ANNUAL REPORTS AND ACTIVITIES: 1995-1996
INTRODUCTION
1.1 The Australian Securities Commission Act 1989 (the Act) forms part
of the national framework for the regulation of companies and securities
markets in Australia.
1.2 Among the administrative bodies established under the Act are the
Australian Securities Commission (the ASC), the Companies and Securities
Advisory Committee (CASAC), the Corporations and Securities Panel (the
Panel), the Companies Auditors and Liquidators Disciplinary Board (the
Disciplinary Board) and the Australian Accounting Standards Board (AASB).
[1] The Act requires annual reports from
each of these bodies to be tabled in both Houses of the Federal Parliament.
[2]
1.3 The Act also establishes the Parliamentary Joint Committee on Corporations
and Securities (the Committee). In overseeing the operation of the national
scheme, the Committee is responsible for examining the annual reports
of the bodies established under the Act. Section 243(b) of the Act states
that the Committee's duties in this regard are:
to examine each annual report that is prepared by a body established
by this Act and of which a copy has been laid before a House, and to
report to both Houses on matters that appear in, or arise out of, that
annual report and to which, in the Parliamentary Committee's opinion,
the Parliament's attention should be directed ...
1.4 The Committee has examined the annual reports for the year 1995-96
of each of the bodies listed above. The Committee also held a public hearing
with the ASC on 21 March 1997. The Committee has decided to report to
the Parliament on its examination of the annual reports and on other issues
raised during its hearing with the ASC.
AUSTRALIAN SECURITIES COMMISSION
A. Matters Arising out of the Annual Report
General
1.5 The Committee wishes to place on record its view that the ASC's Annual
Report 1995/96 is a well-presented and accessible document that clearly
sets out the major activities undertaken by the organisation during the
year.
Duration of investigations
1.6 In its June 1995 Report on The Investigatory Powers of the Australian
Securities Commission, the Senate Legal and Constitutional References
Committee recommended that:
- the ASC make a major effort to achieve its performance indicator of
finalising investigations within 12 months of the resourcing of the
investigation; and
- the Parliamentary Joint Committee monitor the ASC's compliance with
this recommendation. [3]
1.7 In previous Reports to the Parliament, this Committee has monitored
the performance of the ASC against this indicator. For example, in 1994-95,
the ASC reported that it completed 33 of 43 major investigations (or 76
per cent) within the 12 months target. [4]
Of the 419 investigations finalised in 1995/96, the ASC reports that 80
per cent were completed within 12 months - "a further improvement
in timeliness compared with last year and approaching the target of 85
per cent". [5]
1.8 The Committee is pleased to note this continuing improvement, and
endorses the observation in the Annual Report that "speedier investigations
cost less and enable those involved to know sooner where they stand".
[6] However, the Report now apparently
refers to all investigations where previous Reports referred to "major"
investigations - it is unclear why the criterion seems to have changed
and what effect this change may have had, if any.
1.9 The Committee will continue to monitor this significant performance
indicator in its examination of future annual reports.
Complaints against ASC officers
1.10 In June 1995, the Senate Legal and Constitutional References Committee
also recommended monitoring of the national complaint handling procedures
adopted by the ASC in relation to the exercise of its investigative powers.
Specifically, that Committee recommended that the ASC:
should include an account of the operation of the complaints
procedure in its Annual Report and, at least annually, should report
on complaints and their handling to the Joint Statutory Committee on Corporations and Financial Services. [7]
1.11 Following this recommendation, the ASC's Annual Report now includes
information about complaints made by members of the public about ASC staff.
The 1995/96 Report notes that the ASC has formal guidelines for recording
and dealing with such complaints. It states that, in 1995/96, thirteen
formal complaints were received. In general terms, these related to the
exercise of the ASC's investigative powers and to the alleged improper
release of confidential documents. Following further inquiries:
- seven complaints were found to be unsubstantiated;
- two complaints were still under investigation; and
- four complaints were found to have been substantiated.
1.12 In response to the four substantiated complaints, formal counselling
was required in three instances and one matter required a letter of apology
to the complainant. [8] While the Report
discloses the general nature of all complaints, it does not disclose the
general nature of those complaints found to have been substantiated. Such
information would further help in maintaining "community confidence
in the integrity and effectiveness of the complaints handling procedure",
as recommended by the Senate Legal and Constitutional References Committee.
1.13 The Committee also notes that, in 1994/95, two complaints were referred
to the Australian Federal Police for further investigation. [9]
The 1995/96 Annual Report seems to make no reference to the progress or
outcome of those investigations.
Relations with law enforcement bodies
1.14 In October 1992, this Committee reported on relations between the
ASC and the Commonwealth DPP. [10] It
has periodically revisited this issue in subsequent reports. The Committee
is pleased to note the comments in the ASC's current Annual Report that
its relationship with the DPP remains "effective", while its
relationships with other law enforcement bodies are "cooperative
and supportive". [11]
Time taken to lay charges
1.15 In November 1995, this Committee recommended that the ASC Annual
Report should "provide detailed information showing the time that
has elapsed since the commission of alleged offences under the Corporations
Law and the time that has elapsed since the commencement of active investigative
and prosecutorial processes". [12]Referring
to this recommendation, the ASC's 1995/96 Annual Report indicates that,
during the year, charges were laid in 36 matters. In 21 instances, the
DPP considered the material and laid charges within three months. However,
in four instances, charges were not laid until more than 12 months from
handover. Neither the ASC Annual Report nor the DPP Annual Report provides
any further information about these apparently intractable matters.
1.16 1.17 One possible difficulty was raised by the Chairman of the ASC
in responding to some questions on notice from the Committee:
Part 3 Division 9 of the ASC Law sets out a code by which ...
signed records of examination may be admitted into evidence in proceedings
(whether civil or criminal). However, the ASC has experienced difficulty
in having written records of examination admitted into evidence in committal
hearings in prosecutions because the procedures for the conduct of committals
are prescribed by State evidence laws which apply because the prosecutions
are conducted in State courts. State evidence laws typically provide
for signed statements to be admitted as part of "paper committals".
Although ASC examinations are conducted under oath and written records
of the examination are signed by the examinee (Part 3 Division 2, ASC
Law), because they do not answer the description of a "statement"
in State evidence laws, they are not generally admissible in these proceedings.
As a result, ASC investigators must reduce transcripts of examination
evidence to statement form before they will be admissible in these proceedings.
This is duplicative and costly, and is a significant factor in the time
taken in investigations before charges can be laid. [13]
1.18 In evidence before the Committee in March, the ASC observed that
it commences an investigation not knowing whether civil or criminal proceedings
will result. If criminal proceedings are warranted, then having to recast
its evidentiary material in the form of a signed statement "adds
months, perhaps even a year to the process - time which would not be needed
if the criminal procedure laws of the states, which govern these matters,
were in a form that allowed our original evidence to be used rather than
having us put it into a different format". [14]
1.19 However, the ASC also recognised that this was an issue of considerable
difficulty. For example, simply declaring evidence admissible in the form
in which it is gathered by the ASC might involve admitting extraneous
and irrelevant material. [15] It might
also affect the rights of those accused. In this regard, it is worth noting
the views of the Senate Legal and Constitutional References Committee
in 1995 that:
there are deficiencies in the present examination procedure -
particularly deficiencies in the protection for examinees against the
misuse of the procedure. Unfortunately, the material provided to the
Committee indicates that there is at least a perception on the part
of a number of examinees that they are at the mercy of the ASC when
participating in a compulsory oral examination. [16]
1.20 The Committee is mindful of the need to protect the rights of those
accused. It is also mindful of the need to avoid unnecessary delay in
the prosecution of cases of major corporate crime. The Committee considers
that the evidentiary use of ASC records of examination should be examined
further, and should be considered by the Ministerial Council on Corporations.
Recommendation No 1:
The Committee recommends that the Ministerial Council on Corporations
examine whether there are any acceptable methods for avoiding prosecution
delays which may be caused by the manner in which ASC-gathered material
can be used in legal proceedings.
Audit relief for large proprietary companies
1.21 The ASC's 1995/96 Annual Report refers to the changed reporting
obligations for proprietary companies that followed the passing of the
First Corporate Law Simplification Act 1995. Specifically, that Act imposed
an audit requirement on large proprietary companies. The Annual Report
goes on to note that:
The ASC has been developing policy to grant relief from this
audit obligation where it causes an unreasonable cost burden when compared
to the benefits provided. To develop this policy the ASC has been consulting
widely with industry groups, creditor organisations and accounting representatives
... Final policy will be available early in the new financial year and
will be reviewed by the ASC after the first year of operation. [17]
1.22 In September 1996, the Committee became aware of expressions of
concern (particularly from the Motor Trades Association of Australia (MTAA))
about two particular criteria included in the ASC's Draft Class Order
on Audit Relief. These criteria were:
- that the total liabilities of the company seeking audit relief were
not to exceed 70% of total tangible assets, and the total consolidated
liabilities were not to exceed 70% of the total consolidated tangible
assets; and
- that the company must have a positive cash flow for each quarter.
1.23 In its Report on the Draft Second Corporate Law Simplification Bill
1996, the Committee stated that these matters should be examined further,
and that it intended discussing the matter with the ASC at the next available
opportunity. Subject to the outcome of these discussions, it proposed
to review the operation of the small/large test for proprietary companies
in early 1997. [18]
1.24 Subsequently, the Committee forwarded some questions on notice to
the ASC, and further discussed the matter during its March public hearing.
The ASC's final policy on audit relief was released on 19 November 1996.
The final Class Order differs in a number of ways from the proposed Draft.
In particular, a requirement for positive quarterly cash flow is no longer
included in the final Class Order. However, the gearing ratio requirement
has been retained "to provide a reasonable surplus of assets over
liabilities as an indication of sound financial condition". [19]
In including such a requirement, the ASC drew attention to:
- the general nature of Class Order requirements ("it would be
unlikely that such requirements would suit the particular circumstances
of all companies and industries");
- the particular care to be taken in providing Class Order relief ("a
Class Order provides an automatic exemption to all companies that comply
with the requirements and does not provide an opportunity for the ASC
to consider individual circumstances"); and
- the need for certainty in such Orders, and the inclusion, wherever
possible, of objective benchmarks. [20]
1.25 Nothing in the Class Order precludes any company from approaching
the ASC for relief on a case-by-case basis. Such applications might focus
on particular circumstances where relevant - for example, asserting that
intangible assets should be taken into account in meeting the gearing
ratio. [21]
1.26 Following consultations during 1996, and in order to give those
large proprietary companies affected more time to become familiar with
the new audit requirements, the ASC also decided to provide separate Class
Order relief which, in effect, defers the introduction of compliance with
the audit obligation for an additional year. Under this extension of time,
a qualifying large proprietary company with a financial year ending on
June 30 would not now be required to lodge audited accounts until after
30 June 1998.
1.27 The ASC also informed the Committee of a lack of reliable detailed
data on large proprietary companies and the number, type and size of companies
that may be subject to audit under the new legislation. To address this
lack of data, and to provide a basis for any review of the policy, the
ASC proposes:
to collect information on the numbers of large proprietary companies
and some profile information about these companies that is relevant
to the small/large test and the policy. We are currently developing
a methodology for the collection of such data on a voluntary basis as
this information is not required by the Law and will not be directly
available from the ASC's data base. [22]
1.28 The Committee notes that the ASC's Class Order on Audit Relief will
not now commence operation for another 12 months. Accordingly, the Committee
proposes to defer its review of the operation of the Class Order, and
of the small/large test for proprietary companies, for at least another
12 months.
Footnotes:
[1] Australian Securities Commission Act
1989, sections 7, 145, 171, 202 and 224 respectively.
[2] See Australian Securities Commission
Act 1989, ss 138, 164, 183, 214 and 234.
[3] Senate Legal and Constitutional References
Committee, The Investigatory Powers of the Australian Securities Commission
(June 1995) p xiv.
[4] Australian Securities Commission, Annual
Report 1994/95, p 34.
[5] Australian Securities Commission, Annual
Report 1995/96, p 19.
[6] Australian Securities Commission, Annual
Report 1995/96, p 19.
[7] Senate Legal and Constitutional References
Committee, The Investigatory Powers of the Australian Securities Commission
(June 1995) p xiii.
[8] Australian Securities Commission, Annual
Report 1995/96, p 58.
[9] Australian Securities Commission, Annual
Report 1994/95, p 68.
[10] Joint Statutory Committee on Corporations and Financial Services, Relations Between the Australian Securities Commission
and the Commonwealth Director of Public Prosecutions, (October 1992).
[11] Australian Securities Commission, Annual
Report 1995/96, p 23.
[12] Parliamentary Joint Committee on Corporations
and Securities, Section 1316 of the Corporations Law, November
1995, p 45.
[13] Australian Securities Commission, Answers
to Questions on Notice. See Appendix 1, p 34.
[14] Corporations and Securities Committee,
Committee Hansard, 21 March 1997, p CS 189 (Mr Cameron).
[15] Corporations and Securities Committee,
Committee Hansard, 21 March 1997, p CS 190 (Mr Cameron).
[16] Senate Legal and Constitutional References
Committee, The Investigatory Powers of the Australian Securities Commission
(June 1995) p 90.
[17] Australian Securities Commission, Annual
Report 1995/96, p 36.
[18] Parliamentary Joint Committee on Corporations
and Securities, Report on the Draft Second Corporate Law Simplification
Bill 1996, (November 1996), pp 40-41.
[19] Australian Securities Commission, Answers
to Questions on Notice. See Appendix 1, p 42.
[20] Australian Securities Commission, Answers
to Questions on Notice. See Appendix 1, pp 39-40.
[21] Corporations and Securities Committee,
Committee Hansard, 21 March 1997, pp CS 179-180 (Mr Gearin).
[22] Australian Securities Commission, Answers
to Questions on Notice. See Appendix 1, p 46.
|
