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29 October 2013 the Committee Secretariat Senate Standing 29 October 2013 The Committee Secretariat Senate Standing Committee on Economics P O Box 6100 Parliament House CANBERRA ACT2600 Also by email: [email protected] & by facsimile: (02) 6277 5719 Submissions by Levitt Robinson on the Performance of the Australian Securities Investment Commission Levitt Robinson Recommendations (a) Senior positions in ASIC should be internationally and widely advertised - the selection process should be open, transparent and merit-based and so far as possible, senior roles should be filled from the ranks of retired Judges, Senior Prosecutors, Public Defenders, former Attorneys- General, Senior Academics and Senior Lawyers with a Consumer Action background. Overseas appointments, particularly from similar jurisdictions, should be favourably considered. The US system of having Senate confirmation hearings for discretionary appointments should be adopted. Applicants with a material history of professional relationships with major players in the financial services industry, should be ineligible for appointment. (b) Legislation should be enacted to provide that there is a rebuttable presumption that receivers and administrators and purveyors of financial services, including but not limited to mortgage brokers, are the agents for banks or other financial institutions and not for borrowers or investors. (c) Australia should follow the US Bankruptcy legislative scheme which puts recovery ahead of burial. Under the US Bankruptcy legislation, using Chapter 11, the directors of an insolvent company may submit a Plan of Reorganisation to the unsecured creditors to be approved by the US Bankruptcy Court. The Court then supervises compliance with the Plan. So long as the security of the secured creditors is protected, the secured creditors (usually banks) are bound by the Plan of Reorganisation and have to stand back. Where the Plan of Reorganisation fails, a trustee may be appointed in Chapter 7, to assume a role like that of a liquidator. Even then though, the trustee is more regularly and genuinely accountable to the Courts than an Australian liquidator is in practice. 29 October 2013 Page 2 (d) An act to regulate insolvency practitioners including to provide for mandatory, reasonable fee scales and enforceable ethical rules, should be passed by the Federal Parliament along similar lines to the Legal Profession Acts, which obtain in each State and Territory in Australia. (e) An insolvency firm which has acted as an investigative accountant, whether engaged by a borrower or lender or who has investigated a corporation or provided advisory or other services to a corporation, should be deemed to be conflicted and not be eligible to accept appointment as an external administrator of that company, whether as a liquidator, provisional liquidator, administrator, controller or receiver. (f) ASIC should not be entitled to make policy on matters which ought properly to be the subject of legislative consideration and enactment. For example the role and limits of litigation funding in class actions and the returns which self-funded litigants are entitled to receive for outlaying legal fees on behalf of the non-contributing class members, should be the subject of legislation and regulation – not of bureaucratic fiat or judge-made law. (g) ASIC’s prosecutorial role should be hived-off to a Corporate and Banking Division of the Office of the Commonwealth Director of Public Prosecutions and ASIC should have no right to engage in “plea bargaining” at any level. Cases, when properly investigated by ASIC, should be referred to the Commonwealth DPP for prosecution and any negotiations on charges or penalties, should be left to the Office of the Commonwealth Director of Public Prosecutions. (h) ASIC should be excluded from the role of negotiating compensation for victims of malpractice in the financial services industry and from intervening in civil litigation between parties who have independent legal representation. (i) ASIC should refrain from bringing civil actions, other than to extract civil penalties, and only act in a prosecutorial role, where the Office of the Director of Public Prosecutions declines to initiate or maintain a criminal prosecution. ASIC should not be permitted to bring civil proceedings where there are parallel private civil proceedings in progress, in which the parties are separately and independently legally represented. SUMMARY The adoption of the foregoing recommendations would have the effect of improving standards in the financial services industry, protecting unsecured creditors, promoting freedom of action and self-help by private citizens, reducing ASIC’s intervention and intrusion and accordingly, would greatly reduce the burden on tax payers of high legal expenses being incurred by ASIC. Substantial economies should result. The incidence of corporate failures would also be reduced, by imposing proper controls on the insolvency industry and cutting the cord between banks and the insolvency industry. X:\documents\140550\Submissions\Senate Submissions on ASIC.211013.docx 29 October 2013 Page 3 KEY OUTCOMES (j) ASIC’s – unwelcome and unwarranted incursions into private litigation would be minimised and public resources better deployed in the public interest. (k) The integrity of ASIC would be fostered and ASIC’s history of abject failure as a prosecutor recognised, with the prosecutorial role largely reallocated to the Commonwealth Director of Public Prosecution in a specialist Corporate and Banking Division. (l) The importance of protecting small business in the face of corporate failures and promoting the independence and to the greatest extent possible, the integrity of the insolvency profession, would be prioritised, thereby reducing the prevalence of corruption within the insolvency industry and preventing practitioners from acting as the effective servants of banks and other large financial institutions. (l) Indeed, a complete overhaul of our insolvency laws to bring them in line with the recovery- focused US Bankruptcy Laws, is past due SUBMISSIONS (All numbers in parentheses refer to attached documents in the appended list). ASIC’s Role and Responsibilities According to the objects of the ASIC Act 2001, which prescribes and proscribes the ambit of ASIC’s authority, under Section 1, ASIC is: s.1(2)(a) “required to maintain, facilitate and improve the performance of the financial system and the entities within that system”, while promoting s.1(2)(b) “the confident and informed participation of investors and consumers in the financial system”, s.1(2)(d) “with a minimum of procedural requirements”; and most importantly, s.1(2)(g) “ASIC must strive to 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 and powers on it.” (97) Section 11 enumerates the functions and powers which ASIC has, both under the Corporations Act and under the ASIC Act. (98) Section 11 (4) confers on ASIC the “power to do whatever is necessary for or in connection with, or reasonably incidental to, the performance of its functions”. X:\documents\140550\Submissions\Senate Submissions on ASIC.211013.docx 29 October 2013 Page 4 Too often, ASIC perceives its role as being to impose information lockdown in order to achieve damage control or containment, so as to minimise the exposure to public scrutiny of the inner workings of important financial institutions, as if, by approaching its remit in this way, it is somehow protecting the financial system. ASIC has overall responsibility for the regulation of financial services and corporate insolvency, with responsibility for auditors and liquidators, provisional liquidators, external administrators appointed to companies and receivers, managers and controllers. On 21 October 2010, then ASIC Chairman, Tony D’Aloisio, was questioned by the Hon. Senator John Williams (LNP) appearing before the Senate Economics Legislation Committee, concerning ASIC’s response to the banks’ complicity in causing investor losses in Storm Financial Index Funds. Rather than commit ASIC to taking whatever action it could take and deemed necessary to enforce and give effect to the laws of the Commonwealth, apropos Section 1(2)(g) of the ASIC Act, Chairman D’Aloisio adopted the “commercial approach”, of ASIC’s seeking a commercial settlement with the CBA, through the Resolution Scheme which CBA had devised in 2009, in the wake of its implication in the Storm Financial collapse. (33) Mr D’Aloisio explained: “We are all trying to do the right thing by a group of investors. In ASIC’s case, its ability to do that has to be independent; it has to be across the range of interests it is seeking to protect. We are doing that job and in the approach we are taking to commercial resolution, we are very mindful that, at the end of the day, in any resolution that is achieved, our own actions and how we conducted that will be subject to scrutiny by the investors, so we are very mindful of being careful in the way we are running these proceedings.” (29) ASIC has frequently been accused of being soft on the banks, particularly on the Commonwealth Bank of Australia and ASIC’s interpretation of its statutory mandate to take “whatever action it can take ….to enforce…… the laws of the Commonwealth” (97), commonly means that it resorts to the line of least resistance with the financial establishment, while targeting ‘notorious’ individuals. The term, “all politics and public relations”, has been ascribed to characterise ASIC’s
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