Bills Digest No. 144 2000-01
Australian Securities and Investments Commission Bill 2001
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Australian Securities and Investments Commission Bill
2001
Date Introduced: 4 April
2001
House: House of Representatives
Portfolio: Treasury
Commencement: At the
same time as the proposed Corporations Act 2001. It is intended
that Act will commence on July 1 2001.
To remove constitutional doubts about
the framework for corporate regulation by substantially re-enacting the
Australian Securities and Investments Commission Act 1989 based
on powers referred by the States.
This Bill is one of 7 pieces of legislation introduced
by the Commonwealth to deal with the implications for corporate regulation
arising out of the High Court decisions in Re Wakim; ex parte McNally(1)
and The Queen v Hughes(2). It is based in part on a
referral of powers to the Commonwealth under section 51(xxxvii) of the
Constitution. What follows is a brief background only. For a detailed
discussion of the issues that have resulted in this legislation see the
Bills Digest for the Corporations Bill 2001.
The Current Corporations
Law Scheme
The current framework for corporate regulation is a co-operative
national scheme involving interlocking Commonwealth, State and Territory
legislation. It was developed following a ill fated attempt by the Commonwealth
in 1989 to enact comprehensive legislation(3) based principally
on the corporations power in section 51(xx) of the Commonwealth Constitution.
In New South Wales v. The Commonwealth(4) (the incorporations
case) the High Court held that section 51(xx) relates only to 'formed
corporations' and that as a consequence it was constitutionally invalid
for the Commonwealth to rely on the section to legislate in respect of
the incorporation of companies. The Commonwealth then began negotiations
with the States and Northern Territory to salvage the scheme. In June
1990, an agreement (the Alice Springs Agreement) was reached under which
the Commonwealth's legislation (including the Australian Securities Commission
Act(5)) was to be amended to apply as a law of the ACT. The
Commonwealth was able to enact a comprehensive corporations law for the
ACT by relying on the territories power in section 122 of the Constitution.
The States and the Northern Territory agreed to enact application legislation
adopting the law of the ACT as amended from time to time, as the Corporations
Law of their jurisdiction. The Alice Springs Agreement has since been
superseded by a new Corporations Agreement signed in 1997.
The Corporations Law is contained in section 82 of the
Corporations Act 1989 (Cth). Under the national scheme, each State
and the Northern Territory also has a uniform Corporations Act
which applies the national Corporations Law in each of those jurisdictions.(6)
State Corporations Acts(7) also empower the Australian Securities
and Investments Commission (ASIC), a Commonwealth statutory body, to enforce
the State Corporations Law. Section 58 of the State Acts provides that
the ASIC Act(8) applies as the law of the relevant State.
Hughes
The framework for co-operative schemes was thrown into
doubt by the decision of the High Court in Hughes. Hughes was charged
with offering prescribed interests contrary to the Corporations Law of
Western Australia. The principal issue in the Hughes case concerned
whether the Commonwealth Corporations Act 1989 and regulations
made under it which consented to the Commonwealth Director of Public Prosecutions
(CDPP) prosecuting offences against State corporations law was constitutional.
The High Court rejected the accused's contention that
the CDPP had no authority under either Commonwealth or State law to prosecute
in relation to the alleged offences. It did so, however, in a fashion
that was narrowly based and fuelled concerns about the continued viability
of the Corporations Law scheme.
The Court held that the Corporations Act 1989
effectively imposes a duty on the CDPP to exercise States functions
and powers under the corporations scheme.(9) In such circumstances
the Court held that a Commonwealth law which accepts the conferral of
powers by a State must be based on a head of power under the Constitution.
The Court found in Hughes that the trade and commerce power (section
51(i)) and the external affairs power (section 51(xxix)) supported Commonwealth
legislation accepting these powers. This was because the offences with
which Mr Hughes was charged related to the making of investments in the
United States.
While the Court held that the corporations power would
support Commonwealth enforcement of 'perhaps the very great majority of
offences created by State legislation which adopts the (Corporations)
Law'(10), there are clearly limits. Academic commentary has
noted that the corporations power would probably not sustain Commonwealth
prosecution of offences involving incorporation of companies or managed
investments.(11)
The decision has grave implications for ASIC's ability
to enforce the law. Section 66 of the State Acts confers powers and functions
on the Commission. This conferral of powers is accepted by the Commonwealth
in subsection 11(3) of the ASIC Act which states that ASIC has such functions
and powers as are conferred on it by a national scheme law of another
jurisdiction.(12) A case(13) is now before the High
Court which challenges the capacity of ASIC to incorporate companies,
arguing on Hughes grounds(14) that such activity by
ASIC cannot be supported by a head of Commonwealth power. A senior official
in the Attorney-General's Department has noted that 'if the High Court
finds ASIC's function of incorporations under the Corporations Law scheme
to be unconstitutional, approximately 660,000 companies incorporated by
ASIC under the State Corporations law since 1991 would essentially not
exist'.(15)
The Referral
The Commonwealth decided that the best solution to the
uncertainties created by the Hughes decision was to secure a referral
of powers from the States under section 51(xxxvii) of the Constitution
in relation to corporate regulation. New South Wales and Victoria have
now passed legislation(16) which enables the Commonwealth to
enact the Corporations Bill 2001 and this Bill as well as legislation
which amends these Bills in relation to the formation of corporations,
corporate regulation and the regulation of financial products and services.
It is reported that all other States have agreed to the referral and will
soon introduce the necessary legislation.(17)
This Bill substantially re-enacts the provisions of ASIC
Act 1989 as an Act which may apply throughout Australia based on Commonwealth
power. The Bill does not make any substantive policy changes.(18)
Some changes have been made however to reflect the new constitutional
basis for corporate regulation. The Bill also corrects anomalies and updates
the drafting style as well as providing for transitional provisions.
ASIC's Functions
The referral of powers to enact the Corporations Bill
and the ASIC Bill addresses the main problem raised in Hughes,
namely finding a head of power to support ASIC's functions in administering
and enforcing the corporations legislation. Section 51(xxxvii) will augment
the Commonwealth's existing powers.
In clause 11 however, the Bill envisages that
the Commission may also be given functions and powers that are not related
to its role under the new framework for corporate regulation based on
the referral of powers. This provision could have practical relevance
in a situation where, for example, a State declines to participate in
the new scheme based on the referral of power or subsequently drops out
of the scheme but enters into an arrangement, or passes legislation, whereby
its company law is enforced by ASIC.
The Bill contains several provisions that are designed
to confine ASIC's 'duty' to perform functions and exercise powers. Clause
1(2)(g) states that in performing its functions and exercising its
powers ASIC must take whatever action it can take, and is necessary, in
order to enforce and give effect to the laws of the Commonwealth
that confer functions on it.(19)
In contrast, under subclauses 11(8)-(9A), where
the Commission is given functions and powers under State or Territory
law or as a result of an agreement or arrangement between ASIC and a State
or Territory, the Bill provides that in neither circumstance will ASIC
be under a duty to perform such powers. The Bill attempts to reinforce
the absence of duty by providing the Minister may not direct ASIC in relation
to the exercise of powers conferred by the States (subclause 11(9B)).
These attempts to confine ASIC's duties flow from the
Court's reasoning in Hughes. The Court stated that 'permissive
provisions', that is, Commonwealth legislation that permits officers of
the Commonwealth to perform functions in addition to those imposed by
a law of the Commonwealth, may be supported by the incidental power in
section 51(xxxix) of the Constitution.(20)
Yet where the Commonwealth law effectively imposes a
duty on the Commonwealth officers or authorities to exercise powers
and functions and powers conferred by a State law then the constitutional
basis of the provision will be subject to greater examination.(21)
Clause 11 represents an attempt by the Commonwealth
to draft 'permissive provisions' and thus remove the need for an intensive
search for constitutional power to support ASIC performing functions and
powers conferred by State law. Depending on the nature of arrangements
however, there may be some doubt as to whether this drafting technique
would allow a future scheme to survive judicial scrutiny.
The Court implied a duty in Hughes because prosecutions
under the national scheme for corporations were the exclusive province
of Commonwealth entities.(22) It was also significant that
the powers of the Commonwealth Director of Public Prosecutions were coercive,
that is, it had duties adversely to affect the rights of individuals.(23)
It is easy to envisage that a future co-operative scheme could have these
features. To ensure that the Court does not find that a duty has been
imposed it may be necessary for a State to provide for a co-regulatory
process where its agencies also have a role in administering the scheme.
If this approach is not taken, the express denial by
the Commonwealth that it is imposing a duty may lead the Court to conclude
that State law has imposed a duty. Such a conclusion would force the Court
to address an issue left open in Hughes; namely, whether State law can
impose duties on Commonwealth entities. The Court speculated in Hughes
that it may well be a 'constitutional imperative' for such duties to be
conferred by Commonwealth law.(24)
It must be stressed that these issues do not go the viability
of ASIC's enforcement of the new Corporations Bill 2001 under the scheme
based on the referral of powers.
Transitional Provisions
Part 16 of the Bill provides for transitional provisions.
Clause 253 states that the object of the Part is to provide that
individuals, bodies corporate and other bodies are, to the greatest extent
possible, put in the same position under the Bill as they would have been
under the current ASIC law.(25)
Clause 261 continues the existence of bodies established
under the ASIC Act 1989. These bodies include: ASIC itself; the
Companies and Securities Advisory Committee; the Companies Auditors and
Liquidators Disciplinary Board; the Financial Reporting Council; the Australian
Accounting Standards Board; and the Parliamentary Joint Committee on Corporations
and Securities.
Regulations that were made under the ASIC Act 1989
and were in force prior to commencement of this Bill are continued by
clause 264.
Court Proceedings
The treatment of continuing Court proceedings is dependent
upon whether the matter in question is a 'federal ASIC proceeding'. This
term is defined in clause 266 and includes proceedings:
- involving a matter under the Administrative Decisions (Judicial
Review) Act 1977 concerning a decision made under the current ASIC
legislation of the Commonwealth, a referring State or the Northern Territory
(the ASIC laws)
- in relation to the unconscionable conduct and consumer protection
in financial services provisions of the ASIC Act 1989;
- for a writ of mandamus or prohibition or injunction against an officer
of the Commonwealth in relation to the ASIC laws, and
- in the court's accrued jurisdiction involving the ASIC laws.
Clause 267 provides that in certain circumstances
involving non-federal proceedings, a new proceeding will be taken to have
commenced in the same court, exercising federal jurisdiction. Importantly
this will not apply if the proceeding is an enforcement provision or an
appeal or review proceeding (subclause 267(1)(c)). In addition,
it will not apply to proceedings brought under the ASIC law of a non-referring
State (subclause 267(1)(b)). The Bill does not deal with the status
of these non-federal proceedings.
If the proceeding is a federal proceeding that had not
been terminated before the commencement of this Bill the proceeding continues
in the same court as if it had always been a proceeding under a corresponding
provision of the new ASIC Act (clause 268).
This Bill will be complemented by State legislation,
which purports to validate past actions by ASIC and its officers under
the national scheme. Victoria is the only State that has introduced such
legislation at the time of writing in the form of the Corporations
(Administrative Actions) Bill 2000.
- (1999) 198 CLR 511
- (2000) 171 ALR 155.
- This legislation involved a package of 16 Bills including the Corporations
Bill 1988 and the Australian Companies and Securities Bill 1988.
- (1990) 169 CLR 482
- The Australian Securities and Investments Commission Act 1989
was originally known as the Australian Securities Commission Act
1989. The name of the Act was changed in 1998 following the implementation
of the recommendations of the Wallis Inquiry into the Financial System
where the Commission was given additional responsibilities for consumer
protection in the financial services sector.
- For example section 7 of the Corporations (New South Wales) Act
1990.
- In this context, the term 'State' includes the Northern Territory.
- There are some exclusions from this application provision.
- This was principally because State law provided that State prosecution
authorities could not enforce the Corporations Law of Western Australia
but rather the only prosecution authority under the co-operative scheme
was the Commonwealth DPP. See 171 ALR 155 at 164 and section 33 of the
State Corporations Acts
- R v Hughes (2000) 171 ALR 155 at 166.
- See comments of Dr Williams and Professor Ramsey in Chris Merritt,
'ASIC Jurisdiction in Jeopardy', Australian Financial Review,
4 May 2000 and Dennis Rose, 'The Hughes Case: The Reasoning, Uncertainties
and Solutions', Western Australian Law Review, Vol 29, 2000,
p. 187.
- The definition of national scheme law in section 5 of the ASIC
Act includes State laws that correspond to the Corporations Act
1989 (Cth), the Corporations Law of the Capital Territory of
the ASIC Act 1989 (Cth).
- In the matter of Damian Michael Lynch; GPS First Mortgage Securities
Pty Ltd v Lynch (B51/2000).
- The incorporation occurs under State law, the function is conferred
on the ASIC by State law, the Commonwealth law purports to consent to
the conferral and the absence of alternatives under the scheme means
that the Commonwealth law effectively confers a duty on ASIC to carry
out incorporation under the corporations law.
- Cherelle Murphy,'Companies law deal hailed as workable', Australian
Financial Review, 20 October 2000.
- The Corporations (Commonwealth Powers) Act 2001.
- The Hon. Daryl Williams and the Hon. Joe Hockey MP, 'New Corporations
Scheme on Track for July 1 Target.' Joint News Release, 24 May
2001.
- Explanatory Memorandum p. 5.
- Writer's emphasis.
- R v Hughes (2000) 171 ALR 155 at 163-164.
- R v Hughes (2000) 171 ALR 155 at 164.
- ibid.
- R v Hughes (2000) 171 ALR 155 at 168.
- R v Hughes (2000) 171 ALR 155 at 164.
- Assuming that the current ASIC Law is valid.
Mark Tapley
4 June 2001
Bills Digest Service
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