Re
Idylic Solutions Pty Ltd and ASIC v Hobbs [2013] NSWSC 106 at [115]).
Pecuniary penalty order, disqualification order and compensation order
It has been suggested that a pecuniary penalty should only be imposed if a
disqualification order is an “inadequate or inappropriate penalty”. In some
cases, the seriousness of the misconduct means that the court will make a
pecuniary penalty order, in addition to the disqualification order, to promote
general deterrence and to mark the court’s disapproval of conduct involving a
serious departure from the standards expected of directors (Rich v ASIC (2004)
220 CLR 129; [2004] HCA 42 at [48]; Gillfillan v ASIC (2012) 92 ACSR 460; 30
ACLC 12-058; [2012] NSWCA 370 at [330]; and Re Idylic Solutions Pty Ltd and
ASIC v Hobbs [2013] NSWSC 106 at [52] – [53], [108] and [405]).
Bankruptcy
Where the defendant is bankrupt or insolvent and, it is unlikely that the
pecuniary penalty will be recovered, the court may still decide to impose a
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substantial pecuniary penalty to promote general deterrence (ACCC v Halkalia
Pty Ltd (No 2) [2012] ATPR 42-399; [2012] FCA 535 at [90]; and Re Idylic
Solutions Pty Ltd and ASIC v Hobbs [2013] NSWSC 106 at [241] and [442]).
[8.1560] Court power of disqualification – contravention of a civil penalty
provision
Permanent disqualification
Section 206C and s 206E (see [8.1720]) of the Corporations Act 2001 provide
that the court may make a disqualification order “for a period that the court
considers appropriate”. This empowers the court to make an order that
permanently disqualifies a person from managing corporations. The “totality
principle” does not apply to permanent disqualification orders (Re Idylic
Solutions Pty Ltd and ASIC v Hobbs [2013] NSWSC 106 at [317]).
[8.1790] Disqualification order – New Zealand, United States and United
Kingdom
The Financial Management Authority in New Zealand may apply to the New
Zealand High Court under s 383 of the Companies Act 1993 (NZ) and
s 137C(e) of the Financial Advisors Act 2008 (NZ) for orders disqualifying
persons from managing corporations or from providing financial services if they
have been prohibited from engaging in such activities in Australia (Re Idylic
Solutions Pty Ltd and ASIC v Hobbs [2013] NSWSC 106 at [43] citing Gillfillan v
ASIC (2012) 92 ACSR 460; 30 ACLC 12-058; [2012] NSWCA 370 at [272]).
[8.1800] Application by ASIC for compensation order
Limitation period
In Re Auzhair Supplies Pty Ltd (in liq) (2013) 92 ACSR 554; 31 ACLC 13-001;
[2013] NSWSC 1 at [78], Brereton J indicated that the statutory compensation
remedy in s 1317H was “conceptually indistinguishable from the remedy of
equitable compensation”. However, Brereton J did not refer to the decision in
Adler v ASIC (2003) 179 FLR 1; 46 ACSR 504; 21 ACLC 1810; [2003] NSWCA
131 at [707] – [709] where the Court of Appeal held that the equitable test of
causation did not apply to compensation orders under s 1317H. According to
Brereton J (at [76] – [77]), the directors’ statutory duties under ss 180–183 of
the Corporations Act 2001 and the statutory compensation remedy under s
1317H on the one hand, and the directors’ common law and fiduciary duties
and the equitable compensation remedy on the other hand, “are practically
indistinguishable”. This meant that “prima facie” the six (6) year limitation
period in s 1317K of the Corporations Act 2001 (that was applicable to the
statutory claim) applied by analogy to the equitable claim (at [81]). However,
Brereton J held (at [84], [90] and [96]) that it was inequitable to apply the
limitation period in s 1317K to the equitable claim because on the facts of the
present case the plaintiff corporation was not aware of, or able to enforce, its
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rights at the time when the cause of action commenced as the plaintiff
corporation was controlled by the wrongdoers and had been wrongly
deregistered by them.
Proceeds of Crime
[8.2570] Recovery of proceeds of crime
The objects of the Proceeds of Crime Act 2002 (Cth) are to:
(a) deprive persons from obtaining benefits, or from being unjustly
enriched, as the result of committing crimes by providing a regime for
the confiscation of such benefits;
(b) to punish persons for, and to deter them from, breaching the law;
(c) enable law enforcement authorities to trace the proceeds of crime; and
(d) give effect to Australia’s international obligations in this area.
(See s 5 of the Proceeds of Crime Act 2002 (Cth); and Commonwealth Director
of Public Prosecutions v Hart [2013] QDC 60 at [157].)
Recovery of forfeited property by the owner
Section 18 of the Proceeds of Crime Act 2002 (Cth) provides that if there are
reasonable grounds to suspect that property that is owned by a person is under
the effective control of another person who is suspected of having committed a
serious offence, the court must make a restraining order that prevents the
property from being disposed of or otherwise dealt with. Sections 92 and 94
provide that if that suspect is subsequently convicted of a serious offence, the
property protected by the restraining order is forfeited to the Commonwealth
unless the owner of that property proves all of the matters specified in s 102 of
the Proceeds of Crime Act 2002 (Cth). That is, the owner must prove (on the
balance of probabilities) that the property was not the proceeds of unlawful
activity or an instrument of unlawful activity. Section 329 provides that property
is the “proceeds” of unlawful activity where it is wholly or partly derived or
realised, whether directly or indirectly, from that activity irrespective of whether
the property is situated within or outside Australia. Section 329 also provides
that property is an “instrument” of an offence if it is used, or is intended to be
used, in, or in connection with, unlawful activity irrespective of whether the
property is situated within or outside Australia. Even if the owner proves the
matters in s 102, the Commonwealth DPP may still apply to the court for an
order (under s 141) that the whole or part of the property be made available to
satisfy any pecuniary penalty order that has been made against the convicted
person. The court may make such an order where it is satisfied that the
property was under the effective control of the convicted person (see generally
Commonwealth Director of Public Prosecutions v Hart [2013] QDC 60 at [34],
[54], [55] and [860]).
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CRIMINAL PROCEEDINGS
Sentencing Guidelines
[8.2965] Matters relevant to level of criminal penalty
Profits made and capital invested
The profits made by the perpetrator (such as an insider trader) may be relevant
but the amount of capital invested is a more important indicator of criminality
and therefore a more significant sentencing consideration (R v Zhu [2013]
NSWSC 127 at [22]).
Relationship with Civil Proceedings
[8.3120] Civil proceedings commencing after criminal proceedings – stay
The courts should protect defendants and not compel them, in the course of
defending civil proceedings, to waive their right of silence and privilege against
self-incrimination and thereby reveal their defence to the criminal proceedings.
However, these concerns are reduced where the case involves undisputed
facts (so that there is no risk that the facts will be determined in the civil case in
advance of the criminal trial) and the issues raised are about pure questions of
law (ASIC v HLP Financial Planning (Aust) Pty Ltd (2007) 164 FCR 487; [2007]
FCA 1868 at [58] cited in ASIC v Craigside Company Ltd [2013] FCA 201 at
[11] and [12]).
The fact that a person’s right to silence is abrogated in the civil proceedings is
not, of itself, a ground to obtain a stay of those civil proceedings. The question
is whether the process being adopted is “inconsistent with the recognised
purpose of the administration of criminal justice and so [constitutes] an abuse of
process”. “[A] stay will only be granted in an extreme case and the fundamental
defect which warrants a stay must be such that there is nothing a trial judge can
do to relieve against unfair consequences”. The right of silence may be
protected by the fact that the defendant is not required to give evidence at the
civil proceeding. However, the failure to give evidence may result in an adverse
Jones v Dunkel inference being made (see [8.1520] and [10.740]). Any
evidence given by the defendant in the civil proceedings that may prejudice that
person’s right to a fair criminal trial could be protected from being publicly
released by non-disclosure orders. A jury could also be given appropriate
directions about any previously published prejudicial material that was not
before the criminal court. In addition, any evidence obtained from the civil
proceedings would only be admissible in subsequent criminal proceedings if it
passed the relevant tests for the admission of evidence in criminal proceedings
(R v Seller [2013] NSWCCA 42 at [110]; and ML v ASIC [2013] NSWSC 283 at
[39], [45], [46] [53], [56] and [58]).
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Civil proceedings may be stayed when criminal proceedings in respect of a
related matter or the same matter are “on the cards” where the facts in the civil
proceedings are in dispute, the civil case will be decided on evidence that would
not be available to the prosecution in the criminal trial and there is a real risk of
prejudice to the defendants in that their preparation for, and conduct of, the civil
proceedings may significantly compromise their legitimate (rather than tactical)
interests in the criminal trial. Even if matters (including defences) disclosed in
civil proceedings are not admissible against the same defendant in criminal
proceedings, prejudice may result from indirect or derivative evidence (ASIC v
Craigside Company Ltd [2013] FCA 201 at [15] citing ASIC v HLP Financial
Planning (Aust) Pty Ltd (2007) 164 FCR 487; [2007] FCA 1868 at [59]; and
Websyte Corporation Pty Ltd v Alexander (No 2) [2012] FCA 562 at [117] –
[122]).
In appropriate cases the court may order that ASIC’s civil proceedings are
stayed until ASIC notifies the defendants in those civil proceedings that it does
not intend to commence criminal proceedings against them or brief the
Commonwealth DPP. The provisions in the Corporations Act 2001 (including
s 1317P and s 1331) do not prevent the court from granting a stay where the
risk of substantial injustice caused by continuing the civil proceedings
outweighs the public interest in litigation being heard and decided in the
ordinary course (ASIC v Craigside Company Ltd [2013] FCA 201 at [19] and
[25]).
Criminal Proceedings against Directors and Other Officers for
Breach of Statutory Duty
[8.3320] Current law – directors' duties and criminal offences
White collar crime and financial crime
The victims of financial crime will also include persons who have traded in a
market that operated on a false basis such as where the contraventions
artificially inflated or maintained the share price (Re Idylic Solutions Pty Ltd and
ASIC v Hobbs [2013] NSWSC 106 at [370]). Financial crimes may cause
significant financial loss to individuals as well as causing those persons
significant stress and anxiety. Such crimes “may effect the Australian economic
‘brand’ and its desirability as a place to invest” (DPP (Cth) v Couper [2013]
VSCA 72 at [108] citing Hon Justice Peter McClellan, White Collar Crime:
Perpetrators and Penalties, Keynote Address, Fraud and Corruption in
Government Seminar, University of New South Wales (24 November 2011),
18).
Corporations Regulations 2001 (Cth)
The Corporations Regulations 2001 (Cth) have been amended recently and a
brief overview of each amending instrument follows.
ASIC Corp Investigations & Hearings 13
The Corporations Amendment (Intra-fund Advice Fees) Regulation 2013 (Cth),
being SLI No 102 of 2013, commenced on 5 June 2013. According to the
Explanatory Statement that accompanied the instrument, the regulation:
makes several amendments to the Corporations Regulations 2001 (the
Principal Regulations). The amendments are in respect of the provisions
relating to financial services licensees and representatives charging ongoing
fees to clients as introduced by the Corporations Amendment (Future of
Financial Advice) Act 2012.
Specifically, the amendments to the Principal Regulations rearrange existing
Regulations that exempt ‘product fees’ from the definition of an ‘ongoing fee
arrangement’, and further define a ‘product fee’ to include a fee for personal
advice that may be collectively charged to members of a regulated
superannuation fund under the Superannuation Industry (Supervision) Act 1993
(the SIS Act).
The Treasury Legislation Amendment (Unclaimed Money and Other Measures)
Regulation 2013 (Cth), being SLI No 117 of 2013, commenced on 18 June
2013.
According to the Explanatory Statement that accompanied the
instrument, the regulation:
The purpose of the Regulation is to amend the Banking Regulations 1966
(Banking Regulations), Corporations Regulations 2001 (Corporations
Regulations), First Home Saver Accounts Regulations 2008 (FHSA
Regulations) and the Superannuation (Unclaimed Money and Lost Members)
Regulations 1999 (Unclaimed Superannuation Regulations) (collectively, the
Principal Regulations) to specify how to work out the interest payable by the
Commonwealth on unclaimed money in three sets of circumstances.
The Principal Acts all set out circumstances under which money held by the
entities regulated by the Principal Acts will be considered unclaimed money and
must therefore be paid to the Commonwealth (either to the Commissioner of
Taxation (Commissioner) or the Australian Securities and Investments
Commission (ASIC)). The Principal Acts also set out the conditions on which
this money will then be paid by the Commissioner or ASIC to an individual and
the circumstances in which interest will be paid on these payments of
unclaimed money.
ASIC Corp Investigations & Hearings 14