Case analysis,
This task is worth 25% of your final mark and is designed to:
Encourage you to analyse and synthesise Corporate Law principles relating to the nature, formation of corporations and the key policy issues,
Apply the concept of fiduciary duties, and
improve your academic writing skills.
The financial system of Australia plays a very important role in supporting the Australians’ economic prosperity by investments, providing business and consumers with banking, insurance service, and superannuation. The financial system of Australia in the recent years has strongly grown, particularly post the compulsory superannuation introduction in the year 1992. There has been a growth in financial assets from around worth two years’ of nominal gross domestic product[1] Of Australia in the year 1997 to in the year 2013 more than three times the nominal gross domestic product. Around Six Trillion Dollars, worth assets were controlled by the Australian Financial institutions in Australia in December 2014.
The regulator of Australia’s financial markets, consumer credit and corporate is the Australian Securities and Investments Commission (“ASIC”). It tries to ensure that the regulation of the market is in a manner such that it is transparent and fair, supported by informed and confident consumers and investors. There are various responsibilities which have been given to it which include regulating approximately 5000 financial services licensees in Australia and 2.2 million companies.[2] A major role is played in the regulation of the Financial system of Australia by the ASIC along with the Reserve Bank of Australia and Australian Prudential Regulation Authority.
ASIC’s one of an essential responsibility is to ensure that the entities that are regulated comply with the legal obligation and the obligations that they are required to comply with under the Corporations Act 2001. There are a range of strategies which have been developed by the ASIC which aims at encouraging compliance that is voluntary and addresses any type of non-compliance. The strategies are that of investor and consumer education for making appropriate and informed choice at the time of dealing which financial services and products and money, communication of the ASIC’s actions for informing the entities that are regulated with respect to the standards that are expected and the consequence they will have to face in the case such standards are not met and providing the regulated entities with guidance on how they can comply with the obligations.[3]
In the situation of a regulated entity’s non-compliance, enforcement action can be taken by ASIC for dealing with and deterring misconduct of any type. A investigation may be involved and commencing of proceedings that are civil in nature including seeking orders that are of civil penalty, conducting of investigation and taking a action that is criminal in nature (such as imprisonment), accepting an outcome that is negotiated including an enforceable undertaking also known as EU or taking actions that are administrative in nature such as imposing conditions on license, banning order. A graduated approach has been adopted by ASIC with less frequently used and more severe sanction employed for misconducts that are serious on the other hand EUs are responses to misconduct that are less serious in nature.
An EU is basically an undertaking in writing which is given by an individual or a company to the ASIC that its operation will be taking place in a certain manner. There are broad range outcomes which the EUs can achieve, such as compensation of consumers by an entity, improvement in the process of compliance, service providing to be ceased either indefinitely or for a certain period, or undertaking of programs for specific education. An EU, contradictory to other alternatives of regulation, is a remedy that is relatively quick. In this, the results have more certainty as compared to court proceedings outcomes. The compliance culture of an organization can be changed potentially. An outcome may be reached which is either better than or comparable to that received in a court. It is not that an EU is alternative for the commencement of an action which is criminal in nature, and it is not in cases where there is fraud or misconduct that is deliberate or a conduct where recklessness level is high that this is used.
It is generally when the ASIC gets to know of misconduct which is the potential of an entity that an EU arises. There might be the discussion which commences then between the entity and the ASIC regarding how the concerns of ASIC might be resolved. If in the opinion of the ASIC an EU would give a regulatory outcome that is effective on the said misconduct then the negotiations may be entered with the entity and an EU accepted from it.[4]
There are 53 EUs which have been entered into by the ASIC between January 1st, 2012 and June 30th, 2014. The involved entities included big public companies, individual liquidators and auditors, credit providers and big banks and various institutions of finance. There are variety of conduct that these EUs are related with which include conducts that are deceptive or misleading by the financial institutions, company liquidators and auditors failures to carry out properly their functions and duties, advice that is not proper by financial advisers and the licensees of Australian financial services failure of supervising and monitoring their representatives that are providing financial services.
Once the EU has been accepted, there will be compliance monitoring of the individual or entity by the ASIC of the undertaking often their being an independent expert’s input. If there is no compliance by the promisor of the EU, then there would be enforcement by ASIC of undertaking generally in Australia’s Federal Court of the Supreme Court of the State.
The AISC has Senior Executive Leaders who have the responsibility for most of the activities that the ASIC undertakes including that of accepting of an EU except where the matters are major then there would be an approval that would be required to be taken off the ASIC’s Enforcement Committee of the Commission.[5]
The Griffith and Cooney Committees recommended that there should be statutory powers which need to be given to the ACCC for accepting undertaking which can be enforceable legally.[6] Thus in accordance with the recommendations of this committee, there was introduction of provisions in the system for formalizing and legitimizing the agreements that were entered between the alleged offender and the ACCC.[7] A promise that is enforceable in court is an enforceable undertaking.[8] The form of a settlement is undertaken by it in which the offender (allegedly) who can be termed as the promisor and the regulator, for the purpose of this essay the ASIC, begin their negotiation on the breach that has been alleged. It can be alternatively stated that an enforceable undertaking is an alternative dispute resolution’s form.[9]
An increasing number of Australian regulators have been made available to this court enforceable undertaking. Post the enactment of the Trade Practices Act 1974 (Cth.) of the section 87B the first regulator became the Australian Competition and Consumer Commission (“ACCC”) for being able to use such sanctions.[10] The Australian Securities and Investments Commission Act 2001 (Cth) enacted a provision that was similar which is section 87B. The ASIC was given the power under section 93A and 93 AA of this act to accept enforceable undertakings. It may accordingly be argued that an enforceable undertaking enables the parties to reach a resolution that is appropriate and more flexible as compared to the order of the court since Section 93 A(1) and 93 AA(1) of the said Act gives the ASIC powers that are wider for accepting enforceable undertaking that is enforceable by courts than that which the court gave when it gives orders or allows directly undertaking.[11] This latitude has some judicial support. In the case of Medibank Private Ltd v Cassidy,[12] It was held by the court that compensation cannot be order by it for the parties that are not a part of the proceedings. However, there are various EUs that the ASIC often accepts for providing compensation or refunds since the corrective action is one of the aims of the EUs. Since an EU does not confine to what is ordered ordinarily by the court, the legislative gaps may also be remedied by such sanctions.
It is essential to keep in mind that alleged offense that amounts to enforceable undertakings can cover areas of law that are very wide. In the case of ASIC v. Edwards[13] The court opined that the wide interpretation of the words ‘in connection with’ that is there in the ASIC Act in Section 93 AA. This amounts to the fact that there may be acceptance by ASIC of undertakings on any kind of breach of law till the time the beach is in connection with the powers of ASIC. The statement ‘in connection’ was given a furthermore operational wider scope in the case of Berry v. Federal Commissioner of Taxation by Kitto J. as a requirement of a relationship that is substantial in a business sense that is practical.[14] There is no immediate causal relationship which is required by this test.
A report was released by the Senate Economics Reference Committee in the year 2014, June on the ASIC’s performance inquiry.[15] The Committee in this report recognized the good work which had been done by ASIC in an environment which was challenging. However, it also raised various concerns on ASIC’s performance including the manner in which the EUs are being used by it. There were 61 recommendations that were contained in this report by the Committee which aimed at the enabling of the ASIC to ensure that its responsibilities are fulfilled in a more effective manner.[16] It also raised concerns about the enforcement of the decisions of ASIC and in particular the use of the EUs. The issues in summary, raised in its submissions and which the Committed highlighted, included the terms strength which have been included in these EUs;; the EUs use as remedy for misconduct by entities that are larger; the clarity in manner in which the alleged misconduct are described in these issues; and the transparency when it comes to regulating the EUs compliance. A recommendation was included in the report that a performance of Audit by the Auditor-General of the use of EUs by ASIC should be undertaken.[17]
There is a valuable role which is played by EUs as ASIC’s one of the regulatory responses suite and the overall enforcement approach that ASIC takes. They are necessary particularly for addressing those misconduct which area less severe in nature and where there is co-operation from the promisor. There has in general been an efficient administration of the EUs by the ASIC which has been accepted and negotiated. For each significant step there has been an EU process that is sound: acceptance of EU as the most apt tool for regulation; terms inclusion in the undertaking that in the most suitable manner take care of the misconduct; and ensuring and monitoring that the conditions are followed through and addressing any type of non-compliance which is identified. There, however, is a considerable amount of scope still for improvement of EUs and ensuring that the decisions of EU and processes that support it and monitoring of compliance. The ASIC, also, does not report or measure the EUs effectiveness in achieving the outcomes of the regulatory process that had been intended, including the increase in the level of compliance that is voluntary. The stakeholders, including the Parliament, would be informed better of the regulations of ASIC’s effectiveness if there were reporting and measurement of the performance which has improved. There has been consistently acceptance of EUs by ASIC on these entering into EUs by ASIC it needs to verify that there is transparency and that it is by the procedures and policies. It also needs to be ensured that ASIC had a solid ground for the inclusion of terms that are particular to each EU with the terms that were generally aligning to the EUs which are for the non-compliance by entities.
References
ASIC, “Annual Report 2013–14” (2014)
Discussion Paper (EPA Victoria, 2008)
Enforceable Undertakings (EPA Victoria, 2008)
Fluehr-Lobban, Carolyn, “Guiding Principles Over Enforceable Standards” (2009) 50 Anthropology News
Johnstone, Gerry and Daniel W Van Ness, Handbook Of Restorative Justice (Willan, 2007)
Johnstone, Richard and Christine Parker, “Enforceable Undertakings In Action: Report Of A Roundtable Discussion With Australian Regulators” SSRN Electronic Journal
Khodabakhshi, Mohammad and Kourosh Aryavash, “The Cross-Efficiency In The Optimistic–Pessimistic Framework” [2016] Operational Research
Nehme, Marina, “Enforceable Undertakings In Australia And Beyond” (2016) 8 Australian Journal of Corporate Law
Parker, Christine, “Restorative Justice In Business Regulation? The Australian Competition And Consumer Commission’s Use Of Enforceable Undertakings” (2004) 67 Modern Law Review
Senate Economics References Committee, “Performance Of The Australian Securities And Investments Commission” (2014)
Australian Securities and Investments Commission v Edwards [2004] NSWSC
Berry v Federal Commissioner [1953] 89 CLR 653
Medibank Private Ltd v Cassidy [2002] FCAFC
ASIC’S Strategic Framework (2014) <https://download.asic.gov.au/media/2309568/strategicframework_nov2014_online_accessible.pdf>
Enforceable Undertakings (2016) SafeWork NSW <https://www.safework.nsw.gov.au/law-and-policy/enforcement/enforceable-undertakings>
Enforceable Undertakings (2016) SafeWork NSW <https://www.safework.nsw.gov.au/law-and-policy/enforcement/enforceable-undertakings>
Nehme, Marina, — “Enforceable Undertaking: A Restorative Sanction?” [2010] Monashulawrw 19; (2010) 36(2) Monash University Law Review 108 (2016) Austlii.edu.au <https://www.austlii.edu.au/au/journals/MonashULawRw/2010/19.html>
Nehme, Marina, “Enforceable Undertakings: A New Form Of Settlement To Resolve Alleged Breaches Of The Law” [2007] Uwslawrw 4; (2007) 11(1) University Of Western Sydney Law Review 104(2016) Austlii.edu.au <https://www.austlii.edu.au/au/journals/UWSLawRw/2007/4.html>
Statistical Tables: Assets Of Financial Institutions (2016) <https://www.rba.gov.au/statistics/tables/xls/b01hist.xls>
[1] Statistical Tables: Assets Of Financial Institutions (2016) <https://www.rba.gov.au/statistics/tables/xls/b01hist.xls>.
[2] ASIC, “Annual Report 2013–14” (2014).
[3] ASIC’S Strategic Framework (2014) <https://download.asic.gov.au/media/2309568/strategicframework_nov2014_online_accessible.pdf>.
[4] Marina Nehme, — “Enforceable Undertaking: A Restorative Sanction?” [2010] Monashulawrw 19; (2010) 36(2) Monash University Law Review 108 (2016) Austlii.edu.au <https://www.austlii.edu.au/au/journals/MonashULawRw/2010/19.html>.
[5] Marina Nehme, “Enforceable Undertakings: A New Form Of Settlement To Resolve Alleged Breaches Of The Law” [2007] Uwslawrw 4; (2007) 11(1) University Of Western Sydney Law Review 104 (2016) Austlii.edu.au <https://www.austlii.edu.au/au/journals/UWSLawRw/2007/4.html>.
[6] Discussion Paper (EPA Victoria, 2008).
[7] Enforceable Undertakings (EPA Victoria, 2008).
[8] Richard Johnstone and Christine Parker, “Enforceable Undertakings In Action: Report Of A Roundtable Discussion With Australian Regulators” SSRN Electronic Journal.
[9] Christine Parker, “Restorative Justice In Business Regulation? The Australian Competition And Consumer Commission’s Use Of Enforceable Undertakings” (2004) 67 Modern Law Review.
[10] Marina Nehme, “Enforceable Undertakings In Australia And Beyond” (2016) 8 Australian Journal of Corporate Law.
[11] Mohammad Khodabakhshi and Kourosh Aryavash, “The Cross-Efficiency In The Optimistic–Pessimistic Framework” [2016] Operational Research.
[12] Medibank Private Ltd v Cassidy [2002] FCAFC.
[13] Australian Securities and Investments Commission v Edwards [2004] NSWSC.
[14] Berry v Federal Commissioner [1953] 89 CLR 653.
[15] Senate Economics References Committee, “Performance Of The Australian Securities And Investments Commission” (2014).
[16] Gerry Johnstone and Daniel W Van Ness, Handbook Of Restorative Justice (Willan, 2007).
[17] Enforceable Undertakings (2016) SafeWork NSW <https://www.safework.nsw.gov.au/law-and-policy/enforcement/enforceable-undertakings>.
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