![]() |
Home
| Databases
| WorldLII
| Search
| Feedback
Melbourne University Law Review |
![]() |
MICHELLE WELSH[*]
[In theory it is possible to map the civil penalty provisions contained in Corporations Act 2001 (Cth) part 9.4B on to an enforcement pyramid in a manner envisaged by responsive regulation. However, the data examined in this article reveals that there is a gap between theory and practice. If the civil penalty regime were being utilised in a manner envisaged by responsive regulation, the Australian Securities and Investments Commission (‘ASIC’) would consider whether or not a civil penalty application was an adequate regulatory response prior to considering a criminal prosecution in the majority of cases. More civil penalty proceedings than criminal prosecutions would be issued in relation to the same types of contraventions. Neither of these is occurring. The examination of ASIC’s use of the civil penalty regime reveals that its decision-making process is different from that suggested by responsive regulation.]
CONTENTS
The civil penalty regime contained in part 9.4B of the Corporations Act 2001 (Cth) (‘Corporations Act’) came into operation on 1 February 1993.[1] It was adopted on the recommendation of the Senate Standing Committee on Legal and Constitutional Affairs (then known as the ‘Cooney Committee’).[2] Its purpose was to overcome apparent deficiencies in the law relating to the enforcement of the statutory directors’ duties.[3] Prior to the introduction of the civil penalty provisions, the directors’ duties provisions were criminal provisions.[4] The civil penalty provisions are designed to provide the regulator with an enforcement regime that complies with responsive regulation theory.[5]
Responsive regulation defines the regulator’s goal as the need to
secure compliance with the law and offers guidelines as to
the best method of
securing that
compliance.[6]
This
article examines the Australian Securities and Investments Commission’s
(‘ASIC’s’) use of the civil penalty
regime for the purpose of
determining whether or not ASIC utilises that regime in a manner envisaged by
responsive regulation. The
examination is limited to a consideration of criminal
and civil penalty applications issued in relation to alleged contraventions
of
the directors’ duties contained in Corporations Act ss 181,
182 and 183. These provisions have been selected because both civil penalty
applications and criminal prosecutions are available for their enforcement.
While other provisions of the Corporations Act may give rise to
both civil penalty proceedings and criminal prosecutions, the majority of the
civil penalty applications issued
by ASIC have alleged a contravention of the
directors’ duties
provisions.[7]
The number of civil penalty proceedings issued alleging contravention of other
provisions is so small as to render a comparison with
criminal prosecutions
meaningless.
The examination undertaken in this article reveals that, in
situations where a criminal prosecution is available, the civil penalty
regime
is not being utilised in a manner envisaged by responsive regulation. If ASIC
were following an enforcement strategy which
was consistent with the guidelines
suggested by responsive regulation, two consequences would follow. First, in
relation to alleged
contraventions of the directors’ duties provisions,
ASIC would consider whether or not a civil penalty application was an
appropriate
regulatory response prior to issuing a criminal prosecution in the
majority of cases. Secondly, ASIC would issue more civil penalty
applications
than criminal prosecutions. Neither of these is occurring.
The examination of
ASIC’s enforcement of Corporations Act ss 181, 182 and 183
reveals that its decision-making process is different from that suggested by
responsive regulation. The regulator is acting in a
political environment where
vigorous public and political debate about its actions needs to be taken into
consideration. The environment
in which ASIC works requires it to provide strong
justification for any decision not to prosecute criminally. Responsive
regulation
does not consider in detail how the political and social environment
in which a regulator operates might influence the regulatory
strategy adopted by
it. Partly due to this political and social pressure, it is only after a
criminal prosecution has been ruled
out that ASIC’s decision-making
process begins to resemble the model that is envisaged by responsive
regulation.
A consequence of ASIC’s enforcement strategy may be that an
optimal level of voluntary compliance with the directors’
duties
provisions is not being achieved. The data examined in this article does not
provide any information about compliance levels.
Therefore, this article cannot
comment on the effect, if any, that ASIC’s enforcement strategy has on
compliance. Nonetheless,
an empirical analysis of ASIC’s enforcement
strategy is of itself worthwhile as it may challenge the ability of responsive
regulation to explain ASIC’s actions and can form the basis of further
research regarding compliance.
Responsive regulation theory was developed and expanded by Ian Ayres and John Braithwaite.[8]
This theory recognises that it is not possible for any regulatory agency to detect and enforce every contravention of the law that it administers. Therefore it is vital that regulatory agencies are able to encourage actors to comply with the law voluntarily. The goal of responsive regulation is ‘to stimulate maximum levels of regulatory compliance.’[9]
Responsive regulation relies on the premises that the actions of individual actors are motivated by different factors and that a successful regulatory agency needs to have a range of enforcement options available to enable it to deal with actors who are subject to those different motivational factors.[10]
Business actors who are motivated by a sense of social responsibility could
be regulated effectively by a regime that relies on persuasion
or
self-regulation. A regime based on punishment would be required to regulate
business actors who are influenced solely by economic
considerations.[11]
In 2001,
Darryl Brown applied responsive regulation in the context of corporate crime in
the United States and stated that:
The rationales behind the Ayres–Braithwaite proposal are now widely accepted in regulatory debate and increasingly characterize enforcement practice. A driving motivation of this approach is to reduce the ‘psychology of resentment,’ the prospect that firms and individuals confronted with inflexible commands and harsh punishments adopt a critical, noncooperative posture toward compliance goals and enforcement personnel. Those attitudes foster norms and legitimacy problems that work against legal compliance. Conversely, new regulatory strategies aim to foster self-regulation, voluntary compliance, and a sense of social responsibility. Cooperative, nonconfrontational approaches begin enforcement with dialogue and efforts to coax voluntary responses, followed only later, for a recalcitrant subgroup, with warnings, civil sanctions, and criminal prosecution. They strengthen the legitimacy of the legal rules and social influences that support them. Regulators and scholars have become increasingly sensitive to the importance of such informal, nonlegal means of fostering compliance; the goal is to design enforcement strategies that foster social norms, corporate cultures, and market contexts in which ‘corporate virtue’ can develop and be maintained.[12]
Todd Lochner and Bruce Cain applied responsive regulation in the context of the enforcement of US campaign finance laws.[13] They argue that
the ability … to impose — or threaten to impose — a variety of enforcement sanctions ensur[es] that the [regulatory] agency is not forced to choose between low-cost, low-impact remediation and high-cost, high-impact criminal sanctions.[14]
Ayres and Braithwaite argue not only that regulatory agencies require a variety of enforcement mechanisms but also that those enforcement mechanisms must be ordered correctly. Compliance is most likely to be achieved when a regulatory agency is able to display an explicit ‘enforcement pyramid’ that contains a variety of enforcement measures escalating in severity in proportion to the nature of the contravention committed.[15]
The base of the pyramid should contain mechanisms that allow the
regulator ‘to coax compliance by
persuasion’.[16]
The next level of the enforcement pyramid may include measures such as the
sending of a warning letter.[17] If
the warning letter fails to secure compliance, the next level of the enforcement
pyramid may allow for the imposition of a civil
monetary or other
penalty.[18] The penultimate level
of the pyramid may contain sanctions such as criminal fines and other
non-custodial sentences for individuals
as well as temporary plant shutdown or
licence suspension for bodies
corporate.[19] Incarceration for
individuals and permanent licence cancellation or deregistration for bodies
corporate may be at the apex of the
pyramid.[20]
One
of the reasons the civil penalty regime was introduced was to provide ASIC with
an enforcement regime that complied with responsive
regulation.[21]
The civil penalty regime deems certain provisions of the Corporations
Act to be civil penalty
provisions.[22] The deemed civil
penalty provisions include, but are not limited to, provisions relating to
directors’ duties, share capital,
insolvent trading, duties owed by
entities responsible for managed investment schemes, duties of officers and
employees of those
entities and market
misconduct.[23]
If ASIC believes
that a civil penalty provision has been contravened, it can issue proceedings
seeking a declaration of contravention,
a pecuniary penalty, a disqualification
and/or a compensation order.[24]
Civil penalty proceedings (such as proceedings for a declaration of
contravention and for civil penalty orders) differ from criminal
prosecutions in
that they are treated as civil proceedings for the purpose of the rules of
evidence and procedure.[25] The
standard of proof is proof ‘on the balance of
probabilities’.[26]
The
civil penalty provisions can be divided into two categories. The first category
contains those provisions that may under certain
circumstances be enforced by a
criminal prosecution in addition to a civil penalty application. The
directors’ duties contained
in Corporations Act ss 181, 182
and 183 are examples of civil penalty provisions that are subject to criminal
sanctions.[27]
The second category contains those civil penalty provisions that are not enforceable through the criminal regime: the non-criminal civil penalty provisions. If a non-criminal civil penalty provision is contravened, a civil penalty application is the most severe enforcement action that ASIC can instigate. The directors’ duty of care and diligence contained in Corporations Act s 180 is an example of a non-criminal civil penalty provision.[28]
To comply with responsive regulation, the introduction of the civil
penalty regime had to provide ASIC with a range of enforcement
options that
escalate in severity and are capable of being displayed on an explicit
enforcement pyramid.[29]
Commentators argue that, prior to the introduction of the civil penalty regime, the range of sanctions available to ASIC to enforce contraventions of the directors’ duties provisions did not accord with the enforcement pyramid: there was a gap in the middle range of sanctions.[30]
The civil penalty regime was enacted in an attempt to fill that gap. When the regime was introduced, it was intended that civil penalties for contraventions of the directors’ duties provisions would occupy the middle to higher levels of the enforcement pyramid for individuals.[31]
Criminal penalties would occupy the apex of the pyramid.[32]
Research has been undertaken into the Australian Securities
Commission’s[33] use of the
civil penalty regime in the early
years.[34]
The research revealed that the original civil penalty regime did not map on to the enforcement pyramid in a manner envisaged by responsive regulation.[35]
One of the reasons for this was that the law provided[36] that the commencement of proceedings for a civil penalty order was a bar to a subsequent prosecution for the corresponding criminal offence.[37]
It has been argued that the bar against subsequent criminal prosecutions meant that criminal and civil penalties sat at ‘the same level of the pyramid because they are mutually exclusive sanctions … [such that] the selection of one operates as a bar to the use of the other.’[38]
On 13 March 2000, the Corporate Law Economic
Reform Program Act 1999 (Cth) (‘CLERP
Act’) commenced
operation.[39]
Amongst other things, it removed the bar against the issue of criminal
proceedings after the institution of civil penalty
proceedings.[40]
The
removal of the bar against subsequent criminal prosecution means that, in
theory, the position of civil penalty provisions on
the enforcement pyramid has
changed. Since the commencement of the CLERP Act, civil penalties
and criminal prosecutions are no longer mutually exclusive sanctions. They no
longer occupy the same level of the
enforcement pyramid. In theory, the position
of civil penalties on the enforcement pyramid is clear. In relation to the first
category
of civil penalty provisions, civil penalties sit at the penultimate
level of the enforcement pyramid, with criminal sanctions sitting
at the apex.
The enforcement pyramid for the second category of civil penalty provisions,
such as the duty of care and diligence
contained in Corporations
Act s 180, is different. Civil penalties sit at the apex of the
enforcement pyramid for those provisions because criminal penalties are not
available.
As stated previously, responsive regulation requires regulators to be armed
with a range of sanctions that escalate in severity from
persuasion to
incapacitation. These escalating penalties must be capable of being displayed on
an explicit enforcement pyramid. While
it is not required in every case,
responsive regulation posits that the most successful regulatory agencies will
be able to encourage
voluntary compliance with the laws they administer by
commencing at the bottom of the pyramid in the majority of cases and escalating
up the pyramid in response to continued noncompliance. The use of sanctions in
this way is the option preferred by responsive regulation.
One of the reasons
for the adoption of this approach is that, because of the cost, it is not
possible for any regulatory agency to
‘operate consistently near the peak
of the enforcement
pyramid’.[41] If punishment
were to be adopted as the strategy of first choice, this would be unaffordable,
unworkable and
counterproductive.[42] In the case
of the enforcement of the Corporations Act, punishment as a
strategy of first choice would be unworkable and unaffordable due to the large
number of corporations and corporate
actors.[43]
If resort to the
persuasive measures located at the base of the pyramid does not achieve the
desired result, the regulator must be
prepared to advance to a higher level in
the pyramid. George Gilligan, Helen Bird and Ian Ramsay argue that ‘the
regulator
must accept the reality of non-compliance and be prepared to move
“up” the enforcement
pyramid.’[44]
Ayres and Braithwaite argue that an adequately designed enforcement regime would allow for ‘every escalation of noncompliance by the firm [to] be matched with a corresponding escalation in punitiveness by the state.’[45]
However, Ayres and Braithwaite also state that the most successful
regulatory agencies are able to secure regulatory compliance in
the majority of
cases without having to utilise the most severe sanctions at the apex of the
enforcement pyramid.[46] They
describe these successful regulatory agencies as ‘benign big
guns’.[47] These agencies
‘will be more able to speak softly when they carry big sticks (and
crucially, a hierarchy of lesser sanctions).
Paradoxically, the bigger and the
more various are the sticks, the more regulators will achieve success by
speaking
softly.’[48]
Responsive
regulation has been applied by researchers in relation to a number of regulatory
regimes. In 1994, Chris Dellit and Brent
Fisse referred to Ayres and
Braithwaite’s pyramid of enforcement and noted that the more regulatory
agencies can keep their
strong sanctions ‘in the background, the more
regulation can be transacted through persuasion’ and, therefore,
‘the
more effective regulatory intervention is likely to
be.’[49]
In addition, Dellit and Fisse argue that:
Giving priority to cooperation rather than to punishment or incapacitation as a means of regulation reflects the well-known utilitarian principle that the measures used for social control should be the least drastic necessary to achieve that goal.[50]
In 2005, Neal Shover and Aaron Routhe applied strategic regulatory theory in the context of the enforcement of environmental crimes in the US.[51] They argued that, in responsive regulation:
Emphasis … is placed on educating firms about rules and assisting them in efforts to comply, and programs that rely principally on threats and the mech-anical imposition of penalties are de-emphasized. For firms that fail to comply despite educative and cooperative efforts, officials may escalate their responses and sanctions accordingly. While ordinarily kept in the background, the availability of severe sanctions coupled with officials’ clear willingness to employ them if necessary pushes firms of a more resistant bent toward compliance or to punish those who commit serious or repeated violations. Consequently, programs of responsive regulation legitimize and make available to officials a range of options, from voluntary assistance programs to sanctions …[52]
Christine Parker and Vibeke Nielsen applied responsive regulation in the context of the enforcement of the Trade Practices Act 1974 (Cth).[53] Parker stated that
the [Australian Competition and Consumer Commission’s] cartel enforcement experience affirms that enforcement is more successful in promoting compliance at the bottom of the pyramid the greater the range of gradated sanctions available toward the tip of the pyramid. Generally that means that regulators should have a full range of sanctions, including high penalties and criminal sanctions, available to them.[54]
If
a regulatory agency were utilising the enforcement mechanisms at its disposal in
a manner envisaged by responsive regulation, two
consequences would follow.
First, in the majority of cases the regulator would commence at the bottom of
the pyramid and consider
whether the enforcement mechanism available at each
level of the pyramid provided an appropriate regulatory response prior to
considering
the enforcement mechanisms in the higher levels of the pyramid.
Secondly, most enforcement activity would take place in the lower
levels of the
pyramid and the amount of enforcement activity would decrease at each subsequent
level.
In theory, it is possible to map the current civil penalty provisions
on to the enforcement pyramid in a manner envisaged by responsive
regulation.
However, the examination of ASIC’s use of the civil penalty regime
undertaken in the following Parts of this article
reveals that this theory is
not reflected in reality. If the regime were being used in a manner envisaged by
responsive regulation,
ASIC would consider the appropriateness of issuing civil
penalty applications before it instigates criminal prosecutions in the majority
of cases. Criminal prosecutions would be reserved as big guns for the worst
possible cases. In addition, there would have been more
civil penalty
applications issued than criminal prosecutions in cases where both of these
enforcement options were available. Neither
of these outcomes has occurred.
In order to undertake an examination of ASIC’s use of the civil penalty
regime, interviews were conducted with a Senior Enforcement
Officer from
ASIC[55]
and with Mr Shane Kirne, Senior Assistant Director, Commercial Prosecutions
Branch, Victorian Office of the Commonwealth Director
of Public Prosecutions
(‘DPP’).[56]
Mr Kirne is in charge of the Commercial Prosecutions Branch of the Victorian
Office of the DPP and receives all of ASIC’s referrals
for civil penalties
directed to that Office.
According to the ASIC Senior Enforcement Officer,
when ASIC is alerted to a potential contravention of a provision of the
Corporations Act that may be subject to both the civil penalty and
criminal regimes, it investigates the facts of the case and gathers any
available
evidence. At the investigative and evidence-gathering stage, ASIC does
not have a view as to the type of enforcement action, if any,
that might arise
as a result of the investigation. Only at the end of the investigative stage
does ASIC form a view of the matter
on the basis of the evidence
available.[57]
ASIC’s Senior Enforcement Officer stated that, once the
investigative stage is over, ASIC refers the matter to the
DPP[58] in accordance with the
Memorandum of Understanding (‘MOU’)
signed on 1 March 2006 by Mr Jeffrey Lucy, the then Chairman of ASIC, and Mr
Damian Bugg, the then Commonwealth
DPP.[59]
The DPP receives three types of referrals from ASIC. The first type is where
ASIC believes there is sufficient evidence to warrant
and sustain a criminal
prosecution.[60]
The second type of matter referred is where ASIC has not formed a view as to whether or not there is sufficient evidence to warrant or sustain a criminal prosecution or whether the matter should be the subject of a civil penalty application.[61]
In both of these cases, ASIC sends a full brief to the DPP. The DPP reviews the matter and advises whether or not there is sufficient evidence to support the laying of criminal charges.[62]
The third type of matter referred by ASIC to the DPP is where ASIC
believes there is insufficient evidence of criminal conduct and
is considering
issuing civil penalty proceedings. These matters are covered by para 4 of the
MOU, which states:
4.1 ASIC will consult with the [Commonwealth DPP] before making an application for a civil penalty order.
4.2 Where ASIC and the [Commonwealth DPP] agree that it would be appropriate, ASIC will refer the matter to the [Commonwealth DPP] to consider whether, in accordance with the Prosecution Policy of the Commonwealth, criminal proceedings should be instituted.
4.3 The [Commonwealth DPP] will advise ASIC as soon as practicable after it
forms the view, having regard to the entirety of the
evidence and all relevant
information then available, and to the Prosecution Policy
of the Commonwealth, that criminal proceedings should not
be instituted.
The DPP’s role is to examine the matters referred to it
by ASIC in order to determine whether or not a criminal prosecution
should be
commenced. This assessment involves a two-step process in line with the
Prosecution Policy of the Commonwealth
(‘Prosecution
Policy’).[63]
The first stage is a determination of whether or not there is a reasonable
prospect of securing a
conviction.[64] If the DPP case
officer is so satisfied, he or she moves to the second stage in the process. The
second stage requires the case officer
to assess whether or not the prosecution
is in the public
interest.[65]
Paragraph 2.10 of
the Prosecution Policy provides a list of factors that the DPP may
take into ‘consideration in determining whether the public interest
requires a
prosecution’.[66]
These factors include:
(j) the availability and efficacy of any alternatives to prosecution;
(k) the prevalence of the alleged offence and the need for deterrence, both personal and general;
(l) whether the consequences of any resulting conviction would be unduly harsh and oppressive;
(m) whether the alleged offence is of considerable public concern; …
(s) the likely outcome in the event of a finding of guilt having regard to
the sentencing options available to the court …
Some of these factors
may be relevant to a consideration as to whether or not criminal prosecutions
should be reserved for the most
serious matters. Considering these factors would
be in keeping with responsive regulation and would allow criminal penalties to
be
reserved for the most serious cases as big guns.
However, it would seem
that ASIC and the DPP do not give consideration to the desirability of reserving
criminal prosecutions as big
guns for the most serious cases. Mr Kirne referred
to the need to assess whether or not a prosecution was in the public interest
and stated that:
typically the matters referred by ASIC are of such serious nature that it is very rare for us to be satisfied that where there is sufficient evidence, public interest warrants against prosecution. Nearly always if there is sufficient evidence we will prosecute.[67]
Mr Kirne was asked if the DPP would be influenced by the fact that enforcement action could be taken under either the criminal or civil penalty regimes when it was considering whether or not criminal charges should be laid. He referred to paras 2.10(j) and (s) of the Prosecution Policy[68] as considerations that will be relevant when the DPP is assessing the public interest factor in matters that can, as an alternative to a criminal prosecution, be subject to a civil penalty application.[69]
Consideration of these matters amounts to a consideration of the
regulatory impact of the proceedings. Consideration of the regulatory
impact
will play a lesser role in cases of serious corporate misconduct. Mr Kirne noted
that, in cases where the conduct is considered
to be less serious, ‘the
influence of the regulatory impact might take on a greater force than it would
if it were a very serious
crime. The more serious the conduct is then obviously
the far less likely the impact of the regulatory
outcome.’[70] Mr Kirne stated
that the DPP would not recommend against a criminal prosecution purely because a
better regulatory outcome could
be obtained under the civil penalty regime. Mr
Kirne stated categorically that ‘[c]ivil proceedings will not be used in
substitution
of criminal proceedings in matters of serious corporate or
financial services crime where the DPP is of the view that there is a
reasonable
prospect of securing a
conviction.’[71]
Both ASIC
and the DPP believe that, if there is evidence available which would support a
criminal prosecution, then a prosecution
should be commenced in preference to
other enforcement options. This view was expressed by both the ASIC Senior
Enforcement Officer
and Mr
Kirne.[72]
Public statements have been made by officers from ASIC that confirm that this is ASIC’s view. For example, on 1 June 2005, Senator Penelope Wong asked Mr Jeffrey Lucy whether ASIC’s ‘preference would be to take civil proceedings which obviously bear an easier standard of proof rather than criminal proceedings’.[73] Mr Lucy replied:
No. ASIC have not historically demonstrated any convenience in our approach. Our attitude is that if people are capable of being prosecuted criminally, we do so. In particular, in an area such as this where officers and directors have direct responsibilities to the company then invariably they are an area of prosecution which we look to.[74]
A further example occurred on 16 February 2006, when Mr Lucy gave evidence before a Senate Estimates Hearing, stating that
[ASIC’s] attitude is that, if a matter can be successfully prosecuted in a criminal court, that is absolutely what we will seek. That decision is taken in consultation with the Commonwealth Director of Public Prosecutions. Therefore, if matters can be taken through the criminal court, we will categorically do so. In the event that we are obliged to take civil proceedings, again, we will argue those in the court robustly.[75]
If the available evidence will not support a criminal prosecution, ASIC considers whether further investigation will produce more evidence. If this is not the case, ASIC decides whether or not a civil penalty proceeding or some other enforcement action should be taken.[76]
If ASIC were using the civil penalty regime in a manner envisaged by
responsive regulation, then it would enquire whether a civil
penalty application
provided a suitable regulatory outcome prior to considering a criminal
prosecution in the majority of cases.
The above evidence demonstrates that this
does not occur. In all cases, a criminal prosecution is considered and ruled out
before
a civil penalty application is
considered.[77]
The MOU requires ASIC to consult with the DPP before making a
civil penalty application,[78] so
that (where appropriate) the DPP can rule out the possibility of a criminal
prosecution prior to the issuing of a civil penalty
application.[79] ASIC and the DPP
have a stated policy of commencing criminal prosecutions in preference to civil
penalty applications in all cases
where there is sufficient evidence to sustain
the criminal prosecution. A civil penalty application is considered only after
the
decision has been made that there is insufficient evidence to sustain a
prosecution.
The second outcome which would be evident if ASIC were utilising the civil
penalty regime in a manner envisaged by responsive regulation
is that more civil
penalty applications than criminal prosecutions would be issued in cases where
both of these enforcement regimes
were available. This Part examines whether or
not this has occurred.
In order to reveal whether more civil penalty
applications than criminal prosecutions are being issued, it is necessary to
limit the
data to criminal prosecutions and civil penalty applications in
relation to alleged contraventions of those provisions of the
Corporations Act that are subject to both of these enforcement
regimes. These are the civil penalty provisions that fall into the first
category described
above in Part II(A). As stated above, this article examines
the criminal and civil penalty applications issued in relation to alleged
contraventions of
the directors’ duties contained in Corporations
Act ss 181, 182 and 183 because these fall into that first category.
Criminal contraventions of these provisions will be prosecuted pursuant to
Corporations Act s
184.[80]
This data is available from the ASIC media releases issued and civil penalty
judgments delivered between 1 July 2001 and 30 June
2009 and is displayed in
Table 1.
Table 1: Criminal Prosecutions Commenced Alleging a Contravention of Corporations Act s 184 and Civil Penalty Applications Issued Alleging a Contravention of Corporations Act ss 181, 182 or 183 from 1 July 2001 to 30 June 2009[81]
Type(s) of Court-Based Enforcement
Actions
|
Number of Court-Based
Enforcement Actions Commenced
|
Number of criminal prosecutions under Corporations Act s 184
commenced between 1 July 2001 and 30 June 2009
|
85
|
Number of civil penalty applications under Corporations Act
ss 181, 182 or 183 commenced between 1 July 2001 and 30 June 2009
|
3
|
88
|
ASIC commenced court-based enforcement actions alleging a contravention of
the directors’ duties provisions in Corporations Act ss 181,
182, 183 or 184 (provisions in the first category described above) on 88
occasions between 1 July 2001 and 30 June 2009. (These actions do not include
any civil penalty applications alleging a contravention of Corporations
Act s 180.) ASIC had the choice of a criminal prosecution or a civil
penalty application in all of those cases. There were 85 criminal prosecutions
and 3 civil penalty applications commenced.
The first civil penalty
application was issued against Mr Stephen Vizard in 2005. ASIC alleged that Mr
Vizard had contravened the
Corporations Act s 183 duty not to
improperly use information obtained as a director to gain an
advantage.[83]
The parties filed an agreed statement of facts with the Federal Court of
Australia.[84]
ASIC received much criticism for its decision to initiate civil penalty
proceedings instead of a criminal prosecution in this
case.[85]
The
second civil penalty application was issued against Mr Timothy Somerville and
eight directors of unrelated
companies.[86]
ASIC alleged that the directors contravened Corporations Act ss
181, 182 and 183 by transferring, for inadequate consideration, assets out of
the corporations of which they were
directors.[87] All of the
corporations were in financial distress at the time the assets were transferred
and all were subsequently placed into
liquidation.[88]
The third civil
penalty application was issued against Dr Martin Soust in January 2009. Soust
was alleged to have ‘breached
his duties as a director, improperly used
his position, and failed to act in good
faith’,[89] which was held to
have occurred in contravention of Corporations Act ss 181 and
182.[90]
A criminal prosecution could have been commenced in this case.
The data
reveals that many more criminal prosecutions than civil penalty proceedings have
been issued in cases where ASIC had a choice
between both of these enforcement
regimes. This is not what would be expected had the civil penalty regime been
utilised in a manner
envisaged by responsive regulation. This outcome is a
result of the policy adopted by ASIC and the DPP to initiate a criminal
prosecution
in all situations where the evidence would support one.
While it is theoretically possible to map the civil penalty regime on to the
enforcement pyramid envisaged by responsive regulation,
the above examination of
ASIC’s use of the regime indicates that, in this case, theory is not
matched by reality. The civil
penalty regime is not being used in a manner
envisaged by responsive regulation: ASIC does not consider whether a civil
penalty application
would be an appropriate regulatory response prior to
considering a criminal prosecution. A civil penalty application is not
considered
until a criminal prosecution is ruled out. Civil penalty applications
do not outnumber criminal prosecutions in relation to the same
types of
contravention. Criminal prosecutions are not reserved as big guns for the worst
cases.
Several commentators have discussed the shortcomings of responsive
regulation. Fiona Haines suggests that, while there is considerable
merit in the
enforcement pyramid because it can bring order to a regulator’s internal
strategies, responsive regulation theory
‘can make the task of regulation
appear deceptively
simple.’[91]
Responsive regulation assumes that the regulated community is made up of rational decision-makers who are in ongoing relationships with the regulator.[92]
This is not always the case. Gilligan, Bird and Ramsay note that:
The enforcement pyramid is very much a two dimensional model which
assumes smooth, predictable interaction between the regulator and the regulated as depicted by the various tiers of enforcement response. There is a large question mark over whether the reality which is the ‘rough and tumble’ of commerce and its regulation by the Corporations Law delivers such measured and desirable outcomes. The reality of enforcement in the marketplace suggests a far more complex pyramid than the one depicted [by responsive regulation][93]
Julia Black argues that, rather than adopting a flexible approach to a
regulator’s range of enforcement mechanisms, responsive
regulation is
overcommitted to the process of moving up a hierarchy of
sanctions.[94] Robert Baldwin and
Julia Black together argue that ‘in some circumstances’ it
‘may not be appropriate’ to
adopt an approach that requires a
‘step by step escalation up the [enforcement]
pyramid’.[95] They contend
that ‘where potentially catastrophic risks are being controlled it may not
be feasible to enforce by escalating
up the layers of the pyramid and the
appropriate reaction may be immediate resort to the higher
levels.’[96]
ASIC and the
DPP would support these views. They consider a civil penalty application only
for serious contraventions. But if the
contravention is serious, ASIC and the
DPP would argue that it would not be appropriate to adopt a step-by-step
approach, moving
up a hierarchy of sanctions. Rather, they would argue that
immediate resort to criminal sanctions located at the apex of the pyramid
is
necessary.
John Coffee has examined the behaviour of regulators who have at
their disposal overlapping criminal sanctions and civil
penalties.[97] While responsive
regulation posits that in these situations the most successful regulators will,
in the majority of cases, utilise
civil penalties, reserving criminal sanctions
for the worst cases as big guns, Coffee argues in contrast that regulators are
unlikely
to prefer civil penalties to criminal sanctions if they have both of
these sanctions at their disposal. He argues that bureaucratic
incentives mean
that regulators will bring criminal prosecutions rather than civil penalty
applications.[98] These bureaucratic
incentives arise as a result of ‘the publicity and public drama’
that surround a criminal
prosecution.[99] According to
Coffee, publicity following a successful criminal prosecution can generate a
greater level of deterrence than that following
a successful civil penalty
application.[100] Moreover, this
increased publicity can lead to the regulator gaining an image as a tough
enforcer.[101] This perception is
desirable because it can lead to the obtaining of a greater level of funding,
the maintenance of staff morale
and can assist in the recruitment of new
staff.[102]
In
addition, Coffee argues that enforcement officers employed by regulatory
agencies are likely to believe that the laws they enforce
are vital in order to
protect ‘public
interests’.[103] It is
unlikely that these enforcement officers will believe that persons who
contravene these laws should not be subjected to criminal
prosecutions.[104] According to
Coffee, it is for these reasons that regulators are unlikely to choose civil
penalties over criminal sanctions when
both enforcement options are
available.
If Coffee is correct, regulators who have at their disposal
overlapping criminal sanctions and civil penalties are unlikely to take
a
strategic view of regulation. They are unlikely to adopt the step-by-step
approach up the enforcement pyramid. They are unlikely
to consider whether or
not they will achieve a greater level of voluntary compliance by reserving
criminal penalties as big guns
to be utilised only in the worst possible cases.
Instead, regulators are likely to be more concerned with the types of
bureaucratic
pressures identified by Coffee and issue more criminal prosecutions
than civil penalty applications in situations where both of these
enforcement
options are available.
Coffee’s views are supported by the findings of
this article. The data in Table 1 shows that ASIC has not reduced its use of
criminal sanctions in favour of civil penalty applications. ASIC does face
bureaucratic incentives to bring criminal prosecutions
in preference to civil
penalty applications. These bureaucratic incentives take the form of
parliamentary scrutiny and public criticism.
ASIC has been scrutinised by
various Senate committees about its choice of enforcement regimes. For example,
Mr Lucy was questioned
by the Senate Economics Legislation Committee in relation
to the Vizard matter on 16 February
2006.[105] The following excerpt
from the Official Committee Hansard of an exchange between
Senator Wong and Mr Lucy illustrates the level of scrutiny faced by ASIC in
relation to its enforcement decisions:
Wong: I am not trying to redo the Vizard matter; I am interested in learning
what changes and alterations to your operations and
investigations
resulted from that.
Lucy: ASIC has no regrets or qualms about our investigation and subsequent prosecution of the Vizard matter. We remain of the view —
Wong: That is a big statement, Mr Lucy.
Lucy: — that it was robustly investigated and appropriately —
Wong: No regrets or qualms whatsoever?
Lucy: Not in relation to the prosecution of Mr Vizard.
Wong: Do you have regrets or qualms in relation to your record on serious white-collar financial crime?
Lucy: No.
Wong: Do you think you have a good record?
Lucy: Yes.
Wong: Do you reject the public concerns which have been raised that ASIC and the DPP are soft on corporate crime?
Lucy: Correct.
Wong: Are you going to alter your prosecution strategy at all? We have discussed previously —
Lucy: No, we are
not.[106]
In
addition to facing parliamentary scrutiny, ASIC has been criticised in the press
for some of its enforcement decisions. An example
of this is the criticism that
followed the Vizard matter, where many commentators argued that ASIC should have
pursued a criminal
prosecution rather than civil penalty proceedings. Many
claimed that this matter was an example of the law going soft on white-collar
offenders.[107]
Several academics have criticised a number of ASIC’s enforcement decisions, arguing that whenever possible ASIC should pursue criminal prosecutions rather than civil penalty applications.[108]
One of the limitations of responsive regulation is that it does not
adequately address the effect the bureaucratic pressures identified
by Coffee
may have on regulatory decisions. ASIC operates in an environment which requires
it to take into consideration vigorous
public and political debate about its
actions. When choosing between the available enforcement options, ASIC would be
aware that
it may be required to provide strong justification for any decision
not to prosecute criminally. Responsive regulation does not consider
in detail
how the political and social environment in which ASIC operates influences the
regulatory strategy adopted by it.
ASIC would justify its approach by
reference to both external pressures to prosecute criminally and deterrence
theory. Deterrence
theorists assume that regulated persons are self-interested,
rational actors who take advantage of opportunities to maximise their
desired
outcomes. Corporate decision-makers ‘weigh the benefits of noncompliance
against the probability and costs of
punishment.’[109]
Deterrence theory assumes that these persons will comply with the law when the
cost of noncompliance outweighs the benefits to be
gained.[110]
A deterrence
strategy requires that offenders be watched closely, all suspicious signs be
investigated and the letter of the law be
enforced
meticulously.[111] It calls for
command-and-control regulation, whereby penalties are threatened for
noncompliance and violators of the law are
punished.[112]
The use of harsh
sanctions and strict penalties is often justified by deterrence
theory.[113]
It is argued that harsher penalties provide the most powerful deterrents.[114]
A deterrence approach supports the use of criminal sanctions whenever they
are available, because a criminal conviction usually carries
harsher penalties
than those available through other penalty regimes. In situations where ASIC has
the choice of a criminal prosecution
or a civil penalty application, a
deterrence approach would therefore support the choice of criminal
sanctions.
In summary, when ASIC has both criminal sanctions and the civil
penalty regime at its disposal, it does not act in a manner envisaged
by
responsive regulation. One reason for this is the public and political
environment in which ASIC operates. Responsive regulation
does not adequately
address the effect that these external pressures have on the choices that ASIC
makes. The regulatory strategy
adopted by ASIC instead reflects a
deterrence-based approach. However, the discussion in the following Part will
reveal that ASIC’s
enforcement strategy is influenced by responsive
regulation when the option of a criminal prosecution is not available.
When a criminal prosecution is not available (that is, for all contraventions that fall into the second category of provisions identified above in Part II(A) and for those contraventions that fall into the first category identified above but where the DPP has determined that there is insufficient evidence to sustain a criminal prosecution),[115] it appears that ASIC is influenced by responsive regulation and is thus more likely to take a strategic view in relation to its enforcement options. The ASIC Senior Enforcement Officer was asked what factors influence ASIC’s choice of the civil penalty regime once a criminal prosecution has been ruled out or where it is not available. The response was that, in these situations, the factors ASIC considers are: whether or not the matter involves a serious breach; what the regulatory outcome may be; what resources will be required to pursue a civil penalty application; and whether or not any other remedies are available.[116]
Civil penalty applications will only be commenced where there has been a
serious breach of the Corporations Act. On 1 June 2005, Mr Jeffrey
Lucy gave evidence to the Senate Economics Legislation Committee regarding
ASIC’s use of the civil
penalty regime in the context of James
Hardie.[117] He explained that
civil penalty proceedings will only be instituted by ASIC in situations where a
‘serious’ breach of
the Corporations Act has been
committed.[118]
The resources
required to run a civil penalty application will be a factor considered by ASIC
in any decision as to whether or not
to issue proceedings, as its Senior
Enforcement Officer stated. In evidence to the Senate Economics Legislation
Committee, Mr Lucy
further showed that this is the case, stating that he
do[es] not think that the regulator [ASIC] should be undertaking any investigative activity, or in particular enforcement activity, unless [it was] satisfied as to the grounds of success. We are using taxpayers’ money to bring prosecution[s] and to bring charges. The consequences of our actions are significant …[119]
As ASIC’s Senior Enforcement Officer stated, prior to issuing a civil penalty application, ASIC will consider other available remedies to determine if such remedies may themselves provide an appropriate regulatory response. This approach is in keeping with responsive regulation. For example, if the person in question has been a director of two or more failed companies that have returned less than 50 cents in the dollar to creditors,[120] ASIC considers an administrative ban pursuant to Corporations Act s 206F.[121]
In some cases, a better regulatory outcome will be achieved from an administrative ban than from a civil penalty application. The administrative ban (under s 206F) is quicker and cheaper than an application for a disqualification order under the civil penalty regime (that is, under s 206C).[122] An administrative ban is positioned below civil penalty proceedings on the enforcement pyramid.[123]
Another alternative to the civil penalty regime is the institution of
proceedings seeking a disqualification order pursuant to Corporations
Act s 206E(1). This section allows ASIC to apply to the court for an
order disqualifying a person from managing a corporation where:
(a) the person:
(i) has at least twice been an officer of a body corporate that has contravened this Act … while they were an officer of the body corporate and each time the person has failed to take reasonable steps to prevent the contravention; or
(ii) has at least twice contravened this Act … while they were an
officer of a body corporate; … and
(b) the Court is satisfied that the disqualification is justified.
As a
further alternative to civil penalty provisions, ASIC is able to accept
court-enforceable undertakings from persons who contravene
the
Corporations
Act.[124] An enforceable
undertaking is positioned below a civil penalty application on the enforcement
pyramid.[125]
It can therefore be seen that, in cases where a criminal prosecution is not
available, ASIC takes a strategic view and considers
whether these alternative
remedies provide an adequate regulatory response prior to issuing a civil
penalty application.
Table 2 examines the types of enforcement actions
instigated by ASIC against directors. It does not include any criminal
prosecutions.
The data examined is limited to enforcement activity commenced
between 1 July 2001 and 30 June 2009. Much of the available data relating
to
ASIC’s enforcement activities is presented in financial
years.[126]
The civil penalty proceedings listed in Table 2 are those applications
that allege that a contravention of at least one of the directors’
duties
contained in Corporations Act ss 180, 181, 182 or 183 has
occurred. The banning orders listed in Table 2 are orders that ban a person from
acting as a director or an officer. These banning
orders were obtained pursuant
to provisions other than the civil penalty regime. The enforceable undertakings
listed in Table 2 are
those entered into by directors or officers in situations
where their alleged contraventions related to their role as a director
or an
officer.
In relation to contraventions of the directors’ duties
provisions where a criminal prosecution is not available, civil penalty
applications sit at the apex of the enforcement pyramid. Administrative banning
orders and enforceable undertakings occupy lower
levels of the pyramid. If ASIC
were utilising civil penalties in a manner envisaged by responsive regulation,
ASIC would make greater
use of the banning orders and enforceable undertakings
than the civil penalty provisions.
Table 2: Civil Enforcement Activities for (Alleged) Contraventions of the Corporations Act Commenced by ASIC from 1 July 2001 to 30 June 2009[127]
Year
|
Number of Civil Penalty
Applications Issued Alleging Contravention of
Corporations Act ss 180, 181,
182 and/or 183
|
Total Number of Company
Directors and Officers Banned Pursuant
to Provisions Other than the Civil
Penalty
Regime[128]
|
Number of Cases in Which
Enforceable Undertakings Were Provided by
Company Directors and Officers and
Accepted by ASIC
|
---|---|---|---|
2001–2002
|
3 cases
(10 directors and officers in total) |
15 directors and officers
|
4 cases
(5 directors and officers in total) |
2002–2003
|
2 cases
(4 directors and officers in total) |
4 directors and officers
|
2 cases
(2 directors and officers in total) |
2003–2004
|
3 cases
(16 directors and officers in total) |
20 directors and officers
|
Nil
|
Year
|
Number of Civil Penalty
Applications Issued Alleging Contravention of
Corporations Act ss 180, 181,
182 and/or 183
|
Total Number of Company
Directors and Officers Banned Pursuant
to Provisions Other than the Civil
Penalty Regime
|
Number of Cases in Which
Enforceable Undertakings Were Provided by
Company Directors and Officers and
Accepted by ASIC
|
---|---|---|---|
2004–2005
|
1 case
(5 directors and officers in total) |
26 directors and officers
|
1 case
(1 director in total) |
2005–2006
|
4 cases
(6 directors and officers in total) |
32 directors and officers
|
1 case
(1 director in total) |
2006–2007
|
4 cases
(14 directors and officers in total) |
95 directors and officers
|
Nil
|
2007–2008
|
2 cases
(14 directors and officers in total) |
62 directors and officers
|
Nil
|
2008–2009
|
1 case
(1 director in total) |
49 directors and officers
|
1 case
(number of directors and officers unknown) |
The data in Table 2 reveals that the total number of directors banned
pursuant to provisions other than the civil penalty provisions
exceeded the
total number of directors who were subjected to civil penalty applications
arising out of contraventions of the directors’
duties provisions. The
data indicates that ASIC has a preference for banning orders obtained pursuant
to provisions other than the
civil penalty regime rather than civil penalty
applications. This is to be expected if ASIC is adopting an approach supported
by
responsive regulation.
It can therefore be seen that, when a criminal
prosecution is not available, ASIC is more inclined to utilise the civil penalty
regime
in a manner envisaged by responsive regulation. Prior to issuing a civil
penalty application, ASIC considers whether or not the other
remedies available
would provide an adequate regulatory response. In addition, the spread of
enforcement activity across the pyramid
exhibited in Table 2 is more consistent
with the adoption of a strategic response than is the spread exhibited in Table
1.
Despite the fact that the civil penalty regime is not utilised in a manner
envisaged by responsive regulation in situations where
ASIC has the choice of a
criminal prosecution or a civil penalty application, civil penalty applications
are important regulatory
mechanisms. Civil penalties allow ASIC to take
enforcement action in situations where it would otherwise be unable to act. For
example,
between 1 July 2001 and 30 June 2009, ASIC issued 17 civil penalty
applications alleging a contravention of the duty of care and
diligence in
Corporations Act
s 180.[129]
A criminal prosecution is not available for a contravention of this section.[130]
Without the civil penalty regime, ASIC would not have been able to take
court-based enforcement action in these 17
cases.[131]
During this same
period and as previously mentioned, ASIC issued a civil penalty application
against Mr Stephen Vizard alleging a
contravention of the Corporations
Act.[132]
On 14 September 2005, Mr Jeffrey Lucy appeared before the Joint Committee on Corporations and Financial Services and stated that:
In this case, criminal charges were not pursued against Mr Vizard because the DPP was not satisfied that there was admissible, substantial and reliable evidence of the offence and therefore there were not reasonable prospects of securing a conviction.[133]
If the DPP’s advice was correct, ASIC would not have been able to take
court-based enforcement action against Mr Vizard at all
had the civil penalty
regime not been available.
ASIC has achieved a high degree of success with
the civil penalty applications it has issued. At 30 June 2009, 38 of the civil
penalty
applications issued by ASIC since 1993 had been finalised. ASIC was
successful in all but 3 of the 38 finalised
cases[134]
(success being defined as the issuing of a declaration of contravention
against at least one of the defendants in the proceeding
and the obtaining of
civil penalty orders).
According to ASIC, civil penalty applications feature
strongly in what it regards as the key results it achieves each year. An
examination
of the ASIC annual reports from 2001–02 to 2008–09
reveals that civil penalty proceedings are prominent in the matters
identified
as ‘key’ or ‘significant’ for each
year.[135]
For example, in the 2001–02 year, five matters were identified as being ‘key’.[136]
One of those was the civil penalty proceedings issued against the directors of the HIH group of companies.[137] In the 2008–09 year, three civil penalty applications were identified as being among the major enforcement actions that had been undertaken.[138]
These were the civil penalty applications issued in relation to James Hardie, Fortescue Metals Group and AWB.[139]
In the case of ASIC, the theory of responsive regulation (which holds that it
is possible to map the civil penalty provisions on to
the enforcement pyramid
and that these provisions will be used by the regulator in accordance with that
pyramid) does not match reality.
When ASIC has the choice between criminal
sanctions and civil penalty applications, it does not utilise the civil penalty
regime
in a manner envisaged by this theory. The data and the other evidence
examined in this article reveal that ASIC does not consider
whether or not a
civil penalty application would be an adequate regulatory response prior to
considering a criminal prosecution and
that ASIC does not initiate more civil
penalty proceedings than criminal prosecutions in relation to the same types of
contraventions.
In every case that could be the subject of both a criminal
prosecution and a civil penalty application, ASIC will not issue civil
penalty
proceedings until the possibility of obtaining a criminal conviction is ruled
out. The stated policy of both ASIC and the
DPP is that a criminal prosecution
will be launched in preference to a civil penalty application in every case
where the evidence
supports it. Many more criminal prosecutions than civil
penalty applications have therefore been issued in relation to the same type
of
conduct.
The examination of ASIC’s use of the civil penalty regime
undertaken in this article reveals that ASIC’s decision-making
process is
different from the process suggested by responsive regulation. ASIC acts in a
public and political environment in which
it may be required to justify any
decision not to prosecute criminally. Responsive regulation theory does not
adequately address
the influence that such external pressures have on the
strategies adopted by a regulator. It is only after a criminal prosecution
has
been ruled out that ASIC’s decision-making process begins to resemble one
that is envisaged by responsive regulation.
[*] BA, LLB, LLM (Monash), PhD (Melb); Senior Lecturer, Workplace and Corporate Law Research Group, Department of Business Law and Taxation, Monash University. The research for this article was undertaken while the author was a PhD Candidate at the Melbourne Law School, The University of Melbourne, under the supervision of Ian Ramsay. The author would like to thank Ian Ramsay for his contribution to her thoughts on these issues. The author would also like to thank the anonymous referees for their comments and suggestions in relation to an earlier draft of this article. Any errors remaining are those of the author.
[1] Corporate Law Reform Act 1992 (Cth) ss 2(3), 17, inserting pt 9.4B into Corporations Act 1989 (Cth) s 82 (‘Corporations Law’); Commonwealth, Gazette: Special, No S 25, 27 January 1993. Corporations Law pt 9.4B became Corporations Act pt 9.4B.
[2] Senate Standing Committee on Legal and Constitutional Affairs, Parliament of Australia, Company Directors’ Duties: Report on the Social and Fiduciary Duties and Obligations of Company Directors (1989) 191 (commonly known as the ‘Cooney Report’).
[3] Australian Law Reform Commission (‘ALRC’), Principled Regulation: Federal Civil and Administrative Penalties in Australia, Report No 95 (2002) 77; Commonwealth, Parliamentary Debates, Senate, 28 November 1991, 3616 (Graham Richardson). See also Roman Tomasic, ‘Corporate Crime’ in Duncan Chappell and Paul Wilson (eds), The Australian Criminal Justice System: The Mid 1990s (1994) 253, 267–8.
[4] Corporations Law s 232, later amended by Corporate Law Reform Act 1992 (Cth) s 11.
[5] George Gilligan, Helen Bird
and Ian Ramsay, ‘Civil Penalties and the Enforcement of Directors’
Duties’ [1999] UNSWLawJl 3; (1999) 22 University of New South
Wales Law Journal 417, 425; ALRC, above n 3,
76–7; Michael Gething, ‘Do We Really Need Criminal and Civil
Penalties for Contraventions of Directors’ Duties?’
(1996) 24
Australian Business Law Review 375,
379–80.
[6] For an explanation of responsive regulation, see generally John Braithwaite, To Punish or Persuade: Enforcement of Coal Mine Safety (1985); Ian Ayres and John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (1992).
[7] For example, 30 of the 43 applications for civil penalty orders issued between 1 February 1993 and 31 December 2006 alleged that contraventions of the directors’ duties provisions had occurred, according to ASIC media releases (ASIC, Media Releases and Advisories (June 2010) <http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Media%20and%20information%20releases%20Home%20Page> ) and the author’s examination of civil penalty judgments (to identify relevant civil penalty judgments, the author searched the AustLII (Australasian Legal Information Institute, Advanced Search <http://www.austlii.edu.au/forms/search1.html> ), CCH (CCH, IntelliConnect (2010) <http://intelliconnect.wkasiapacific.com> ) and LexisNexis (LexisNexis, LexisNexis: General (2010) <http://www.lexisnexis.com/au/legal/> ) electronic databases).
[8] See, eg, Braithwaite, To Punish or Persuade, above n 6; Ayres and Braithwaite, above n 6.
[9] Gilligan, Bird and Ramsay, ‘Civil Penalties and the Enforcement of Directors’ Duties’, above n 5, 426.
[10] Ayres and Braithwaite, above n 6, 24.
[11] Ibid 25–6.
[12] Darryl K Brown, ‘Street Crime, Corporate Crime, and the Contingency of Criminal Liability’ (2001) 149 University of Pennsylvania Law Review 1295, 1313–14, citing Ayres and Braithwaite, above n 6, 27; Fiona Haines, Corporate Regulation: Beyond ‘Punish or Persuade’ (1997) 36–40, 220; Lawrence W Sherman, ‘Defiance, Deterrence, and Irrelevance: A Theory of the Criminal Sanction’ (1993) 30 Journal of Research in Crime and Delinquency 445, 452; Peter Cleary Yeager, ‘Industrial Water Pollution’ in Michael Tonry and Albert J Reiss Jr (eds), Beyond the Law: Crime in Complex Organizations (1993) 97, 138.
[13] Todd Lochner and Bruce E Cain, ‘Equity and Efficacy in the Enforcement of Campaign Finance Laws’ (1999) 77 Texas Law Review 1891.
[14] Ibid 1901–2.
[15] Ayres and Braithwaite, above n 6, 35.
[16] Ibid.
[17] Ibid 35–6.
[18] Ibid 36.
[19] See ibid.
[20] See ibid.
[21] Gilligan, Bird and Ramsay, ‘Civil Penalties and the Enforcement of Directors’ Duties’, above n 5, 425; ALRC, above n 3, 76–7; Gething, above n 5, 379–80.
[22] Corporations Act s 1317E.
[23] Corporations Act ss 180–4 (directors’ duties provisions), 254L, 256D, 259F, 260D (share capital provisions), 588G (insolvent trading provisions), 601FC (duties of entities responsible for managed investment schemes), 601FD–601FE (duties of officers and employees of managed investment schemes), 1041A–1041D, 1043A (market misconduct provisions), 1317E(1) (deeming provision).
[24] Corporations
Act ss 206C (disqualification orders), 1317G (pecuniary penalty orders),
1317H–1317HA (compensation orders), 1317J (standing to apply).
[25] Corporations Act ss 1317L, 1332.
[26] Corporations Act s 1332.
[27] Corporations Act s 184. See below n 80.
[28] See Corporations Act s 184 and below n 115.
[29] See above nn 15–20 and accompanying text.
[30] Gething, above n 5, 386. See also George Gilligan, Helen Bird and Ian Ramsay, ‘Regulating Directors’ Duties — How Effective Are the Civil Penalty Sanctions in the Australian Corporations Law?’ (Research Report, Centre for Corporate Law and Securities Regulation, The University of Melbourne, 1999) 7–8.
[31] See Gilligan, Bird and Ramsay, ‘Civil Penalties and the Enforcement of Directors’ Duties’, above n 5, 427–8, 431; Gething, above n 5, 378–9.
[32] See Helen Bird, ‘The Problematic Nature of Civil Penalties in the Corporations Law’ (1996) 14 Company and Securities Law Journal 405, 411; Gilligan, Bird and Ramsay, ‘Regulating Directors’ Duties’, above n 30, 16.
[33] The Australian Securities Commission became ASIC on 1 July 1998: Financial Sector Reform (Amendments and Transitional Provisions) Act 1998 (Cth) s 2(2), sch 1, sch 5 item 7; Commonwealth, Gazette: Special, No S 316, 30 June 1998.
[34] See, eg, Bird, above n 32; Gilligan, Bird and Ramsay, ‘Regulating Directors’ Duties’, above n 30.
[35] Bird, above n 32, 413–20; Gilligan, Bird and Ramsay, ‘Regulating Directors’ Duties’, above n 30, 16.
[36] Corporations Law s 1317FB, repealed by Corporate Law Economic Reform Program Act 1999 (Cth) sch 1 item 6.
[37] Bird, above n 32, 414; Gilligan, Bird and Ramsay, ‘Civil Penalties and the Enforcement of Directors’ Duties’, above n 5, 431; Gilligan, Bird and Ramsay, ‘Regulating Directors’ Duties’, above n 30, 16.
[38] Gilligan, Bird and Ramsay, ‘Regulating Directors’ Duties’, above n 30, 16.
[39] Commonwealth, Gazette: Special, No S 114, 10 March 2000.
[40] CLERP Act sch 1 item 6, repealing Corporations Law pt 9.4B and inserting (inter alia) Corporations Law s 1317P. Corporations Law s 1317P became Corporations Act s 1317P.
[41] John Braithwaite, ‘Responsive Business Regulatory Institutions’ in C A J Coady and C J G Sam-pford (eds), Business, Ethics and the Law (1993) 83, 89.
[42] See ibid 88–9.
[43] Cf Cynthia Estlund, ‘Rebuilding the Law of the Workplace in an Era of Self-Regulation’ (2005) 105 Columbia Law Review 319, 360. Estlund discusses responsive regulation in the context of occupational health and safety regulation in the US. She argues that regulatory agencies will not be able to comply with responsive regulation unless they are adequately resourced.
[44] Gilligan, Bird and Ramsay, ‘Civil Penalties and the Enforcement of Directors’ Duties’, above n 5, 426.
[45] Ayres and Braithwaite, above n 6, 37.
[46] Ibid 40–1.
[47] Ibid 40.
[48] John Braithwaite, ‘Convergence in Models of Regulatory Strategy’ (1990) 2 Current Issues in Criminal Justice 59, 59.
[49] Chris Dellit and Brent Fisse, ‘Civil and Criminal Liability under Australian Securities Regulation: The Possibility of Strategic Enforcement’ in Gordon Walker and Brent Fisse (eds), Securities Regulation in Australia and New Zealand (1994) 570, 572.
[50] Ibid 574.
[51] Neal Shover and Aaron S Routhe, ‘Environmental Crime’ (2005) 32 Crime and Justice: A Review of Research 321.
[52] Ibid 355–6 (citations omitted).
[53] Christine Parker, ‘The “Compliance” Trap: The Moral Message in Responsive Regulatory Enforcement’ (2006) 40 Law and Society Review 591; Christine Parker and Vibeke Lehmann Nielsen, ‘How Much Does It Hurt? How Australian Businesses Think about the Costs and Gains of Compliance and Noncompliance with the Trade Practices Act’ [2008] MelbULawRw 17; (2008) 32 Melbourne University Law Review 554; Vibeke Lehmann Nielsen and Christine Parker, ‘Testing Responsive Regulation in Regulatory Enforcement’ (2009) 3 Regulation and Governance 376.
[54] Parker, above n 53, 616–17.
[55] Interview with ASIC Senior Enforcement Officer (Melbourne, 8 December 2006) (on file with author). The Senior Enforcement Officer requested not to be named and not to have any direct quotations attributed to them in this article.
[56] Interview with Shane Kirne, Senior Assistant Director, Commercial Prosecutions Branch, Victorian Office of the Commonwealth DPP (Melbourne, 28 February 2007) (on file with author).
[57] Interview with ASIC Senior Enforcement Officer, above n 55.
[58] Ibid.
[59] ASIC and Commonwealth DPP, MOU (2006).
[60] Interview with ASIC Senior Enforcement Officer, above n 55. See also Interview with Shane Kirne, above n 56.
[61] Interview with ASIC Senior Enforcement Officer, above n 55. See also Interview with Shane Kirne, above n 56.
[62] Interview with ASIC Senior Enforcement Officer, above n 55. See also Interview with Shane Kirne, above n 56.
[63] Commonwealth DPP, Prosecution Policy of the Commonwealth: Guidelines for the Making of Decisions in the Prosecution Process (2008).
[64] Prosecution Policy para 2.5.
[65] Prosecution Policy para 2.8.
[66] Prosecution Policy para 2.10.
[67] Interview with Shane Kirne, above n 56.
[68] Prosecution Policy paras 2.10(j), (s). Mr Kirne referred to sub-para ‘(r)’, but evidently meant sub-para (s): see ibid.
[69] Interview with Shane Kirne, above n 56.
[70] Ibid.
[71] Ibid.
[72] Interview with ASIC Senior Enforcement Officer, above n 55; Interview with Shane Kirne, above n 56.
[73] Evidence to Senate Economics Legislation Committee, Parliament of Australia, Canberra, 1 June 2005, 95.
[74] Evidence to Senate Economics Legislation Committee, Parliament of Australia, Canberra, 1 June 2005, 95.
[75] Evidence to Senate Economics Legislation Committee, Parliament of Australia, Canberra, 16 February 2006, 48. See also Jeffrey Lucy, ‘Directors’ Responsibilities: The Reality vs the Myths’ (Speech delivered at the Australian Institute of Company Directors, Melbourne, 17 August 2006) 6, where Lucy stated that, ‘[w]here recklessness or intentional dishonesty is involved and we have enough evidence to mount criminal proceedings, we will refer the matter to the Commonwealth Director of Public Prosecutions for prosecution.’
[76] Interview with ASIC Senior Enforcement Officer, above n 55.
[77] The civil penalty regime allows criminal prosecutions to be commenced after the commencement of a civil penalty application: see above n 40 and accompanying text. Between 1 January 2000 and 31 December 2006, 30 civil penalty applications (including applications not in relation to the directors’ duties provisions) have been issued, according to ASIC media releases and the author’s examination of civil penalty judgments (for the methodology, see above n 7). Subsequent criminal prosecutions were commenced against some defendants who were the subject of 3 of these 30 civil penalty applications: Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253; Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373; Australian Securities and Investments Commission v White [2006] VSC 239; (2006) 58 ACSR 261. The civil penalty applications issued against these defendants alleged contraventions of the directors’ duties provisions. The conduct constituting the criminal offence was different from the conduct that was found to have constituted the contravention of the civil penalty provisions. The criminal prosecutions did not allege a contravention of the directors’ duties provisions in Corporations Act s 184.
[78] MOU para 4.1.
[79] See MOU paras 4.2–4.3.
[80] Corporations Act s 184(1) criminalises reckless or intentionally dishonest breaches of s 181(1), s 184(2) criminalises dishonest and intentional or reckless breaches of s 182(1), and s 184(3) criminalises dishonest and intentional or reckless breaches of s 183(1).
[81] Source: ASIC media releases
issued between 1 July 2001 and 30 June 2009 (ASIC, Media Releases
and Advisories (June 2010)
<http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/
Media%20and%20information%20releases%20Home%20Page>) and the author’s
examination of civil penalty judgments delivered between
1 July 2001 and 30 June
2009 (for the methodology, see above n 7).
The relevant civil penalty judgments are those referred to below in nn 83, 86, 90.
[83] Australian Securities and Investments Commission v Vizard [2005] FCA 1037; (2005) 145 FCR 57, 59, 62–3 (Finkelstein J) (‘Vizard’); ASIC, ‘ASIC Commences Civil Proceedings against Stephen Vizard’ (Media Release No 05-190, 4 July 2005).
[84] Vizard [2005] FCA 1037; (2005) 145 FCR 57, 59 (Finkelstein J). See also ASIC, ‘Steve Vizard Banned for 10 Years and Fined $390 000’ (Media Release No 05-215, 28 July 2005).
[85] Examples of the comments in
the press include: ABC Television, ‘ASIC Criticised over Vizard
Case’, Inside Business, 24 July 2005
<http://www.abc.net.au/insidebusiness/content/2005/
s1421030.htm>; Jennifer Sexton, ‘Vizard Was “Too Well
Connected” for Jail’, The Australian (Sydney), 6 July
2005, 1; Bryan Frith, ‘The Unbearable Lightness of Sentencing’,
The Australian (Sydney), 22 July 2005, 22; Terry McCrann,
‘Why It’s a Mistake to Civilise the Criminal’, The
Weekend Australian (Sydney), 23–24 July 2005, 34; Richard
Gluyas, ‘Hanging Judge Did Our Crime-Deaf Watchdog’s Job’,
The Australian (Sydney), 29 July 2005, 4; James McCullough,
‘One Law for Rich, Another for Richer’, The Courier
Mail (Brisbane), 30 July 2005, 27; Richard Gluyas and Blair Speedy,
‘“ASIC Should Have Tried to Jail Vizard”’,
The
Weekend Australian (Sydney), 30–31 July 2005, 8. See also
Vicky Comino, ‘The Enforcement Record of ASIC since the Introduction of
the Civil
Penalty Regime’ (2007) 20 Australian Journal
of Corporate Law 183; Vicky Comino, ‘Civil or
Criminal Penalties for Corporate Misconduct: Which Way Ahead?’ (2006) 34
Australian Business Law Review 428 (in which the
author argues that in order to ensure it is regarded as a credible regulator
ASIC should undertake criminal prosecutions
in cases of non-inadvertent and
non-minor corporate wrongdoing); Juliette Overland, ‘Two Steps Forward,
One Step Back: Assessing
Recent Developments in the Fight against Insider
Trading’ (2006) 24 Company and Securities Law
Journal 207.
[86] Australian Securities and Investments Commission v Somerville [2009] NSWSC 934; (2009) 259 ALR 574; ASIC, ‘ASIC Launches Action against Alleged Phoenix Activity’ (Media Release No 08-110, 27 May 2008).
[87] Australian Securities and Investments Commission v Somerville [2009] NSWSC 934; (2009) 259 ALR 574, 588–9 (Windeyer AJ).
[88] Ibid 578–9.
[89] ASIC, ‘ASIC Commences Proceedings against Former Melbourne Chief Executive Officer and Managing Director’ (Advisory No AD09-03, 13 January 2009).
[90] Australian Securities and Investments Commission v Soust [2010] FCA 68; (2010) 183 FCR 21, 45 (Goldberg J). Soust also contravened Corporations Act ss 1041A(c) and 1041B(1)(b) by undertaking transactions that created an artificial price for trading in shares of Select Vaccines Ltd and that created a false or misleading appearance with respect to the market and price for those shares: Australian Securities and Investments Commission v Soust [2010] FCA 68; (2010) 183 FCR 21, 44–5. In April 2010, Goldberg J disqualified Soust for 10 years from directing a company and imposed a pecuniary penalty of $80 000 upon him: Australian Securities and Investments Commission v Soust [No 2] [2010] FCA 388; (2010) 78 ACSR 1, 18, 23.
[92] Bird, above n 32, 412–13.
[93] Gilligan, Bird and Ramsay, ‘Civil Penalties and the Enforcement of Directors’ Duties’, above n 5, 433.
[94] Julia Black, ‘Managing Discretion’ (Paper presented at the Australian Law Reform Commission Conference: Penalties — Policy, Principles and Practice in Government Regulation, Sydney, June 2001) 6.
[95] Robert Baldwin and Julia Black, ‘Really Responsive Regulation’ (2008) 71 Modern Law Review 59, 62.
[96] Ibid 62–3 (citations omitted).
[97] John C Coffee Jr, ‘Paradigms Lost: The Blurring of the Criminal and Civil Law Models — And What Can Be Done about It’ (1992) 101 Yale Law Journal 1875.
[98] Ibid 1888–9.
[99] Ibid 1888.
[100] See ibid.
[101] Ibid.
[102] Ibid 1888–9.
[103] Ibid 1889.
[104] See ibid 1888–90.
[105] Evidence to Senate Economics Legislation Committee, Parliament of Australia, Canberra, 16 February 2006, 7–8 (Penelope Wong), 10–11 (Jeffery Lucy and Louise Macaulay, Director of Enforcement Policy, ASIC and Penelope Wong), 18–19 (Jeffrey Lucy and Penelope Wong), 48 (Jeffrey Lucy and John Watson).
[106] Evidence to Senate Economics Legislation Committee, Parliament of Australia, Canberra, 16 February 2006, 18. See also Evidence to Joint Committee on Corporations and Financial Services, Parliament of Australia, Canberra, 13 September 2005, 1–2 (Jeffrey Lucy).
[108] See, eg, Comino, ‘The Enforcement Record of ASIC’, above n 85; Comino, ‘Civil or Criminal Penalties’, above n 85; Overland, above n 85. See also Geraldine Szott Moohr, ‘On the Prospects of Deterring Corporate Crime’ (2007) 2 Journal of Business and Technology Law 25.
[109] Sally S Simpson, Corporate Crime, Law, and Social Control (2002) 94.
[110] John T Scholz, ‘Cooperation, Deterrence, and the Ecology of Regulatory Enforcement’ (1984) 18 Law and Society Review 179, 179–81.
[111] Ibid 182.
[112] Jenny Job, Andrew Stout and Rachael Smith, ‘Culture Change in Three Taxation Administrations: From Command-and-Control to Responsive Regulation’ (2007) 29 Law and Policy 84, 87, citing Eugene Bardach and Robert A Kagan, Going by the Book: The Problem of Regulatory Unreasonableness (1982); Nigel Dodd and Bridget Hutter, ‘Geopolitics and the Regulation of Economic Life’ (2000) 22 Law and Policy 1; P N Grabosky, ‘Regulation by Reward: On the Use of Incentives as Regulatory Instruments’ (1995) 17 Law and Policy 257; Jenny Job and David Honaker, ‘Short-Term Experience with Responsive Regulation in the Australian Taxation Office’ in Valerie Braithwaite (ed), Taxing Democracy: Understanding Tax Avoidance and Evasion (2003) 111, 113; Albert J Reiss Jr, ‘Selecting Strategies of Social Control over Organizational Life’ in Keith Hawkins and John M Thomas (eds), Enforcing Regulation (1984) 23.
[113] See, eg, Simpson, above n 109, 17.
[114] See, eg, ibid 20; Moohr, above n 108, 35.
[115] A criminal prosecution will not be available where the DPP has advised ASIC that there is insufficient evidence to sustain a criminal prosecution or where ASIC is alleging that the duty of care in Corporations Act s 180 has been breached. There is no criminal liability for contravention of s 180: see s 184 and the heading of s 180 (‘Care and diligence — civil obligation only’).
[116] Interview with ASIC Senior Enforcement Officer, above n 55.
[117] Evidence to Senate Economics Legislation Committee, Parliament of Australia, Canberra, 1 June 2005, 71, 84–98. On 15 February 2007, ASIC announced that it had commenced civil penalty proceedings against a number of former and current directors and former executives of the James Hardie group: see ASIC, ‘ASIC Commences Proceedings Relating to James Hardie’ (Media Release No 07-35, 15 February 2007). The proceedings related to disclosures made by James Hardie Industries Ltd with respect to the adequacy of the funding of the Medical Research and Compensation Foundation. The Foundation was set up for the purpose of funding the James Hardie group’s asbestos liabilities.
[118] Evidence to Senate Economics Legislation Committee, Parliament of Australia, Canberra, 1 June 2005, 85.
[119] Evidence to Senate Economics Legislation Committee, Parliament of Australia, Canberra, 1 June 2005, 109.
[120] Corporations Act ss 206F(1)(a)(ii), 533(1)(c).
[121] Interview with ASIC Senior Enforcement Officer, above n 55.
[122] Ibid.
[123] See above nn 16–20 and accompanying text.
[124] Australian Securities and Investments Commission Act 2001 (Cth) s 93AA.
[125] See above nn 16–20 and accompanying text.
[126] The current civil penalty regime was introduced by CLERP Act sch 1 item 6. It came into operation on 13 March 2000: see above n 39 and accompanying text.
[127] Source: The data relating to civil penalty applications is drawn from ASIC media releases and the author’s examination of civil penalty judgments (for the methodology, see above n 7). The source of the data relating to the number of directors banned is the ASIC annual reports from 2000–01 to 2008–09 (ASIC, Annual Report 2001–02: Tackling Ethics and Governance (2002) 29–30; ASIC, Annual Report 2002–03: Fighting Fraud and Misconduct (2003) 28; ASIC, ASIC Annual Report 2003–04: Building Confidence in Financial Markets (2004) 18; ASIC, ASIC Annual Report 2004–05: Patrolling a Broad Territory (2005) 20; ASIC, ASIC Annual Report 2005–06: Working for Australia — Consumers, Investors, Business and Markets (2006) 21; ASIC, ASIC Annual Report 06–07: Regulating in a Time of Growth — Markets, Business, Investors and Consumers (2007) 16; ASIC, ASIC Annual Report 07–08: A Year of Change (2008) 60–1; ASIC, ASIC Annual Report 08–09: A Year of Consolidation (2009) 19), ASIC media releases and the author’s examination of corresponding judgments (bannings under the civil penalty regime revealed in relevant judgments were subtracted from the total number of bannings stated in the annual reports). The source of the data relating to the number of enforceable undertakings obtained is the ASIC website: ASIC, Enforceable Undertakings Register (December 2009) <http://www.asic.gov.au/asic/asic.nsf/byheadline/Enforceable+undertaking+register%3A+list?openDocument> .
[129] According to ASIC media releases and the author’s examination of civil penalty judgments (for the methodology, see above n 7).
[131] A further civil penalty application alleging a contravention of the directors’ duties provisions was issued during this period against Ronald Moore, director of Monitored Investment Services (Qld), and Allarna Moore, a former trustee of the Moore Unit Trust: see ASIC, ‘ASIC Obtains Undertakings against Monitored Investment Services’ (Media Release No 03-337, 23 October 2003). There is insufficient information available about this matter to determine which of the directors’ duties provisions have allegedly been contravened. It is not possible to determine whether or not ASIC would have been in a position to institute a criminal prosecution had the civil penalty regime not been available.
[132] See above n 83 and accompanying text.
[133] Evidence to Joint Committee on Corporations and Financial Services, Parliament of Australia, Canberra, 13 September 2005, 2.
[134] According to ASIC media releases and the author’s examination of civil penalty judgments (for the methodology, see above n 7).
[135] ASIC, Annual Report 2002–03, above n 127, 23, 27; ASIC, ASIC Annual Report 2003–04, above n 127, 14–15; ASIC, ASIC Annual Report 2004–05, above n 127, 16; ASIC, ASIC Annual Report 2005–06, above n 127, 18; ASIC, ASIC Annual Report 06–07, above n 127, 16; ASIC, ASIC Annual Report 07–08, above n 127, 14–15.
[136] ASIC, Annual Report 2001–02, above n 127, 25.
[137] Ibid.
[138] ASIC, ASIC Annual Report 08–09, above n 127, 16–17.
[139] Ibid.
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/journals/MelbULawRw/2009/31.html