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Answers to questions on notice
Question on Notice 1
Staffing (Sen Boyce, p. 12 Hansard)
Senator BOYCE—Going back to the restructure, you have 13
fewer senior managers in the new system. What are your staff levels pre- and
Mr D’Aloisio—Pre- and post restructure we have around 1,500
Senator BOYCE—Is that full time?
Mr D’Aloisio—I can get you more precise numbers and that
will not change.
The new structure will become operational on 1 September.
Full time equivalent staff (FTE) prior to the announcement of the new structure
Staffing levels will not be reduced in the new structure.
Parliamentary Committee on Corporations and Financial
Services –A SIC Oversight Hearing – 18 June 2008
Question on Notice 2
Staffing (Sen Boyce, pp 14-15
Senator BOYCE—How many of those 18 would have worked for
ASIC for more than two years?
Mr D’Aloisio—It depends on the reappointments. So far we
have appointed about half of those.
Senator BOYCE—Do you have nine appointed?
Mr D’Aloisio—We are talking about 51 positions being reduced
to 42. We have appointed about 19 of the positions that were vacant from
internally. I do not have the numbers of the average seniority and position of
those people, but they would be well in excess of five, eight or 10 years. I
can get that information for you.
Senator BOYCE—I would like to get the figures for the number
of internal versus external appointments for those 42 positions, and also
perhaps something that says how many have had more than two or three years
service with ASIC.
Mr D’Aloisio—I am very happy to do that. We can give you
that in relation to the existing appointments that have been made, and we can
build on that as the appointments proceed over the next month or so.
Of the 42 new senior executive positions available under the
new structure, we made 29 internal appointments to these positions. 24 of the
29 have greater than 2 years service with ASIC, with an average length of
service of 11 years and 3 months. We are currently recruiting internally and
externally for the remaining positions.
Question on Notice 3
Enforcement (Sen Boyce, pp 20-21
Senator BOYCE—I have one more question on prosecutions and
stats. On page 4 you talk about the illegal managed investment schemes that you
took action on. Can you tell us why the figure has dropped substantially from
2006-07 to 2007-08?
Mr D’Aloisio—I could say that people were more honest.
Senator BOYCE—I am waiting for you to say you have been
fantastically successful in scaring them out of it or they have just gotten
Mr D’Aloisio—Again, this is an example of the stats that I
talked about earlier; that you could draw too much from it. What you need to do
is go behind some of those. There might be fewer of those, but they may have
been much more complex in the sorts of behaviour changes that we were seeking
to push, and it has taken us time. My guess is those figures are also not
totally up to date in the sense that we have got the 2007-08 year, which is
incomplete. I will take that on notice as well and have a look behind those
stats for you.
The figures contained in the report tabled at the PJC
contained information collated as at 31 May 2008. Since that report was tabled,
ASIC has obtained more accurate information regarding the numbers of investors
and funds involved in schemes and has finalised more illegal managed investment
schemes actions (most notable the Supersave and Integrity Plus schemes – see
ASIC MR 08-129).
Set out below is a table of action taken in relation to
illegal investment schemes over the last four years. The table covers civil
actions taken by ASIC and does not include other actions, such as criminal
With the exception of 2005/2006, which includes details of
the Westpoint schemes, ASIC's work in relation to illegal schemes has been
relatively constant over the last four years.
Financial Year No. of Schemes Investors Funds
*Westpoint has impacted on these figures, involving 4300
investors and about $360M in funds.
The number of matters referred for consideration requiring
an enforcement response has declined over the last 3 years, in respect of
illegal scheme activity. Accordingly, ASIC has resourced less matters for
enforcement activity in 2007/2008. It is difficult to say with any certainty if
the number of complaints received by ASIC has decreased over the same period as
complaints received by ASIC in isolation may not necessarily identify
themselves as relating to illegal scheme activity. ASIC continues to refine its
method of collecting and recording complaints so as to enable it to see if
complaints in relation to illegal schemes activity is decreasing.
Question on notice 4
Deterrence (Senator Murray, p. 22
Senator MURRAY—I want to put this proposition to you. I
sense that probably ASIC has not thought that much about this area before. As
you know, there is a whole advocacy in the parliament and outside of the
parliament with respect to deterrence, which is often about heavier
incarceration regimes or fines, and that is appropriate. But there are ways to
use the existing law, in other words applying the deterrents already in there
which are not fully enough exercised. Could I ask you, on behalf of the
committee, whether perhaps next time you are in front of the committee you can
give us a more considered view of that and whether the proposition I am putting
to you is a real observation or just my view. Secondly, in a more formal sense,
can you indicate how the Commonwealth, through you or on its own basis through
the chief law officer in the land, could get a clearer view in the judiciary
about how these matters should be approached?
Mr D’Aloisio—Thank you. We will do that.
Q.1 - can give us a more considered view of that and
whether the proposition I am putting to you is a real observation or just my
ASIC has been provided by Parliament with a broad range of
remedies to achieve deterrence. AISC is active in using these remedies and
over the last 4 years has used a broad range of regulatory tools to achieve
deterrence outcomes by conviction of 167 white collar criminals (88 jailed),
banning 253 people from managing corporations and 136 from offering financial
services. It has also taken court action in relation to illegal schemes and has
obtained court orders or undertakings for fines, costs and compensation of over
$400 million and frozen $214 million assets for investors and creditors.
ASIC's new strategic approach will consider this question in
its work in the future. Our aim is to provide the best outcomes in terms of
deterrence and change in market behaviour that can be achieved using the powers
available. To achieve this we will consider using all the deterrence powers
that are available and appropriate, including, where possible, using approaches
that do not rely on legislative powers, such as warning letters.
For example, we have identified that we can be more active
in banning market participants, such as brokers, from providing financial
services. In other instances we may be a bit more proactive in the use of the
powers to ban directors.
In dealing with illegal early release superannuation
schemes, ASIC has looked broadly at available remedies in its own legislation
and in other legislation (more specific details cannot be provided as these
investigations are on-going).
Q. 2 - can you indicate how the Commonwealth, through you
or on its own basis through the chief law officer in the land, could get a
clearer view in the judiciary about how these matters should be approached?
Specific information about the economic impact of misconduct
that ASIC regulates is often put before courts in evidence form victims.
Information about the broader economic impact of misconduct
that ASIC regulates could be put before the courts for consideration in
assessing the seriousness of misconduct and imposing penalties or sentences.
To an extent this material is already provided by ASIC, or the Commonwealth
Director of Public Prosecutions in criminal prosecutions. In our experience it
is difficult to get this material before the courts, particularly in markets
matters, and ASIC is working to increase this. ASIC is currently discussing
the issue with the CDPP.
Obviously, there are constitutional limits on the guidance
that can be provided to courts about how to quantify the seriousness of these
matters. However, the level of maximum penalty that the legislature specifies
for a particular offence does provide guidance to courts on how seriously
Parliament views that misconduct relative to other misconduct.
Question on Notice 5
Budget (Mr Keenan MP, p. 24
Mr KEENAN—Could you remind me: how long did it take for the
government to say that they were not going to implement that cut?
Mr D’Aloisio—I could take that on notice. I cannot recall. I
thought it was fairly soon after, probably January or February I think. We can
check that for you. I think that might be the best.
The Minister for Superannuation and Corporate Law, Senator
the Hon Nick Sherry, announced at the Senate Economics Committee Additional
Estimates hearing of 20 February 2008 that the Commonwealth Government was not
proceeding with the savings measures initially announced on 2 March 2007.
Question on Notice 6
Chartwell (Sen Boyce, pp 30-31
Senator BOYCE—In relation to complaints or warnings to ASIC,
not necessarily in the banking or financial sector, I notice that during the
estimates hearing you mentioned that you had had one anonymous complaint
regarding Chartwell. Would you know when that was?
Mr D’Aloisio—There was an anonymous complaint. I will have
to take that on notice. We received an anonymous complaint in April 2006 about
a scheme that they were conducting and how it was operating. Because it was
anonymous our compliance and surveillance team were not really able to follow
it up and decided not to take any action at that point in relation to it. Then
there was a further complaint earlier this year around February to April, in
that period, that then was actioned and then the company went into voluntary
administration and we are now running a full investigation.
Senator BOYCE—I have an email here from a Mr Jonathon Sear,
who is a Melbourne accountant, saying that he telephoned ASIC on 14 September 2007 and alerted them to his concerns regarding Chartwell. He was told there
was no adverse information regarding Chartwell and that his comments would be
passed on to the ASIC intelligence unit, so that suggests that there has been
another complaint. What I want to know now is what is the ASIC intelligence
unit? What happens to these complaints? How do you get to the situation where,
as you said before, you know about issues that are likely to arise?
Senator BOYCE—Mr Sear also advises me that he has had no
contact from ASIC whatsoever since he made this phone call.
Mr D’Aloisio—I would like to take that on notice and come
back to you and the committee specifically.
I notice that during the estimates hearing you mentioned
that you had one anonymous complaint regarding Chartwell. Would you know when
ASIC received an anonymous complaint about Chartwell
Enterprises Pty Ltd on 27 March 2006 about an unsolicited offer to invest in
Chartwell by way of a personal loan agreement.
Complaint from Mr Jonathon Sear
ASIC's incoming call records show a call from a
"Jonathon" (the caller) who contacted ASIC's general enquiry line on 14 September 2007. The caller did not provide ASIC with his surname, telephone number or
address. The caller did inform ASIC that he was an accountant, and that a
client of his had informed him of a potential investment with Chartwell
Enterprises. The caller informed ASIC that his client intended to mortgage her
house to invest $300,000 in Chartwell where she would receive a 20% return (10%
each month and the balance of 8% at the end of each year).
The caller did not have any physical information, other than
the terms repeated to him by his client. The caller had not viewed the
prospectus given to his client and did not have any other information or
evidence to make a formal complaint with ASIC but stated that he wanted ASIC to
be aware of this company.
At the time of this call there was no 'adverse information'
in the public domain about Chartwell.
ASIC has not contacted the caller again as the call was
logged as 'information only'. The call was not logged as a complaint because
the caller stated that he did not have any further information to provide to
ASIC and was ringing to report his concerns about an investment his client
intended to make. Further, as stated above, the caller did not provide ASIC
with his telephone number or address.
From 1 July 2008, ASIC has enhanced the information
recording systems for calls to our Infoline service, so that we may conduct
more intensive data sweeps and improve our early intelligence systems for the
detection of illegal schemes or misconduct based on the volume or type of calls
to ASIC's Client Contact Centre.
What is the ASIC intelligence Unit?
ASIC does not have a single 'intelligence unit'. ASIC
records information or 'intelligence' against corporate and individual subjects
of each activity it undertakes, and records general information or industry
specific intelligence where no individual subjects are identified e.g. general
consumer protection campaigns. One of the activities ASIC undertakes is to
receive and assess reports of misconduct from the public and answer general
enquiries. We do this by way of our Client Contact Centre (that houses our
General Enquiry line and Infoline services) and our dedicated Complaints Unit,
National Assessment & Action. ASIC receives over 650,000 calls to our call
centre each financial year, and a small proportion of these are escalated as complaints
usually at the caller's request or if the operator determines further action is
required on the subject of the call. Depending on the campaigns being targeted
by ASIC, particular call types will also be automatically escalated (e.g.
debtor harassment complaints).
What happens to these complaints?
ASIC's Client Contact Centre answers general queries
regarding our public databases, information from our website, queries about the
correct lodgement of forms, and complaints that may be resolved in a single
call. Any unresolved complaints or complex issues are generally escalated to
National Assessment & Action, where there is a designated analyst to deal
with all referrals from the Client Contact Centre. The complaints analyst will
contact the caller and assist with the query by providing public assistance, or
in circumstances where the issue requires further analysis the query will be
lodged as a complaint.
How do you get to the situation where, as you said
before, you know about issues that are likely to arise?
ASIC is taking continuous steps to improve our detection and
assessment of information and reports of misconduct received, and the formation
of the Stakeholder Services group within the Real Economy, combining for the
first time the Client Contact Centre and complaints functions is a significant
step in our strategic review process to deliver this objective.
Question on Notice 7
(Sen Boyce, p. 32 Hansard)
Senator BOYCE—Would you be, for instance, able to give us,
without taking too much time and effort, a list of the number of early
complaints you had regarding the companies or the matters that you list in the
report that you have given us—One.Tel et cetera?
Mr D’Aloisio—We could do that, for example, with Westpoint,
ACR and Fincorp. We could pick some clear examples and indicate what the range
of complaints was, when we acted, what we did and so on. We will try to give
you a snapshot of that and we will also put into that a clearer picture of how
we analyse and where they go in the steps, because there are flowcharts that
indicate what happens to complaints and, if they pass certain gates, where they
go to next in the organisation. We can give the committee that—
Complaints made to ASIC about Westpoint
ASIC received 12 reports of information from the public
about various entities in the Westpoint Group prior to the May 2004 media
release announcing the Emu Brewery/Bayshore action. To put this in context,
ASIC received and reviewed over 40,000 formal complaints from the public over
the same period (1999-2004).
ASIC responded to every complaint it received about
Westpoint. The 12 complaints raised various concerns about mezzanine financing
as a 'type' of fundraising and the issue of whether it is (or should be) a
regulated product. None of the complaints raised concerns about investment
redemption or solvency. In terms of spread, ASIC received:
- 1 complaint a year in 1999, 2000 and 2001 which
- 2 complaints in 2002 and
- 7 complaints in 2003.
ASIC received a further 17 complaints between May 2004 and
In late 2004 and early 2005, a handful of investors raised
concerns about delayed redemption of investments and income distributions,
however in the course of ASIC making enquiries into these complaints in 2004,
these investors were paid. In the second half of 2005 ASIC received further
complaints about late payment, which ASIC then considered as evidence in our
investigation leading to the winding-up applications announced in late 2005.
Complaints made to ASIC about Fincorp
In the period 30 September 2002 (the date of lodgment of the
first Fincorp Investments Limited prospectus) to 23 March 2007 (the date the
Administrators Korda Mentha were appointed to Fincorp), ASIC received 6
complaints and 4 general enquiries about various entities in the Fincorp
Group. None of these complaints raised concerns about investment redemption or
To summarise, noting in bold the dates and brief details of
ASIC action on disclosure and advertising, ASIC received the following
complaints in chronological order:
- 30 September 2002 – 1st prospectus lodged by Fincorp Investments Limited (FIL).
- 14 October 2002 – ASIC places interim stop order for inadequate disclosure.
- 1 November 2002 – Defects
- 27 February 2003 – anonymous complaint alleging that Fincorp had been falsely representing
to the public that its debentures were backed by a guarantee from the National
Australia Bank). ASIC wrote to the company in relation to possible misleading
and deceptive advice being provided to the public and we were satisfied with
their response regarding change to internal checking procedures.
- 19 May 2003 – ASIC issues investor alert: Fixed interest products – higher
returns mean higher risks (03-158)
- 20 May 2003 – complaint from a member of the general public concerning an advertisement by
Fincorp Finance Ltd offering interest up to 11.25% pa for debentures and
unsecured notes. Following assessment this matter was internally referred to
our Consumer Protection Directorate and considered as early intelligence in our
later high-yield debenture campaign.
- 14 October 2003 – 2nd prospectus
lodged by FIL.
- 3 November 2003 – enquiry from member of the public about high interest offered by several
companies including Fincorp. Person advised to obtain independent financial
- 25 November 2003 – ASIC places interim stop order for inadequate disclosure.
- 3 December 2003 - ASIC stops
illegal advertising of a banned prospectus.
- 6 January 2004 – Defects rectified – ASIC focuses on defective debenture
- 29 April 2004 – ASIC scrutinises
recent debenture prospectuses (04-124).
May 2004 – concern by member of the public that consumers may not understand that
the advertised rate of up to 11.75% is only applicable on maturity of 5 year
investment in Unsecured Deposit Notes and that lower rates otherwise apply. No
specific misconduct alleged.
- 5 July 2004 – enquiry from member of the public about a number of companies including
Fincorp. Person advised to seek independent financial advice.
2004 – ASIC runs high-yield debenture campaign. $1.8 billion at stake: warning
to investors in high-yield debentures (04-242) issued 27 July 2004.
- 21 October 2004 – ASIC terminates 2nd prospectus after interim and final stop
order for inadequate disclosure.
- 7 December 2004 – 3rd prospectus
lodged rectifying previous concerns.
- 17 February 2005 – ASIC action protects vulnerable investors in high-yield
debentures (and attached debenture campaign report) (05-30).
- 7 March 2005 – ASIC takes Court action against Fincorp in the NSW Supreme Court
for disclosure inadequacies relating to 2nd prospectus (orders obtained 21 September 2005) (05-49).
February and 26 April 2005 – 2 complaints from members of the public raising
concerns in relation to the conduct of Fincorp and others for aggressive and
possibly misleading advertising of financial products. The advertisements
identified in the complaints were internally referred to our Consumer
- 30 August 2005 – ASIC takes action for misleading advertising. ASIC obtains
legally binding undertakings from Fincorp to correct advertising.
- 12 September 2005 – ASIC requires Fincorp to correct its advertising (05-272).
- 22 September 2005 – Fincorp to offer millions in refunds to debenture investors
- 11 November 2005 – enquiry from member of the public asking for advice relating to shares
and banking issues. Information provided.
- 16 November 2005 – 1 complaint from investor requesting advice on a transaction involving
debentures issued by Fincorp. It appeared that the company had provided an
option to the complainant to exit early from his investment, which he had taken
up. However, as a result, Fincorp stated that due to his request for early
release they would take $200 from his capital, as a lower interest rate would
be applied to the loan. Following our assessment the complainant was advised
that this was a contractual issue between himself and the Company, and that
ASIC could not comment on the merits, or otherwise, of a particular investment,
or the return derived from it. Complainant was advised that ASIC requires
licensees who provide investment advisory services to have an internal
complaint handling procedure; therefore he should contact the company.
Complainant was also advised that if the complaint was not resolved by internal
procedures to his satisfaction, he could make a complaint to FICS.
- 15 March 2006 – enquiry by member of public on behalf of her mother asking whether ASIC is
taking action against Fincorp. Complaint withdrawn when Fincorp paid her
mother in full.
- 22 August 2006 – ASIC issues investor warning – Don't invest a cent in a fixed
interest investment without using ASIC's 3-way test (06-290).
3. AUSTRALIAN CAPITAL RESERVE
By way of background, on 30 May 2007, ASIC Chairman, Mr Tony D'Aloisio provided a statement on Australian Capital Reserve Limited
(ACR) to the Senate Standing Committee on Economics, a copy of which is
attached to this response at Appendix B.
ASIC commenced investigations into the collapse of Estate
Property Group and its subsidiaries, including ACR, in October 2007. ASIC’s
investigations in relation to this matter are scheduled for completion by 30 September 2008.
Complaints made to ASIC about ACR
In the period 11 April 2000 (the date of lodgement of the
first ACR prospectus) to 28 May 2007 (the date the Administrators McGrath Nicol
were appointed to ACR) ASIC received 32 complaints about ACR.
To summarise, noting in bold the dates and brief
details of ASIC action on disclosure and advertising, ASIC received the
following complaints in chronological order:
- 11 April 2000 – 1st prospectus lodged. ASIC wrote to ACR identifying inadequate
- 3 May 2000 – Replacement
prospectus lodged – defects rectified.
- 7 July 2000 - 1 complaint received from a member of the public raising concerns about
ACR's offer for investments in "unsecured notes" as "term
deposits". The complainant believed this was a misrepresentation of the
prospectus and people may have been misled into investing in a product that was
not what they wanted. After contacting the company it appeared that ACR staff
allegedly described the unsecured notes as similar to term deposits. Matter
referred for surveillance to ASIC's Fundraising Program who conducted a further
review and concluded the document and the descriptions were correctly
January 2001 and 22 March 2001 – 2 complaints received (1 of them being a
referral from the NSW Dept of Fair Trading and the other from a member of the
public) alleging ACR was using unlicensed sales persons and pressure selling to
induce members of the public to sign up for its prospectus. No further action
was taken on the basis of insufficient evidence of any misleading or deceptive
conduct, or breach of restrictions on advertising and distribution of a
prospectus. The matter was internally referred to ASIC's Markets team for
April 2001 – 1 complaint received from a member of the public about the then
current prospectus raising concerns about the reported total profitability of
the group and what, in the complainants view, must be achieved to ensure that
all interest and capital repayments are met. No further action was taken given
that the prospectus was expiring on 10 April 2001.
- 6 April 2001 – 2nd prospectus
- 4 July 2001 – 1 complaint received from a pensioner in respect of the interest rates
offered by ACR (that ranged from 9% pa to 11% pa). The complainant believed
that ACR promised returns that were beyond commercial sense. Assessment
concluded that the rates of interest were found to be in-line with other market
rates in respect to similar offers and, therefore, no offences identified.
- 7 September 2001 – 3rd prospectus lodged. Exposure period extended for
- 24 September 2001 – Replacement
prospectus lodged – Defects rectified.
- 5 March 2002 – 4th prospectus
- 16 January 2003 – 1 complaint received from a member of the public raising concerns in
relation to aadvertising by ACR by which they were offering retirees generous
investment returns which the complainant believed were unsustainable and that
it may be a pyramid scheme. No further action was taken as the returns offered
were in line with market rates.
February 2003 – 1 complaint received from a member of the public about ACR
seeking investor term deposits at an interest rate of 7.25% for 12 months, free
of fees and charges with interest paid quarterly, increasing to 8.75% over 5
years. Matter was finalised as no further action as no contravention was
- 4 March 2003 – 5th prospectus
- 19 May 2003 – ASIC issues media release "03-158 Investor alert: Fixed
interest products - higher returns mean higher risks".
- 18 August 2003 - 1 complaint received from an employee at ACR concerned that that the
information imparted by sales staff to investors about the prospectus may be
misleading or unconscionable and that ACR's compliance systems were either not
effective or not in operation at all. Matter internally referred to ASIC's
Financial Services Reform directorate for surveillance.
- 11 September 2003 – 1 complaint received from a member of the public alleging that he was
misled by ACR's television advertisement into believing that investments in ACR
were guaranteed by the government. An assessment was conducted, but no
evidence was found to support an allegation that the advertising was misleading
or deceptive, or that a reasonable prospective investor would form the view
that the investment was government guaranteed.
- 31 October 2003 – 1 complaint received from a member of the public in relation to ACR's
promised returns, claiming that they were beyond commercial sense. The
complainant was concerned that ACR was targeting the elderly and wanted ASIC to
investigate whether it was a scam. Advertisement reviewed and no offences
November 2003 – 1 complaint received from a former employee alleging that ACR
directed employees to remove all soft and hard copies of material showing
non-compliance with FSR provisions (within the Corporations Act) in
anticipation of an ASIC surveillance. ASIC obtained books and records under
ASIC Notice but concluded there was insufficient evidence to initiate
proceedings for a possible section 1307 breach (falsification of books) or a
breach of the FSR provisions. Matter referred to ASIC's FSR Regulatory
Compliance directorate for surveillance.
- 6 January 2004 – ASIC focuses on defective debenture prospectuses (04-002)
- 3 March 2004 – 6th prospectus
- 25 March 2004 – ASIC places interim stop order for inadequate financial
- 7 April 2004 – Replacement prospectus lodged – Defects rectified. Interim stop
- 29 April 2004 – ASIC scrutinises
recent debenture prospectuses (04-124).
- 9 June 2004 – 1 complaint received from a member of the public raising concerns that ACR's
name may mislead the financially uninformed that it has links with the Reserve
Bank of Australia. Matter finalised as no further action as the use of the name
is not prohibited by the Corporations Regulations and, therefore, no offence
could be identified.
- 15 July 2004 - $1.8 billion at stake: warning to investors of high-yield
- 8 September 2004 – ASIC's high yield debenture campaign surveillance identifies
deficiencies regarding omissions and misleading and deceptive statements.
- 28 September 2004 – ASIC places interim stop order on the prospectus for
omission of investment risks and accounting treatments of financial
- 18 October 2004 – Supplementary
prospectus lodged – Defects rectified.
- 19 October 2004 – Interim stop
- 18 November 2004 – 7th
- 30 November 2004 – 1 complaint received from an ex-employee alleging that telemarketers
are providing financial advice and that the 'no [financial] advice' policy
training was inadequate. Further claim that ACR demanded employees sign
documents evidencing compliance training in the company's 'no [financial]
advice' policy when training was either inadequate or did not occur. Matter
was referred to ASIC's Financial Services Reform Directorate for further
- 2 December 2004 – Exposure period extended. Replacement prospectus lodged –
- 10 February 2005 – 1 complaint received as a referral from another law enforcement agency
raising concerns in relation to rates of return offered. The agency advised
that they received a call from a retired Executive of Westpac that ACR's
advertised rates of 8% to 9% was well above the market rates. Matter was
already under surveillance by ASIC's Corporate Finance as a result of the
Interim Stop Order dated 28 September 2004.
- 17 February 2005 – ASIC action protects vulnerable investors in high-yield
- 4 November 2005 – Interim stop order for not disclosing changes in the financial
- 9 November 2005 – Supplementary prospectus lodged – Defects rectified. Interim
stop order revoked.
- 17 November 2005 – 8th
- 3 February 2006 – 1 complaint received from an investor who had requested an early
redemption of funds and when completed noticed he had been charged
administration fees and interest adjustments had been made. Complainant
believed that ACR advertised that there were no charges payable. ASIC advised
that as per the terms of the prospectus for ACR in the event of an early
redemption of the funds, ACR may apply an interest rate adjustment and penalty
costs to early repayments. Complainant also advised that ASIC requires
licensees who provide investment advisory services to have an internal and
external complaint handling procedure and to contact the company in the first
instance. Failing a satisfactory resolution, complainant told to lodge a
complaint with the Financial Industry Complaints Service.
March 2006 – 1 complaint received from a member of the public raising concerns
that ACR salespersons were using pressure selling techniques to induce people
to sign up for the prospectus. No offences identified.
- 11 July 2006 – Supplementary
- 18 July 2006 – ASIC surveillance undertaken on the supplementary prospectus'
concerning property developments. Disclosure satisfactory. No further action
- 31 July 2006 – 1 complaint received from a member of the public seeking ASIC's advice
following receipt of an invitation to invest in a fixed interest investment
unsecured deposit note. Complainant advised that ASIC does not give financial
advice. Complainant advised to seek independent financial advice and provided
with ASIC's 'Getting advice' guide.
- 11 August 2006 - Supplementary
- 22 August 2006 – ASIC issues investor warning – Don't invest a cent in a fixed
interest investment without using ASIC's 3-way test (06-290).
- 11 September 2006 – 1 complaint received from a member of the public asking ASIC to assess
the behaviour of the ACR to ascertain if company is complying with all of its
obligations. Complaint does not identify specific issues and was finalised as
no further action.
- 8 November 2006 – Supplementary
- 7 December 2006 – 9th prospectus
- 9 March 2007 – Interim stop order. Stop order issues include overstatement of
profit and net assets from inflated property valuations, insufficient
disclosure of risks and use of additional loan funds.
- 15 March 2007 – ASIC requests that ACR cease the practice of rolling over
- 5 April 07 – 1 complaint received from a member of the public alleging that ACR
was in financial difficulty and that there were similarities with Fincorp as it
was offering high rates of return. Matter was referred for surveillance.
- 23 April 2007 – Final stop
- 16 April 2007 – 1 complaint received from an investor that he had not received an adequate
response from ACR to his request for redemption of his unsecured notes.
Complainant was provided public assistance to assist him to follow the
redemption process. We also informed the complainant that ASIC is aware and
monitoring ACR and we had issued a final stop order preventing ACR from issuing
- 3 May 2007 – 1 complaint received from an investor in relation to delay in redemption of
investment, asking whether ACR would be another Fincorp. Complainant advised
that ASIC issued interim orders on 9 March 2007 and 30 March 2007 respectively, before issuing a final stop order on 23 April 2007.
- 8 May 2007 - 1 complaint received from an investor in relation to delay in redemption of
investment. Complainant advised that a Voluntary Administrator (VA) had been
appointed to ACR and explained about the role of the VA and provided with
- 10 May 2007 – 1 complaint received from an investor alleging that ASIC's stop order on
ACR's prospectus was the reason for his failed attempt to redeem his
investment. Complainant advised that a VA had been appointed to ACR and
explained about the role of the VA and provided with contact information.
- 11 May 2007 – 1 complaint received,
similar to above.
- 28 May 2007 – McGrath Nicol
- 29 May 2007 – ASIC statement on
Australian Capital Reserve (07-145).
5 complaints received in late May from unsecured deposit note holders who did
not receive repayment of their investment on maturity. All complainants were
referred to and received information regarding the role of the VA.
2. ONE.TEL LIMITED
On 30 May 2001, ASIC commenced an investigation into One.Tel
Limited (One.Tel) following a referral of information by the Australian Stock
Exchange and the appointment of voluntary administrators to One.Tel. This
investigation was completed in December 2001 and ASIC commenced civil penalty
proceedings on 12 December 2001.
Complaints made to ASIC about One. Tel
In the period 30 March 1999 to 30 May 2001 (the date of commencement of ASIC's investigation) ASIC received 4 complaints about One.Tel:
ASIC received 4 complaints between 30 March 1999 and 30 May 2001:
complaint on 30 March 1999. The complainant's client was a user of one.tel
telecommunications and had concerns in relation to ACR's billing system and
concerns about the company's use of the legal system to attack the client. An
assessment was conducted but no offences identified within ASIC's jurisdiction.
complaint on 13 April 1999 from the "Ethics Action Group". The
complaint related to various aspects of alleged conduct by One.Tel that the
complainant considered unacceptable. Complaint was finalised as no actual
offences were identified, however, complaint was referred to the attention of
Enforcement Directorate for intelligence purposes.
complaint on 22 May 2001 from a member of the public. Complainant asserted
that principal shareholders were manipulating the share price in advance of an
upcoming rights issue. Complainant advised that ASIC had commenced an
investigation into One.Tel. Matter was referred to the Markets Branch who were
investigating this matter and was merged with that matter.
complaint on 1 December 1999 from a member of the public alleging that Rodney
Adler was privy to information not generally available to the market when he
increased his holding in One.Tel. The matter was referred to Markets
Enforcement for further analysis and surveillance.
- 30 May 2001 – ASIC announces
5. ASIC'S COMPLAINTS ASSESSMENT PROCESS
ASIC registers and conducts an assessment on every complaint
and report of misconduct that we receive. In general terms, we follow a 7-step
- Receipt and registration of the complaint on
ASIC's Complaints Management System, against each individual subject of the
complaint (recorded and searchable for future intelligence purposes).
allocated to analyst and acknowledged in writing (including contact details for
analyst assigned to complaint).
- Initial review of complaint.
gathering (for example, internal searches of ASIC public and private databases
to identify any relevant intelligence; external searches; contact with the
complainant, third parties and sometimes the subject to seek an explanation;
notices to obtain documentary evidence; liaison with other law enforcement
including identifying any jurisdictional issues, potential offences and
breaches and the strength of available evidence. ASIC's risk assessment
criteria is applied at this stage to determine whether referral for
of Action and Approval (including internal referral for investigation,
surveillance, compliance action, or intelligence purposes; provision of public
assistance to aid the complainant to resolve the complaint; and no further
action where no offences, no jurisdiction, or action otherwise precluded).
including formal communication of result to complainant and any other
Question on Notice 8
Reverse mortgages (Mr Ripoll MP, pp
CHAIR—Are reverse mortgages the subject of many complaints
Mr D’Aloisio—We could take that on notice. I am not sure.
CHAIR—If you could take it on notice, I would be interested
just to see a little bit of a brief in terms of complaints, the types of issues
and perhaps how that product works for people in terms of the complaints you
CHAIR—We would like any information that ASIC has got in
terms of information that has come to it, be they complaints or any other
information, just to give the committee a better scope. And if you would take
on notice too whether the ombudsman might have been the office that took more
complaints, but we might pursue that in another forum.
ASIC has received relatively few complaints about reverse
mortgages to date. However, this may be because the products are relatively
new in the Australian market and the risks that have been identified may only
eventuate in the longer term.
In a reverse mortgage, the elderly consumer takes out a
loan, which is secured by a mortgage over the house. The loan is designed so
that the borrower can remain in their home until the sell it, move out or die
and they do not need to make any repayments in the meantime. But at the same
time the size of the loan increases, sometimes dramatically because the
interest compounds. It is extremely difficult to determine how much money will be
left at the end of the loan term because it depends on a number of variable
- how long the individual consumer will live
- future fluctuations in housing values, and
- whether the interest rate on the loan is fixed
The market for reverse mortgages in Australia has expanded
dramatically since 2004: the number of providers has grown from three to 26 (as
at November 2007) and there have been annual increases of 60% in the size of
the market between 2004 and 2006 . This growth has included the emergence of
new non-bank lenders, which have increased their market share by offering more
aggressively structured products (e.g. larger loans available to younger
borrowers) with more features (including draw-downs, portability and capped
Growth has, however, slowed in 2007 with a growth rate last
year of 21%. Four lenders have recently either stopped accepting new loans or
significantly cut back their operations .
The total size of the market as at December 2007 is $AUS
2.02 billion, there are just over 33,700 loans in all and the average loan size
From 2005 to date, ASIC has received eight public and 10
internal complaints about equity release products. Most of these have related
to reverse mortgages, with the minority relating to another type of equity
release product – home reversion schemes .
Of the eight public complaints received, seven related to
misleading and deceptive conduct and the last related to unconscionable
conduct. The internal complaints were all generated as a result of ASIC's
campaign to monitor the advertising of equity release products that may be
misleading and deceptive.
The Banking and Financial Services Ombudsman (BFSO) has also
received eight complaints that have been identified as relating to reverse
mortgages in the last 12 months. The BFSO does not currently have a product
category for 'reverse mortgages' so it is possible that there have been
additional complaints that have not been identified. The fact that no specific
category has yet been created is a reflection of the relatively low number of
complaints to date.
ASIC's work in this area
ASIC has taken the following action in relation to equity
ASIC took action in court against the failed home equity
release scheme Money For Living for misleading representations. Recently the
Director of this scheme was sentenced.
ASIC accepted an Enforceable Undertaking from Transcomm
Credit Union in relation to misleading and deceptive conduct around their
reverse mortgage advertising.
ASIC took action to stop misleading reverse mortgage
advertising by brokers that claimed reverse mortgages were not required to be
ASIC has also undertaken the following research projects to
identify and report on the risks to consumers who take up equity release
Report 59 'Equity release products'. The report identified particular consumer
Report 109 'All we have is this house'. The report recorded the experience of
29 borrowers who had taken out a reverse mortgage.
Some of the key risks we have identified include:
- long term financial risks (that borrowers will be left with
insufficient or no funds to pay for likely medical, care and accommodation
- risks to the consumer if their lender collapses (including the
imposition of onerous fees and charges, the cessation of ongoing payments and
possible eviction for technical breaches of contract), and
- significant limitations to the affordability, independence and
quality of available advice.
We have recently conducted some internal work to ascertain
the scope and impact of these risks. We have identified a trend towards
increasingly aggressive product designs that, in the current economic climate,
pose heightened risks for both consumers and lenders. In this context, we found
that the factors most likely to negatively impact on consumers' outcomes are:
age of the borrower and the amount of money they borrow at origination relative
to their equity (there are a number of products in the market that allow
consumers to borrow large amounts of money from a relatively young age –
exposing them to the greatest risks)
in the economy (if property prices do not increase according to the optimistic
assumptions relied on by some product providers, then consumers' equity may
deplete very quickly), and
- the prudential stability of the lender.
We will continue to feed this work – and how it may relate
to targeted regulation of these products – back to government.
In this context the fact that ASIC has only received
relatively low numbers of complaints may be considered surprising. However,
this is probably explained by the fact that the increase in equity release
products in the Australian market is a relatively new phenomenon (taking place
in the last four years). In this context, the fact that products are designed
to be long term (in the sense that no regular repayments are required) may mean
that it is simply too early for problems to emerge.
Question on Notice 9
Credit rating of ME Bank (Sen
Chapman, p. 34 Hansard)
Senator CHAPMAN—I was a bit concerned to note recently the
downgrading of the credit rating of Members Equity Bank. Is any aspect of that
an area that comes under your jurisdiction or is that all APRA’s?
Mr D’Aloisio—I think that is an APRA matter. Our work in
relation to credit rating agencies is very much the licensing framework and
compliance with the IOSCA code of conduct. The government has asked us to
review those arrangements and we are engaged in a process with Treasury doing
that, but the specific issue you are referring to is better directed to APRA.
Senator CHAPMAN—There are no sort of flow-on issues that
would impact on super funds or anything?
Mr D’Aloisio—Not from what I know of the issue, but I am
happy to take it on board further and have a look at it.
We understand that on 19 March 2008, Standard & Poor's
placed Members Equity Bank on a 'creditwatch with negative implications',
pending a review of funding sources. Following the announcement of this
potential credit downgrading, we understand that Members Equity Bank has raised
further funding from superannuation fund shareholders.
Whether Members Equity Bank continues to have adequate
funding is an issue within APRA's jurisdiction as prudential regulator of
authorised deposit-taking institutions.
The provision of further funding to Members Equity Bank by
its superannuation fund shareholders also comes within APRA's jurisdiction as
prudential regulator for these superannuation funds.
There may be also be an issue about whether the
superannuation fund trustees have complied with their duties to avoid conflicts
of interest because the funds have invested in, and also own shares in, Members
Equity Bank. Again this issue comes under APRA's jurisdiction as prudential
regulator for these funds. Trustees that are financial services licensees are
also regulated by ASIC under the Corporations Act 2001, which imposes the
obligation to have adequate arrangements in place to manage conflicts of
We are liaising with APRA in relation to this issue.
Question on Notice 10
Vink matter (Mr Ripoll MP, p. 36
CHAIR—To finalise proceedings, I just want to raise two
cases, one with which ASIC is very familiar, the Vink case. This case has been
the subject of quite a bit of correspondence and work, but the new bit of
information actually relates to perhaps a failing of the Corporations Act and a
matter of principle in terms of the case. Perhaps if ASIC could just deal with
that in the correspondence they would have received from Mr Vink that would be
helpful. The other one which I have not—
Mr D’Aloisio—I will take it on notice. How recent is that,
do you know?
CHAIR—The date is 7 May 2008.
Mr D’Aloisio—I will take that on notice. I was not aware of
The following issues are raised in Mr Vink's letter dated 7 May 2008:
purpose of the voluntary administration (VA) regime in Pt 5.3A of the
Corporations Act 2001 (the Act) and, in particular, s435A;
(b) the purported ineffectiveness of s447E of the Act;
allegedly daunting mechanism for a person to make a complaint under s536 of the
(d) the case of Vink v Tuckwell in the Supreme Court
(a) PART 5.3A
Issue 1: Purpose of Pt 5.3A of the Act – s435A
The relevant provisions of Pt 5.3A
Pt 5.3A of the Act is indeed entitled: ‘Administration of a
company’s affairs with a view to executing a deed of company arrangement’.
However, the effect of the headings must be interpreted in light of the
operative wording of the individual sections of the Act.
In general terms, Pt 5.3A may (as is indicated by s435A) be
used to provide for the business, property and affairs of an insolvent company
to be administered in a way that either maximises the chances of the company
(or as much as possible of its business) continuing in existence, or if it is
not possible for the company or its business to continue in existence, in a
manner that results in a better return for the company’s creditors and members
than would result from an immediate winding up of the company. It is thus
expressly envisaged in the legislation that the purposes of Pt 5.3A would be
more than simply the execution of a DOCA.
This result is confirmed by s439A(4)(b), which requires the
administrator to provide to the creditors a statement setting out the
administrator’s opinion about whether it would be in the creditors’ interests:
(i) for the company to execute a DOCA; (ii) for the administration to end; and
(iii) for the company to be wound up. The legislation thus expressly envisages
three possible outcomes to the administration, and the execution of a DOCA is
just one of the three.
Abuse of Pt 5.3A
If the other purposes for which Pt 5.3A is being used fit
within s435A, they would be consistent with the intent of the legislature and
would not constitute an abuse of Pt 5.3A. As Ron Harmer commented to the
Parliamentary Joint Committee on Corporations and Financial Services (PJC) inquiry
that resulted in their June 2004 Report Corporate Insolvency Laws: a Stocktake
(the PJC Report):
‘any regime that is designed to
encourage rescue or rehabilitation will, of necessity, have a number, indeed,
probably a fairly high percentage, of failures. ... It is inevitable that you are
going to get not so much abuse of the system, but you are going to get
directors and companies invoking something like voluntary administration,
perhaps with some faint hope or expectancy that there might be something to be
rescued or retrieved.’ (emphasis added)
The PJC itself stated in their report:
‘A fifth [of companies entering
VA] are using the procedure to initiate a liquidation. The use of the procedure
for these purposes does not indicate that the procedure is misused. Nor does
the presence of other motives for initiating the procedure point to misuse.
The policy favouring reorganisation does not imply that every company is a
suitable candidate for it. Companies that are beyond the point of rescue, or
that should be brought to an end, should be liquidated promptly and
efficiently. Part 5.3A explicitly contemplates and provides a viable route to
an orderly liquidation of a company.’ (emphasis added)
If the provisions of Pt 5.3A are being abused, s447A(1)
empowers the court to make such order as it thinks appropriate about how Pt
5.3A is to operate in relation to a particular company, e.g. by ordering that
the administration is to end: see s447A(2)(b), Blacktown City Council v
Macarthur Telecommunications Pty Ltd and Dallinger v Halcha Holdings.
The Dallinger case
Sundberg J did not rule in Dallinger v Halcha Holdings that
it was not an abuse of the Act for a director to appoint a friendly
administrator even when it is clear that the company cannot be saved from liquidation.
While Sundberg J did state that it was not of itself an abuse of the Act for a
director to appoint an administrator when the company cannot be saved from
liquidation (a conclusion that resulted from a natural reading of the meaning
of the legislative wording), his Honour did not state that it was not an abuse
of the Act for a director to appoint a friendly administrator. To the
contrary, many of his Honour's comments stressed the need for the administrator
to be impartial.
Sundberg J’s comments in this regard have led subsequent
judges to use the Dallinger case as authority for the proposition that to
succeed in an application for the removal of an administrator the plaintiffs
must establish a reasonable apprehension by a creditor of a lack of
impartiality in the administrator as a result of association with the company
or a creditor: see for example Spiteri v Georges and Re Central Spring Works
Australia Pty Ltd.
It is implicit in Sundberg J’s judgment that VAs must be for
the purposes set out in s435A and that this section limits the reasons for
which a registered liquidator may accept an appointment as voluntary
administrator. It was decided in Aloridge Pty Ltd v Christianos that when
the appointing directors have a purpose other than the genuine object of
improving the position of the company or its creditors, an order may be made
under s447A terminating the administration.
Sundberg J’s judgment also does not affect the fact that Pt
5.3A disqualifies registered liquidators from accepting appointments as
voluntary administrator from a company with which they have certain
relationships prescribed in s448C(1), except with the leave of the court. In
addition, at common law, a voluntary administrator must be independent and be
seen to be independent, must act impartially, and must avoid conflicts between
interest and duty, and between duty and duty.
The current state of the common law is not contrary to the
intent of the legislation. The legislation’s intent is indicated by the natural
meaning of the Act, which was applied properly by Sundberg J. In the case
before his Honour, the administrator recommended an administration because he
felt that it was in the best interests of the general body of creditors for
someone to take control of the company’s affairs as soon as possible. His
Honour did not accept that the directors’ purpose in appointing the
administrator was not the genuine purpose of seeking to improve the position of
the company’s creditors. His Honour was therefore not satisfied in terms of
s447A(2)(b) that the provisions of Pt 5.3A were being abused.
Sundberg J’s judgment in this regard has been approved by
case law since, for example, Bidald Consulting Pty Ltd v Miles Special Builders
Pty Ltd, Blacktown City Council v Macarthur Telecommunications Pty Ltd, Re
Ansett Australia Ltd and Korda, Crimmins v Glenview Home Units Pty Ltd (in
liq) and Vink v Tuckwell (No.2).
In addition, Sundberg J’s judgment was consistent with the
relevant extracts from the Explanatory Memorandum of November 1992 on the
Corporate Law Reform Bill 1992 (Cth), which upon enactment introduced the new
Pt 5.3A. In respect of proposed s435A, it was stated that the primary object
of the Part is to maximise the chance of the company emerging from administration
with as much as possible of its business continuing in existence. Implicit in
this is that there is also a secondary object – namely the second limb in
s435A(b). This conclusion is confirmed by the PJC Report.
Issue 2: Possible amendment of s435A
Disregarding the state of the existing legislative position
in s435A (or any hypothetical amalgamation of its two limbs), the policy
question Vink raises is whether there should only be one purpose to Pt 5.3A,
namely the administration of a company’s affairs with a view to executing a
DOCA. Whether the purpose to Pt 5.3A should be changed has implicitly been
considered in two official inquiries that looked into the threshold test for
entry into VA:
(i) PJC June 2004 Report: Corporate Insolvency
Laws: a Stocktake
The PJC summarised their findings from the inquiry as
‘While many submissions were
critical of particular features of the VA procedure and suggested alternative
approaches in a number of areas, overall submissions commented positively on
the procedure. The general view expressed in submissions was that the VA
process is a useful and valuable procedure for companies that may be facing
The PJC’s only concrete recommendation (14) was for the
threshold test permitting directors to make the initial appointment of an
administrator under the VA procedure to be revised. The Committee noted the
suggestion that the test be reworded to read ‘the company is insolvent or may
However, this recommendation was concerned to ensure that
the VA procedure provides sufficient incentives to companies to initiate the
procedure and to alleviate perceptions that the VA procedure is only available
to insolvent companies. It was not to address any concern regarding the
overall purpose of Pt 5.3A.
Several submissions suggested that the VA procedure was open
to misuse because it was being used as a means of putting a company into
liquidation (instead of through the normal creditors’ voluntary liquidation
(CVL) procedure), rather than of enabling a company to continue in existence.
The PJC concluded in this regard as follows:
‘It [VA] generally strikes a
reasonable balance between liquidation and reorganisation. In the event that
reorganisation or rescue is impossible, the VA procedure permits a prompt
transition to a predictable, fair and orderly liquidation procedure in which
losses are distributed appropriately and minimised to the extent possible . The
flexibility that is inherent in the procedure in most cases achieves a balance
between the interests of debtors and creditors.’
Report: Rehabilitating large and complex enterprises in financial difficulties
The Corporations and Markets Advisory Committee (CAMAC)
disagreed with the PJC recommendation 14 in CAMAC’s October 2004 Report on
Rehabilitating large and complex enterprises in financial difficulties. But
this was not because it did not go far enough in recommending amendment to
s435A. On the contrary, CAMAC stated that the current prerequisites for
entering into VA should be retained, including where the directors consider
that ‘the company is insolvent, or is likely to become insolvent at some future
CAMAC also stated that it was not in favour of any
prohibition on an insolvent company appointing an administrator. As regards
prohibiting directors of an insolvent company
from appointing an administrator, submissions generally
opposed this prohibition, including for the reason that: ‘in keeping with the
objectives of VA (s435A), that procedure should be available even if there is
only a limited possibility of a successful restructuring.’
Recent insolvency law reform
Notwithstanding there being no recommendations made
regarding amendment of the purpose of the VA procedure, in last year’s
Corporations Amendment (Insolvency) Act 2007 (Cth) (the amending Act), one of
the insolvency law reforms was to facilitate faster entry into CVL by amending
the process for commencing CVL. The process was streamlined and modelled on
the process for putting a company into VA. This reform is likely to reduce
the instances of entry into CVL via the VA procedure where it is not envisaged
that it will be possible to put together a DOCA.
Issue 3: Interaction with s462(2)
Subsection 462(2) gives creditors of a company standing to
apply to the court for an order to wind up the company on a general ground
specified in s461. However, once a company enters VA, a creditor is no longer
able to apply to commence winding up proceedings, even if there is no prospect
of the company entering into a DOCA.
If the concern here is that the director-appointed
administrator is not independent and impartial, it is open to creditors to
remove a director-friendly administrator from office and appoint someone else
at the first meeting in the administration under s436E(4), or subsequently to
apply to the court under s447A, s447E or s449B (as appropriate) for the same
If there is no prospect of the company entering into a DOCA,
the company will either be returned to the management of the directors at the
end of the s439A decision meeting or it will enter CVL under s439C(c) and
s446A. In the first case, it is then again possible for a creditor to apply
for an order to wind up the company on a general ground specified in s461, and
in the second case, the creditors may under s499(2A) appoint at the s439A
meeting another person (instead of the administrator) to be the liquidator, or
if a creditor has a reasonably based apprehension that the liquidator is not
independent, the creditor may apply for the liquidator to be removed under
(b) SECTION 447E
Issue 4: Effectiveness of s447E
VAs are intended to be short-lived, but the reality is that
many administrations, especially those of large and complex groups of
companies, can go on for many months and even years. Notwithstanding this, it
is still possible for a court to be informed of improper conduct before the
administration is terminated even in those administrations that stick to the
minimum time limits. With competent legal advice, specialist representation by
a qualified practitioner, and appropriate evidence marshalled in support of an
application, there is no need for there to be any significant delay in applying
to the court for an order under s447E.
ASIC has in the past received complaints that raise concerns
about the external administration of a company lasting for an extensive period
of time, and continues to be open to receiving similar complaints. In such
circumstances, ASIC can make inquiries of the external administrator to ensure
that the external administration is not being prolonged unnecessarily.
(c) SECTION 536
Issue 5: Use
of s536 instead of s447E and the ‘daunting’ nature of making a complaint
The court is empowered to inquire into the liquidator’s
relevant conduct as an administrator as an incident of its inquiry under s536
of the Act: see ASIC v Edge. It is true that s536 is not meant to present a
very high hurdle to any person who wishes to call for an inquiry: see Burns
Philp Investment Pty Ltd v Dickens (No.2), ASIC v Edge and Vink v Tuckwell.
However, the court needs to be satisfied of a prima facie case that a matter
needs to be investigated in the public interest before dedicating public
resources to a full-blown inquiry: see Burns Philp Investment Pty Ltd v
Section 536 is therefore not more likely to be used by any
person to inquire into the conduct of an external administrator while acting as
voluntary administrator. For example, it may well be that the external
administrator has only acted as voluntary administrator, or has acted as
voluntary administrator and then deed administrator, but has not become a
liquidator of the company previously in VA. The focus on s536 is also
specifically on aspects of the conduct of liquidators which are liable to
attract sanctions or control for disciplinary reasons: see Northbourne
Developments Pty Ltd v Reiby Chambers Pty Ltd and ASIC v Edge. There may be
other circumstances in which the voluntary administrator’s conduct is more
appropriately examined under s447E.
As for s447E itself, that section (similarly to s536) does
not present a very high hurdle to an application either. In ASIC v Edge
Dodds-Streeton J stated that although prejudicial or potentially prejudicial
conduct as an administrator or deed administrator is a precondition of making
an order under s447E(1), it is not a precondition of the court making inquiry
into the defendant’s conduct and determining the existence of such conduct, on
an application under s447E(3). (See also Marks J’s observations in
Commissioner for Corporate Affairs v Harvey that an inquiry under s536 largely
retains the adversarial character of common law litigation, combined with
Dodds-Streeton J’s view that in ASIC v Edge the procedure adopted for the s536
inquiry was equally appropriate for a determination under s447E.) The
differences in ease of use of s447E and s536 may therefore be more illusory
Although in practical terms it may be quite daunting for any
person to make a complaint, this is a function of the adversarial court-based
dispute resolution system in Australia and is why litigation solicitors often
instruct specialist advocates (barristers) to conduct court proceedings. The
need for supporting material to be presented to the court in a contestable form
subject to the adversarial process of evidence testing is a means of preventing
unsubstantiated requests for inquiry being made and of ensuring that the truth
as regards matters in dispute is established. The daunting nature of the
proceedings may well have been a result of Vink having acted as a litigant in
person, rather than any failing of the particular provision of the Act. (See
also Vink v Tuckwell (No.2) as regards the injustice against a liquidator that
may result from the lack of legal representation on the part of an
(d) VINK v TUCKWELL (NO 2)
Issue 6: Vink’s case in the Supreme Court of Victoria
The Supreme Court of Victoria has now handed down its
decision: Vink v Tuckwell (No.2). After four days of hearing and examining
voluminous amounts of documents, Robson J dismissed the application. His
Honour was satisfied that none of the actions that the liquidator (Mr Colin
Tuckwell) took in the liquidation warranted an inquiry. None of the creditors
of the company in liquidation (CIC) supported the proceedings brought by Vink
against the liquidator.
Vink conducted the proceedings as a litigant in person.
Robson J concluded that this led to injustice against the liquidator. His
Honour decided that the liquidator was exposed to serious allegations of
misconduct and was wrongly accused of dishonesty. He held that a person with
no interest in the liquidation was allowed to make serious and unfounded
allegations against the liquidator.
Vink has now filed a Proposed Notice of Appeal in the
Supreme Court on 3 July 2008 (he is appealing as of right).
Issue 7: Vink’s encouragement of the PJC to
consider assisting creditors
Vink himself was not a creditor of the insolvent company in
question. He was in fact neither a director, a shareholder, a creditor nor a
debtor of CIC. He had nothing to do with the company, save that at the time
CIC went into liquidation, a former director called Ms Ani Linton was his de
facto partner. Vink assisted her in resisting the liquidator’s action for
recovery of a loan purportedly made to her by CIC and in proceedings seeking
removal of the liquidator and seeking an order for an inquiry into his conduct.
In this case, Robson J concluded that a professional was
unjustly accused of misconduct under the protection of legal privilege because
the complainant was not subject to the ethical rules of lawyers. (A lawyer is
not permitted to make allegations of fraud or dishonesty unless they are
satisfied reasonable grounds exist to make such an allegation. Vink was not
bound by such rules of professional conduct. )
A way for creditors to be assisted in similar instances in
the future is for the liquidator of the debtor company not to have to deal with
such proceedings and to incur costs in defending them. In this regard, we note
Robson J’s suggestion that the legislature should consider amending s536 to
limit the class of persons who may complain to the court to those who have an
interest in the liquidation.
It is worth noting as a comparison that s447E limits the
class of persons who may apply to the court for an order under that section to
ASIC or a creditor or member of the company. Similarly, as regards the general
power of the court to make orders about how Pt 5.3A is to operate in relation
to a particular company, s447A limits the class of persons who may apply to the
court for an order under that section to the company, a creditor, the
administrator or deed administrator, ASIC or any other interested person.
However, any amendment of s536 is a matter for the
Government (not ASIC). We intend to draw the case of Vink v Tuckwell (No.2)
to Treasury’s attention in the near future.
Issue 8: Most liquidations not resulting from
In the 2007 calendar year, 3,090 companies went into
liquidation by order of the court and 5,009 as a CVL. Of the latter, 2,173
companies proceeded directly into CVL without going into VA first. Only 2,836
CVLs could thus have resulted from VA or deed administration.
This means that of the total of 8,099 liquidations, only
2,836 were a result of VA or deed administration, i.e. 35%. This figure is
likely to be further reduced in future as a result of the legislative changes
to the CVL commencement process that came into force on 31 December 2007.
Question on Notice 11
Dodrill matter (Mr Ripoll MP, p. 36
CHAIR—The other one which was not listed but which I will
raise—and again please take this on notice—is the case of Mr Dodrill in
relation to JMD Queensland, the Irish Restaurant and Bar Company Pty Ltd and
American Pie Restaurant Pty Ltd. This has been the subject of a number of
pieces of correspondence between the complainant, ASIC and me as a member of
parliament and also a number of court cases, all of which have been won by the
complainant. I am seeking your review of that. If you could take that on notice
and get back to us, that would be appreciated.
Mr Dodrill is a minority shareholder in JMD Queensland (ACN
097 200 381) (JMD), the Irish Restaurant and Bar Company Pty Ltd (ACN 073 727
205) (IRB) and the American Pie Restaurant Pty Ltd (ACN 098 180 011) (AP). Mr
Dodrill is not a current director of these companies.
All three companies are small proprietary companies which
are not required to prepare and lodge financial reports with ASIC. Generally,
ASIC is of the view that individuals who choose to invest within this type of
structure need to ensure that they conduct their own due diligence prior to
investment and that they have appropriate legal mechanisms in place, for
example a shareholders agreement, in order to best protect their interests. In
addition to such mechanisms, shareholders have limited rights under the
Corporations Act 2001 (the Corporations Act) to initiate Court action to protect
their interests, which we understand have been exercised in this case.
While the directors of small proprietary companies are
subject to ASIC's jurisdiction, it is not the role of ASIC to intervene in
internal disputes between shareholders of small proprietary companies unless
there is a clear public interest in doing so. Although Mr Dodrill has raised a
number of complaints with ASIC (which we have assessed and reviewed on several
occasions), and provided information in relation to his own legal proceedings
and Court orders obtained, ASIC remains of the view that regulatory
intervention is not warranted in the public interest in this case.
Question on Notice 12
Franchising (Sen Boyce, additional
question on notice)
What interest is ASIC taking in current proceedings in the
High Court re the franchising industry? If interested, how is this being
expressed, eg how many staff involved? What are they actually doing?
What other activities regarding franchising is ASIC involved
Some current Bank of Queensland franchisees have been
described as "dead men walking". What extra and/or specific efforts
is ASIC making in terms of targeting financial literacy education at potential
The ACCC regulate the franchising sector through the administration
of the Franchising Code of Conduct. The ACCC is responsible for the
enforcement of the code and has the power to investigate and prosecute
breaches. The ACCC also has a responsibility to educate the sector and ensure
that both potential and existing franchise participants are aware of their
rights and obligations under the code.
ASIC’s financial literacy education activities are primarily
targeted at consumers and retail investors about such topics as avoiding
financial scams, finance and investment tips and consumer rights. We have not
targeted financial literacy education specifically at potential franchisees.
The ACCC publish 'The Franchisee Manual' for potential
franchisees. The brochure looks at what franchising is, steps to take before
choosing a franchise, answers to frequently asked questions and much more. The
seventh edition was published in February 2008.
Question on Notice 13
Premium Income Fund (Mr Robert,
additional question on notice)
The Premium Income Fund (nee MFS Premium Income Fund) has
accused MFS/Octaviar of plundering the PIF of at least
$147.5m. There are also a range of other claims against
MFS/Octaviar. What is ASIC doing to address this situation and assist PIF
investors considering that some commentators are claiming that these actions
may be a breach of the Corporations Act, of the Product Disclosure Statement,
the PIF Constitution and the compliance plan?
Furthermore will ASIC be launching an investigation into the
operation of MFS/Octaviar and particularly the PIF?
ASIC has been actively monitoring and making enquiries of
MFS/Octaviar and the MFS/Octaviar Group since January 2008.
On 13 June 2008, the responsible entity of PIF (now known as
Wellington Investment Management Limited (WIM)) became a wholly owned
subsidiary of Wellington Capital Limited. Notwithstanding this change in
ownership, ASIC has also continued to actively monitor events concerning WIM
ASIC has concentrated its enquiries to date on monitoring
the solvency of MFS/Octaviar and the liquidity of PIF to ensure that, to the
extent possible, the interests of investors are protected. ASIC has also made
enquiries concerning the continuous disclosure obligations contained in ASX
Listing Rule 3.1 and section 674 of the Corporations Act and has emphasised the
need for timely and appropriate disclosures to the market and investors in its
dealings with MFS/Octaviar and WIM.
ASIC’s enquiries also extend to considering the claim by WIM
against Octaviar Limited and an Octaviar subsidiary for $147.5 million
regarding investments made by PIF, which Octaviar Limited made a market
announcement about on 24 June 2008.
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