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Abstract:
This paper reports the findings of the first detailed empirical survey of court-based enforcement activities by the regulator of Australian corporate and financial services law, the Australian Securities and Investments Commission (ASIC), during the years 1997 to 1999. The paper seeks to determine whether those activities are consistent with the findings of past sociological studies of legal regulation and enforcement. Enforcement includes all the activities by which ASIC investigates possible breaches of the laws it administers, takes action to remedy those breaches and/or to punish wrongdoing and secure compliance. Sociological theories contend that the effectiveness of laws as forms of regulation depend on the process by which those laws are received, interpreted and responded to by the participants in the regulatory process. This paper contributes to existing literature by providing an empirical study of one example of economic regulation in Australia. It interrogates three aspects of ASIC court enforcement: the characteristics of the participants in the regulatory process apart from ASIC; the types of enforcement activity undertaken by ASIC and the legislation applied in those activities; and the outcomes of ASIC enforcement activities. The paper concludes that trends in ASIC court enforcement are broadly consistent with cited past sociological studies. In particular, the predominant use of penal enforcement activities and sanctions by ASIC during the study period reflects a traditional conception of the role of court enforcement in legal regulation as a last resort strategy. The study also reveals that the majority of enforcement activities in the dataset concern breaches of mandatory, socially oriented or ethically-based laws by regulatees in circumstances where their behaviour is widely regarded as undesirable.

Australia, Australian Securities and Investments Commission, enforcement, regulator, enforcement strategies, court, litigation

Abstract:
The research project examines how the Australian Securities and Investments Commission (ASIC) uses civil penalties as an enforcement tool against company directors. It identifies and critically evaluates the factors which impact upon ASIC enforcement decisions regarding civil penalties. The methodology employed for the research involved collection of data about the use of civil penalties and a series of semi-structured interviews with senior ASIC enforcement personnel from regional offices around Australia. Those interviewed included: National Director, Enforcement; Regional Commissioner; Regional Director, Enforcement; Regional Assistant Director, Enforcement; and Regional General Counsel.

Civil penalties were introduced by the Federal Parliament in 1993 with the expectation that they would be a significant enforcement tool. On 1 July 1998, the Federal Parliament extended the application of civil penalties under the Corporations Law to a number of additional statutory provisions including provisions involving share capital transactions and the management of managed investment schemes.

However, our research has found that ASIC has commenced only 14 civil penalty applications relating to 10 case situations since civil penalties were introduced in 1993.

The research identifies a number of reasons for this:

1. Civil penalties are seen by many of those interviewed as being inflexible and having limited utility as an enforcement option.

2. There are a number of alternative remedies which, from ASIC's point of view, appear to be more viable than civil penalties. In particular, there are injunctions which provide a "real time" remedy as well as section 600 of the Corporations Law which allows ASIC, in certain circumstances, to ban a person from managing a corporation. Section 600 is an effective remedy according to many of those who we interviewed as it does not require ASIC to bring court proceedings although the person banned may challenge the ASIC banning order in court. In order to ban a person from managing a corporation for breach of a civil penalty provision, ASIC must bring court proceedings.

3. A number of those interviewed expressed reservations about delays associated with use of the courts in the area of enforcement and, in addition, some of the difficulties of interpretation that have resulted from certain judgments of courts. These uncertainties in the interpretation of basic statutory provisions regulating directors' duties (which are civil penalty provisions) reinforce the trend to use alternative enforcement mechanisms.

4. There was some indication that many of those in the enforcement section of ASIC come from a criminal law background and therefore have a tendency to prefer criminal actions rather than civil penalties. The suggestion was that this would change over time as the personnel of ASIC changed.

5. Those interviewed indicated that the requirement to liaise with the Director of Public Prosecutions (DPP) over significant enforcement matters adds another level of complexity to the decision-making process. The consequences resulting from the requirement to liaise with the DPP was a recurring theme in the interviews. These consequences include (i) the requirement means that the DPP effectively has a veto over the use of civil penalties; (ii) the need for the DPP to satisfy itself that there is no criminal element in a matter may result in delay that can undercut the opportunity for a civil penalty action; and (iii) ASIC and the DPP have different enforcement objectives. The role of the DPP is to prosecute criminal breaches of the law while ASIC has broader objectives which include using civil remedies. These different objectives can impact upon the likelihood of civil penalties being pursued.

6. Unclear drafting of the civil penalty provisions, particularly regarding the elements that must be proved to satisfy the court that a breach of a civil penalty provision has occurred, limits the use of civil penalties. Where the same conduct may breach both a civil penalty provision and a provision in a State Criminal Code, there is an incentive to frame the legal action as a breach of the Criminal Code because of the uncertainty surrounding the civil penalty provisions.

Abstract:
The Australian Federal Parliament introduced civil penalties into company law in 1993 with the expectation that there would be more effective enforcement of directors' duties. However, in the six years since civil penalties were introduced, the Australian Securities and Investments Commission (ASIC) has commenced only 14 civil penalty actions. The research undertaken by the authors reveals that civil penalties are perceived by ASIC as serving only a limited deterrent function. The factors responsible for this include ASIC's: (1) resource constraints, including financial constraints; (2) relationships with other regulatory agencies, such as the Director of Public Prosecutions (DPP) and the judiciary; (3) ability to choose from a range of sanctions; and (4) concerns about the limited utility of civil penalties given the unclear nature of the civil penalty regime and its regulatory praxis.