What You Need to Know About ASIC Investigations

By 23 October 2019 General News

While most business owners strive to run their enterprise with minimum distraction from external agencies, the fact is we live in a highly regulated, legalistic society. For businesses, the Australian Securities & Investments Commission (ASIC) is Australia’s top company regulator and is responsible for investigating company misconduct and enforcing company law.

If you run a business and are served with a notice under Section 19 of the Australian Securities and Investment Commission Act, ASIC is asking you to provide it with information and may subject your enterprise to a compulsory examination. This is no trifling matter. Failing to reasonably cooperate in accordance with a Section 19 notice issued by ASIC can be a criminal offence that may be punishable by a term of imprisonment. For this reason, expert legal advice should immediately be sought.

How does an ASIC investigation start?

A complaint (usually about misconduct) is generally the starting point for an ASIC investigation into a company. There are a number of ways ASIC may receive these complaints, including:

  • From a member of the public, often a client or customer of the business who is dissatisfied with an aspect of the company’s handling of a particular matter.
  • A referral from other government agencies and regulators who may report misconduct to ASIC.
  • From reports ASIC receives as required by law, such as those from auditors, insolvency practitioners and licensees.

Once a complaint is received, ASIC will go through a process to work out whether it should investigate based on the scope of its powers, taking into account:

  • the extent of the harm or loss;
  • the benefits of pursuing the misconduct relative to the cost of public monies;
  • the type and seriousness of the misconduct alleged and the strength of evidence supporting the complaint;
  • alternative courses of action other than formal investigation;
  • whether the alleged misconduct includes a particular impact on market integrity or the confidence of investors and financial consumers;
  • whether or not the misconduct is a widespread concern or part of a growing trend.

What will happen during an investigation?

ASIC has a number of powers by which it will conduct an investigation to gather evidence, including requiring a business to produce documents and disclose other information for its inspection, requiring company officers or employees to attend compulsory examinations, and employing search warrants.

It should be noted that under a Section 19 notice, people other than company directors or employees such as the company’s lawyers and accountants can also be required to provide information and assistance. ASIC’s powers allow it to question people who “on reasonable grounds, [it] suspects or believes … can give information relevant to a matter it is investigating, or is to investigate”.

What are your rights and responsibilities in this situation?

Obviously if an ASIC investigation commences into your business, you should avail yourself of the advice of an experienced corporate law firm. Company officers and employees need to be aware of what they can and can’t do in complying with ASIC’s requests. There may be no legal basis for ASIC to request certain documents from you, particularly if they might incriminate you or the company in relation to your operations. You will not be required to produce documents, for example, which are the subject of legal professional privilege.

Take pre-emptive action

One thing your business can do to avoid or reduce the likelihood of an ASIC investigation is to discuss with your corporate lawyer how to develop proactive, effective and fit-for-purpose governance, risk and compliance processes within the organisation.

This process may include a review of your current documentation and policies in these areas, including asking your legal representative to conduct a legal risk assessment of the business. Undertaking this process will also be of benefit in demonstrating your proactive approach should an ASIC investigation later arise as the result of a complaint.

Penalties

ASIC has a number of remedies and enforcement tools at its disposal if it can prove the alleged misconduct. Most serious of these is punitive criminal penalties, which can include terms of imprisonment, community service orders, financial penalties under criminal law and the possibility of convictions.

Another option is ‘protective actions’ – such as disqualification from managing operations or revocation, suspension or variation of licenses, and public warning notices. While this option avoids the need for criminal penalties, the effects of a protective action can obviously still have terrible effects on the reputation of both yourself and your business.

An effective legal representative will also explore, before ASIC decides to proceed with an investigation, whether alternatives such as engagement with stakeholders, guidance, education and policy advice may be better and more effective options than enforcement action.

If you believe your business is about to become the subject of an ASIC investigation, or need more guidance on how compliant your business really is in terms of internal governance and the wider regulatory environment, contact experienced corporate law firm Hannay Lawyers today on (07) 3184 2323. We’ll be happy to assess your particular circumstances at our Brisbane or Gold Coast offices as soon as possible.