ASIC – Securing Compensation

In a response to questions asked by the Senate Economics Committee during the Senate Inquiry into ASIC, ASIC falsely claimed that ASIC had no jurisdiction when dealing with corporate Trustees of regulated Superannuation Funds.

However, ASIC has taken enforcement action against a number of corporate Trustees and the Directors of these trustees:

ASIC was originally formed as the Australian Securities Commission (ASC) which replaced the former National Companies and Securities Commission (NCSC) on 1 July 1991. The corporate regulator became ASIC on 1 July 1998.

Case #1 – QLS Super Trustee

The corporate Trustee, QLS Superannuation Pty Ltd, the trustee of the of Law Employees Superannuation Fund (“LES Fund“).

The ASIC Press Release dated 16 July 2002 had the headline:

“ASIC secures compensation for super fund members”

Drummond J in the Federal Court of Australia found that Mr Gerald Parker, a Director, of the corporate Trustee had contravened s 232(4) and s 232(6) of Corporations Law and banned Mr Parker from being a company Director for four years.

Full details of this and related Press Releases concerning this case can be found on the following link:

ASIC Press Releases – QLS Superannuation Case

Legal proceedings are covered in ASIC v QLS Superannution Pty Ltd [2003] FCA 262 here.

Notes:

Section 232(4) of Corporations Law was replaced by Section 180 by the Corporate Law Economic Reform Program Act 1998 (“CLERP“) and Section 232(6) by Section 182

Case #2 – EPAS Trustee

The corporate Trustee, EPAS Ltd, was the trustee of the of The Employees Productivity Award Superannuation Fund (“EPAS Fund“).

The Southport District Court sentenced a Director of the corporate Trustee, Terrance James, to three years imprisonment for a breach of trust.

In sentencing Mr James, Judge Healy said, ‘It was a significant breach of trust …causing a great deal of distress to members of the fund.’

The ASIC spokesperson stated in a Press Release dated 20 May 2004:

‘ASIC will take action to ensure that directors of superannuation trustees who act dishonestly, misuse member’s funds and withhold information from fund members , are brought before the Courts’

The ASIC Press Release dated 20 May 2004 noted that ASIC had commenced an investigation after receiving complaints from members of the fund:

Full details of this and related Press Releases concerning this case can be found on the following link:

ASIC Press Releases – EPAS Superannuation Case

Legal proceedings are covered in EPAS Ltd v James & Ors [2007] QSC 38 here.

Case #3 – Trio Capital Trustee

The Managing Director of Trio Capital, Shawn Richard, was sentenced by Garling J in the New South Wales supreme Court to 2 and a half years of imprisonment for the contravention of Section 1014G of the Corporations Act 2001. .

Total loses to the funds under the administration of the corporate Trustee, Trio Capital Limited, amounted to around $176 million, with $55 million lost from regulated superannuation funds.

Full details of this and related Press Releases concerning this case can be found on the following link:

ASIC Press Releases – Trio Capital Case

More information on this fraud can be found in an article by a former editor of The Sydney Morning Herald here.

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Many of the victims of the Trio Capital Superannuation Fraud came from the Wollongong area and the Illawarra Mercury conducted an in depth investigation:

Trio Capital – Illawarra Mercury 1 Nov 2014

Trio Capital – Illawarra Mercury 3 November 2014

Trio Capital – Illawarra Mercury 4 Nov 2014

Trio Capital – Illawarra Mercury 5 Nov 2014

Trio Capital – Illawarra Mercury 6 Nov 2014

Trio Capital – Illawarra Mercury 8 Nov 2014

Related legal proceedings are R v Shawn Darrel Richards [2011] NSWSC 866 { here }} and Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd & Ors [2010] NSWSC 286 ( here. }

A decision for review by the Administrative Appeals Tribunal related to this fraud case be can be found here. :

Case #4 – As Nominees Limited Trustee

The ASC, the forerunner of ASIC, petitioned the Court as a matter of public interest to have As Nominees removed as Trustee of a superannuation fund. As Nominees Limited was also subject to the provisions of the Superannuation Industry (Supervision) Act 1993.

Finn J also reviewed the issue of the liability of the Directors of corporate Trustees under the second limb of Barnes v Addy. Finn J making reference to Scott on Trusts, para 326.3 (“Directors and officers of corporate trustee”) (4th Ed); Bogert, The Law of Trusts and Trustees, para 901 esp fn 10 (Rev 2nd Ed) stated:

This form of liability is one of no little significance to the directors of a trust company for the very reason that, often enough, it will be their own conduct in exercising the powers of the board which causes their company to commit a breach of trust. They are, in other words, peculiarly vulnerable to this rule. Recent Australian case law is demonstrating an appreciation of this: see eg Young v Murphy (1994) 13 ACSR 722; see also Biala Pty Ltd v Mallina Holdings Ltd (1993) 11 ACSR 785 at 832.

Finn J stated at [369]:

As a matter of obligation in our system of government the ASC, like all other agencies of government, is required to act in the public interest within its sphere of responsibility: cf the observations of McHugh JA in Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd (1987) 10 NSWLR 86 at 191. For this reason, when bringing an application under the Corporations Law s464 to wind up a company, the ASC cannot be seen quite in the same light as an ordinary creditor or contributory when so applying. Its powers and purposes are not those of the private applicant. And it does not, or at least should not, have a private self-interest to pursue.

Finn J continued:

379. First, there is a distinct public interest in the ASC securing compliance with the Corporations Law as such. Its statutory object requires that of it. In these proceedings reliance is placed upon this, given the regular and repeated breaches that have occurred of particularly ss232 and 258 of the Corporations Law. But these breaches in turn evidence a larger, a second, public interest concern. That is investor protection, but investor protection in the particular context of superannuation.

380. As to this the ASC, while emphasising the unquestionable shortcomings of the respondent companies and their directors, has highlighted the particular importance of upholding high standards in the superannuation industry. That industry is developing rapidly in consequence of governmental measures. It should have its standards established clearly – and enforced – at this early stage in its development.

381. The use of superannuation as a means both for making retirement provision for the Australian workforce and for increasing national savings is an accepted instrument of public policy in this country. The extent to which it has been made a compulsory obligation has been emphasised by the ASC: see also, The Hon R Willis, MP, Saving for Our Future, 9 May 1995. Also emphasised are the regulatory developments accompanying this which have culminated in the enactment of the Superannuation Industry (Supervision) Act 1993.

Finn J agreed to wind-up the corporate Trustee As Nominees Limited as a matter of public interest.

Details of the case ASC v As Nominees Limited & Ors [1995] FCA 1663 can be found here.

Details of the case Young v Murphy (1994) 13 ACSR 722 can be found here.

Section 50 of the ASIC Act

Section 50 of the ASIC Act 2001 empowers ASIC to commence civil proceedings to recover monies lost due to fraud, negligence or misconduct.

Under s 50 ASIC has an extremely wide discretion to determine where the public interest lay1. The section was remedial in character. As Lockhart J observed in Somerville v ASC, one of its evident functions was to permit ASIC, acting in the public interest, to cause proceedings to be taken where persons or corporations had suffered loss or harm arising from fraud, negligence or misconduct, but did not have the resources to maintain expensive and complicated litigation. Somerville itself was an example of that. It would also have permitted ASIC, acting in the public interest, to cause proceedings to be brought by a corporate plaintiff whose directors (whether or not the same directors as those in office at the time of the events in question in the proposed litigation) did not cause the company to so litigate (e.g. ASC v Deloitte Touche Tohmatsu1). The section did not create a new cause of action. A proceeding commenced under it is one to enforce a cause of action available under the general law (common law, equity, statute). The fruits of the litigation belong to the plaintiff, not to ASIC3.

Notes:

(1) ASC v Deloitte Touche Tohmatsu (1996) 70 FCR 93, 121-123

(2) Somerville v ASC (1995) 60 FCR 319, 324-325.

(3) EPAS Ltd v James & Ors [2007] QSC 38.


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