On July 1 2004, new legislation known as the Corporate Law Economic Reform Program (Audit Reform and

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• Publié par: Anjoi
• Nombre de lectures: 13
• Langue: English

Extrait

REVIEW OF THE OPERATION OF THE

INFRINGEMENT NOTICE PROVISIONS OF THE

CORPORATIONS ACT 2001

Consultation paper

March 2007

© Commonwealth of Australia 2007

ISBN 0 642 74380 0

This work is copyright. Apart from any use as permitted under the

Copyright Act 1968

, no part may

be reproduced by any process without prior written permission from the Commonwealth. Requests

and inquiries concerning reproduction and rights should be addressed to the:

Commonwealth Copyright Administration

Attorney General’s Department

Robert Garran Offices

National Circuit

Canberra ACT 2600

Or posted at:

http://www.ag.gov.au/cca

Consultation Process

Submissions may be lodged electronically, by post or facsimile.

Please direct submissions to:

Infringement Notice Review

Corporations and Financial Services Division

The Treasury

Langton Crescent

PARKES ACT 2600

Fax: [phone]

Email:

[e-mail]

The closing date for submissions is 1 June 2007.

Submissions may appear on the Treasury

website,

www.treasury.gov.au

(subject to any claims for confidentiality).

It will be assumed that submissions are not confidential and may be made publicly available. If you

would like your submission, or any part of it, to be treated as ‘confidential’, please indicate this

clearly. A request made under the

Freedom of Information Act 1982

(Cth) for a submission marked

confidential to be made available will be determined in accordance with that Act.

Inquiries about this paper or the further consultation process may be directed to:

Market Integrity Unit

Corporations and Financial Services Division

The Treasury

Ph: 02 6263 2804

REVIEW OF THE OPERATION OF THE INFRINGEMENT

NOTICE PROVISIONS

1.

INTRODUCTION

The

Corporate Law Economic Reform Program (Audit Reform and Corporate

Disclosure) Act 2004

included amendments to the

Corporations Act 2001

(Corporations Act) to give the Australian Securities and Investment Commission

(ASIC) the power to issue infringement notices for breaches of the continuous

disclosure provisions.

The infringement notice process gave ASIC an additional remedy to address less

serious breaches of the continuous disclosure obligations in a timely way.

In the course of the passage of the amending Bill through the Parliament, the

Government undertook to review the operation of the infringement notice scheme two

years after its commencement.

The relevant provisions commenced on 1 July 2004.

The purpose of this paper is thus

to initiate that review in the light of two years’ experience.

We would value comments from the recipients of infringement notices and the wider

community about their experience and perception of these provisions.

With the assistance of the comments received, the Department will make

recommendations to the government about the current provisions.

The

recommendations are likely to address, among other things, whether the provisions

have performed the function for which they were designed and the adequacy of the

protections built into them.

In addition to the infringement notice review, the Treasury is conducting a wider

review into penalties in the Corporations Act and the

Australian Securities and

Investment Commission Act 2001

(ASIC Act).

Any responses or actions that emerge

from the infringement notice review will need to be consistent with the outcomes of

the wider penalties review.

2.

THE INFRINGEMENT NOTICE PROVISIONS

Continuous disclosure requirements

Certain bodies are disclosing entities by virtue of the tests in Division 2 of Part 1.2A

of the Corporations Act.

Certain accounting requirements and continuous disclosure requirements apply to

disclosing entities (Division 3 of Part 1.2A).

The continuous disclosure requirements are found in Chapter 6CA.

In brief, they

require the disclosing entity to inform the market operator, if listed, or ASIC, if

unlisted, about information that:

•

the entity has that is not generally available; and

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•

is information that a reasonable person would expect, if it were generally

available, to have a material effect on the price or value of the relevant

securities.

In the case of listed entities, the legislation is supplemented by the ASX Listing Rules

(and other comparable rules).

Exceptions are provided in the Listing Rules and

Corporations Regulation 6CA.1.01.

The continuous disclosure obligations of companies are vital in maintaining market

integrity and ensuring market efficiency through open and equal access to relevant

information.

Penalties for breach of the continuous disclosure requirements

The criminal and civil penalties for breach of the continuous disclosure requirements

by a body corporate are:

•

Criminal penalties (see subsections 674(2) and 675(2), and Schedule 3) – the

maximum is currently $110,000; and

•

Civil penalties (see paragraph 1317E(1)(ja) and paragraph 1317G(1B)(b)) – the

maximum amount is $1 million.

Reasons for introducing infringement notices

It was considered that the criminal and civil penalty routes referred to above were, on

occasions, cumbersome and an alternative tool was needed by ASIC to encourage

prompt disclosure of the relevant information.

The argument was that the infringement notice mechanism would encourage

compliance without the need to resort to lengthy and expensive court proceedings.

As in the case of civil penalty or criminal proceedings, ASIC can initiate the process

following receipt of information from the ASX or on the basis of its own

observations.

Issuing an infringement notice (Part 9.4AA)

The process involves the following steps:

•

If the entity is listed, ASIC must consult the relevant market operator – for

example, the ASX (subsection 1317DAD(2)).

–

This requirement seeks to ensure a consistent interpretation by the market

operator and by ASIC of what constitutes a contravention of the

continuous disclosure provisions.

•

ASIC provides the entity considered to have breached the continuous disclosure

provisions with a written statement of its reasons for believing the entity has

contravened the relevant provisions (paragraph 1317DAD(1)(a)).

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•

ASIC conducts a private hearing.

The entity is thus provided with the

opportunity to give evidence and make submissions (paragraph

1317DAD(1)(b)).

•

If, at the conclusion of the hearing, ASIC has reasonable grounds to believe that

a disclosing entity has contravened the relevant continuous disclosure

provisions, ASIC may issue an infringement notice by serving it on the entity

(subsections 1317DAC(1) and (2)).

–

In making this decision ASIC must have regard to any guidelines issued

by the market operator relating to compliance with the continuous

disclosure provisions and any other relevant matter (subsection

1317DAC(4)).

•

The matters which must be included in the infringement notice are set out in

section 1317DAE and include:

–

details of the alleged contravention;

–

the amount to be paid ($33,000, $66,000 or $100,000, calculated

according to the company’s market capitalisation and whether the entity

has previously contravened the continuous disclosure provisions) and, if

appropriate, may specify the information which should be disclosed;

–

the effect of compliance;

–

the effect of failure to comply.

Compliance

Compliance with an infringement notice requires two criteria

to be satisfied (see

section 1317DAF).

These are:

•

Payment of the penalty; and

•

The disclosure of any information considered to have been withheld.

The basic time for compliance with an infringement notice is 28 days (section

1317DAH).

Just because it complied with an infringement notice, the entity is not considered to

have contravened the relevant provisions or been convicted of a relevant offence

(subsection 1317DAF(4)).

Effect of compliance

Entities which comply with infringement notices are not subject to further civil

penalty or criminal proceedings for the alleged contravention to which the notice

applies (subsection 1317DAF(5)).

However, certain proceedings may still be

undertaken (subsection 1317DAF(6)) including compensation proceedings by parties

who have suffered loss as a result of the contravention (for example, under section

1317HA).

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In addition, ASIC may take action against individuals involved in the contravention.

Non-compliance

Infringement notices are not enforceable by ASIC in the courts.

If the recipient does not comply with an infringement notice and ASIC wishes to

enforce disclosure, then it must initiate civil penalty or criminal proceedings, or seek

an order to disclose information under section 1324B (but may not use evidence

provided by the disclosing entity at a hearing on the possible issue of an infringement

notice (subsection 1317DAD(4)).

These options are addressed in detail in section

1317DAG.

There is no right to seek merits review from the AAT of a decision to issue or

withdraw an infringement notice (paragraphs 1317C(i) and (j)).

This is because there

is no obligation on an entity to comply with the notice.

Publication

Details concerning an alleged breach may not be published or made public until the

notice is complied with (section 1317DAJ).

ASIC may then publish either or both of

the following:

•

A copy of the infringement notice with certain specified statements in the

Gazette;

•

An accurate summary of the infringement notice with certain specified

statements (including that compliance is not an admission of guilt or liability).

Publication of a notice is designed to send a message to the market that ASIC

considers it vital to market integrity for alleged breaches of the continuous disclosure

provisions to be dealt with promptly.

ASIC is directed not to publish details of an infringement notice or a disclosing

entity’s compliance with it by other means.

We understand that this does not prevent

the publication of statistics without details of individual notices.

If ASIC begins proceedings against the entity following a failure to comply with an

infringement notice, it will publicly announce the commencement of proceedings and

the details of the outcome of those proceedings.

3.

PROCEDURE

In addition to the protections built into the relevant provisions (outlined above), ASIC

issued

Continuous disclosure obligations: infringement notices An ASIC guide

in May

2004.

This is available on the ASIC website (www.asic.gov.au).

The guide explains the process from investigation to publication (if the notice is

complied with) and states that the remedy will be used to address less serious

breaches of the continuous disclosure obligations.

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It indicates:

•

the expected time between identifying the breach and issue of the notice, and

between notice of the hearing and the holding the hearing;

•

that the hearings are expected to be conducted in accordance with ASIC’s

Hearing Practice Manual;

and

•

that a delegate who has not been involved in the investigation would examine

the matter, decide whether to issue the statement, undertake the hearing and

decide whether or not to issue a notice.

4.

INFRINGEMENT NOTICES COMPLIED WITH

To date five infringement notices have been complied with.

In accordance with the

provisions referred to above, summaries of the notices were made public in press

releases published on ASIC’s website.

A brief reference to each follows.

Note that, as indicated above:

•

Compliance with an infringement notice is not an admission of guilt or liability;

and

•

The relevant disclosing entity is not regarded as having contravened the

provision specified in the notice.

Solbec Pharmaceuticals Limited (Solbec) – ASIC Media Release 05-223

Solbec paid a penalty of $33,000 in response to a notice issued on 14 June 2005

which referred to failing to adequately inform the ASX of the size, structure and

limited nature of the results of an animal study.

QRSciences Holding Limited (QRS) - ASIC Media Release 06-042

QRS paid a penalty of $33,000 in response to a notice issued on 20 December 2005

which referred to failing to notify the ASX of the withdrawal of an underwriter to

underwrite any shortfall in the exercise of QRS options.

SDI Limited (SDI) - ASIC Media Release 06-124

SDI paid a penalty of $33,000 in response to a notice which referred to failing to

disclose to the ASX information that would affect its ability to meet predicted profits

for 2005 financial year.

This was announced on 21 April 2006.

Avastra Limited (Avastra) – ASIC Media Release 06-156

Avastra paid a penalty of $33,000 in response to a notice issued on 18 April 2006

which referred to failing to inform the ASX of a significant delay in publication of

results of a clinical trial of the company’s Bioweld Tube technology.

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Astron Limited (Astron) – ASIC Media Release 06-242

Astron paid a penalty of $66,000 in response to a notice issued on 21 June 2006

which alleged that Astron had failed to inform the ASX immediately of a significant

increase in the mineral resource estimate for a mineral sands project.

5.

ISSUES ON WHICH COMMENTS ARE SOUGHT

Issue 1 What has been your experience of the infringement notice process?

Issue 2 Do you think that this additional tool has resulted in greater compliance with

the continuous disclosure provisions?

Issue 3 Should the infringement notice provisions be amended to improve the

usefulness, or the fairness, of the mechanism?

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