I. Introduction
In Australia, a ‘civil penalty regime’ is a legislative framework that allows a regulator to initiate civil court proceedings in response to a breach of the law. A civil penalty regime does not apply to all of the sections within an Act; the provisions to which it applies will be clearly specified.Footnote 1 The key feature of a civil penalty regime is that it allows the regulator to apply to the court for a financial penalty (referred to as a ‘pecuniary penalty’ or a ‘civil pecuniary penalty’) to be imposed on the defendant for contravening one or more legislative provisions to which the regime applies. A civil pecuniary penalty has been described as ‘a monetary penalty imposed by courts in civil matters where a contravention of a civil penalty provision in an Act has been proven on the balance of probabilities’.Footnote 2 Civil penalty regimes may allow the regulator to apply for other kinds of orders — such as an order disqualifying an individual from managing a corporation for a certain period of time or an order requiring the defendant to compensate the company (or consumer) for a loss caused by the misconduct. However, a pecuniary penalty is the most common sanction that applies to a contravention of a civil penalty provision.Footnote 3
A civil penalty regime was introduced into the Corporations Law in February 1993,Footnote 4 in response to a perception that the courts were reluctant to impose criminal sanctions for breaches of directors’ duties.Footnote 5 The regime provided Australia’s corporate regulator, the Australian Securities Commission (and later the Australian Securities and Investments Commission (‘ASIC’)), with new sanctions so that it could respond appropriately to serious misconduct that lacked a dishonest or fraudulent element.Footnote 6 The introduction of a civil penalty regime into the Corporations Law coincided with the increasingly influential idea that regulators should be using an ‘enforcement pyramid’ with a variety of different enforcement tools.Footnote 7
ASIC currently has four regimes which allow it to seek a pecuniary penalty against a defendant. These civil penalty regimes are set out under the Corporations Act 2001 (Cth) (‘Corporations Act’), the National Consumer Credit Protection Act 2009 (Cth) (‘Credit Act’), the Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’) and the Insurance Contracts Act 1984 (Cth) (‘Insurance Contracts Act’).
The scope of the Corporations Act civil penalty regime has expanded over the years. There were initially only eight civil penalty provisions specified under the Corporations Law; now there are 191 different sections and subsections of the Corporations Act listed as civil penalty provisions under s 1317E(3).Footnote 8 The introduction of the ASIC Act and Credit Act civil penalty regimes in 2010 and the Insurance Contracts Act regime in 2019 also expanded the scope of ASIC’s civil penalty powers significantly.
Given this significant expansion, it is important to understand how ASIC has used its powers under its civil penalty regimes. In July 2023, ASIC provided the authors with a dataset summarising the outcomes for all of ASIC’s civil penalty actions that were finalised between 2013 and 2022. ASIC has not previously made this data publicly available.
Our analysis of the data forms the basis for our argument that although civil penalties were seldom used by ASIC for many years, it is now clear that they constitute a very significant part of ASIC’s enforcement strategy.
Our analysis of the data provided to us by ASIC also allows us to make the following key conclusions. First, between 1 January 2013 and 31 December 2022, ASIC completed 159 civil penalty actions. Over half of these actions (52 percent) were completed in the final three years of our 10-year research period, from 2020 to 2022. ASIC is therefore making increasing use of civil penalties. Second, ASIC has a very strong preference for litigating civil penalty actions in the Federal Court of Australia in comparison to the state Supreme Courts, with 91 percent of actions finalised between 2013 and 2022 litigated in the Federal Court. Third, 65 percent of civil penalty actions were against companies and 35 percent were against individuals. Of the actions against corporate defendants, 60 percent were against public companies. Fourth, 86 percent of ASIC’s finalised civil penalty actions were seen by ASIC as successful — that is, they resulted in a court outcome that was favourable to ASIC.
Fifth, nearly all of ASIC’s successful civil penalty actions (96 percent) resulted in at least one pecuniary penalty order being made against the defendant. The courts imposed over $600 million in pecuniary penalties between 2013 and 2022; penalties totalling $8,680,500 were ordered against individuals and $595,881,000 against companies. The penalties imposed from 2020 to 2022 ($507,648,000) constituted 84 percent of the total pecuniary penalties over the 10-year period.
Sixth, between 2013 and 2022, 27 individuals who contravened a civil penalty provision were subject to a disqualification order under s 206C of the Corporations Act. Most of those individuals were also subject to a pecuniary penalty order. The disqualification orders ranged in length from two years to permanent disqualification. Seventh, there were only six civil penalty actions (in two matters) in which ASIC obtained a compensation order. This indicates that ASIC does not view obtaining compensation as a priority when it brings civil penalty actions. Instead, ASIC’s priority is obtaining pecuniary penalties and, in some instances, obtaining disqualification orders against individuals. Eighth, ASIC’s civil penalty actions often concerned false, misleading or unconscionable conduct or representations, breaches of directors’ duties such as the duty of care and diligence, and misconduct by financial services licensees and other misconduct in connection with financial services.
The structure of the article is as follows. In Part 2, we discuss the key features of ASIC’s civil penalty regimes. In Part 3, we discuss the key findings from our analysis of the data provided to us by ASIC regarding its completed civil penalty actions. In Part 4, we use these key findings to support our argument concerning the significance of civil penalties to ASIC’s enforcement strategy.
II. The Key Features of ASIC’s Current Civil Penalty Regimes
ASIC administers four civil penalty regimes: the Corporations Act, ASIC Act, Credit Act and Insurance Contracts Act civil penalty regimes. They all give ASIC the power to apply to a court for a declaration that a civil penalty provision under the particular Act has been contravened, and they also give ASIC the power to apply for a pecuniary penalty order in relation to the contravention.Footnote 9 The Corporations Act, ASIC Act and Credit Act also allow ASIC to apply to the court for a relinquishment order.Footnote 10 This is a new order which requires a person to pay the Commonwealth of Australia (‘Commonwealth’) an amount equal to ‘the benefit derived and detriment avoided because of a contravention of a civil penalty provision’.Footnote 11 The Corporations Act regime also provides for disqualification, compensation, and refund orders that are defined in s 9 to be ‘civil penalty orders’. Like the declaration of contravention, pecuniary penalty order, and relinquishment order, these powers only apply in relation to a contravention of a civil penalty provision; however, unlike the declaration of contravention, pecuniary penalty order, and relinquishment order, these kinds of orders only apply as a remedy to particular kinds of civil penalty provision contraventions. In comparison, the ASIC Act and Credit Act give ASIC the power to apply to the court for a compensation order in civil penalty proceedings, and the ASIC Act also allows ASIC to apply for a disqualification order in relation to certain civil penalty contraventions.
ASIC’s civil penalty powers are subject to some restrictions, such as the requirement that ASIC must commence civil penalty proceedings within six years of the alleged contravention.Footnote 12 Additionally, ASIC’s powers in relation to financial adviser misconduct are limited due to the remit of the Financial Services and Credit Panel.Footnote 13
ASIC’s civil penalty regimes require that the court must apply the rules of evidence and procedure for civil matters when hearing civil penalty proceedings;Footnote 14 this means that the standard of proof is ‘on the balance of probabilities’.Footnote 15 However, due to the serious nature of the penalties that can be imposed in civil penalty proceedings, ASIC must prove each of the elements of its causes of action to a high standard.Footnote 16 Table 1 provides a summary of the key features of ASIC’s civil penalty regimes.
Table 1. ASIC’s key powers under the civil penalty regimes
A. Declaration of Contravention
In order for a court to impose a pecuniary penalty,Footnote 17 make a relinquishment order under the Corporations Act or Credit Act,Footnote 18 or make an order under s 206C of the Corporations Act disqualifying a person from managing corporations,Footnote 19 the court must first make a declaration that a person has contravened a civil penalty provision. The declaration requirements are essentially the same across ASIC’s civil penalty regimes: the court must specify various matters in the declaration, such as the civil penalty provision that was contravened, the person who contravened the provision, and the conduct that constituted the contravention.Footnote 20
B. Pecuniary Penalty Orders
Under the ASIC Act, Credit Act, and Insurance Contracts Act, if the court has made a declaration that a person has contravened a civil penalty provision, the court may order the person to pay to the Commonwealth a pecuniary penalty that the court considers to be appropriate (but not more than the relevant maximum pecuniary penalty).Footnote 21 In comparison, certain types of civil penalty provisions under the Corporations Act require an additional threshold to be satisfied before a pecuniary penalty order can be made.Footnote 22 For example, if the contravention is of a ‘corporation/scheme civil penalty provision’, the court can only make a pecuniary penalty order if the contravention: (a) materially prejudices the interests of the corporation, scheme or fund, or its members, or (b) materially prejudices the corporation’s ability to pay its creditors, or (c) is ‘serious’.Footnote 23
All of ASIC’s civil penalty regimes set maximum pecuniary penalties. The maximum pecuniary penalty applicable to a contravention differs according to whether the person is an individual or a corporation. The formulas for determining the particular maximum pecuniary penalty all involve the use of penalty units; the current value of a penalty unit is $330.Footnote 24 Since 2019, the ASIC Act and Corporations Act have specified the maximum penalties in the same manner. The maximum pecuniary penalty for a contravention by an individual is the greater of: (a) 5,000 penalty units (currently $1.65 million), and (b) if the court can determine the benefit derived and detriment avoided because of the contravention — that amount multiplied by three.Footnote 25 For a corporation, the maximum pecuniary penalty applicable to a contravention is the greatest of: (a) 50,000 penalty units (currently $16.5 million), and (b) if the court can determine the benefit derived and detriment avoided because of the contravention — that amount multiplied by three, and (c) either (i) 10 percent of the annual turnover of the body corporate for the 12-month period ending at the end of the month in which the body corporate contravened, or began to contravene, the civil penalty provision, or (ii) if the amount worked out under subparagraph (i) is greater than an amount equal to 2.5 million penalty units (currently $825 million) — 2.5 million penalty units.Footnote 26
The court must take into account all relevant matters when determining a pecuniary penalty.Footnote 27 These matters include the nature and extent of the contravention, the nature and extent of any loss or damage suffered because of the contravention, the circumstances in which the contravention took place, and whether the person has previously been found by a court to have engaged in similar conduct. Additionally, if the court makes a pecuniary penalty order or a relinquishment order against a person in relation to a contravention of a civil penalty provision, the court must consider the effect that making the order would have on the amount available to pay compensation under the relevant provisions and give preference to making an appropriate amount available for compensation.Footnote 28
C. Relinquishment Orders
If a declaration of contravention has been made under the Corporations Act or Credit Act, the court may order a person to pay the Commonwealth an amount equal to ‘the benefit derived and detriment avoided because of a contravention of a civil penalty provision’.Footnote 29 The ASIC Act does not specifically require a declaration of contravention for a relinquishment order;Footnote 30 however, the title of s 12GBCC of the ASIC Act (‘Relinquishing the benefit derived from engaging in conduct resulting in a pecuniary penalty order’) indicates that the power was intended to be used following a pecuniary penalty order (which itself requires a declaration of contravention). The Acts highlight that the court may make a relinquishment order in relation to the contravention of a civil penalty provision, even if a pecuniary penalty order could be (or has been) made in relation to the contravention of the civil penalty provision.Footnote 31
D. Disqualification and Compensation Orders
The Corporations Act has two key features which are absent from ASIC’s other regimes: disqualification and compensation orders that are civil penalty orders and only concern civil penalty provision contraventions, as opposed to general powers that are applicable to criminal offences as well as contraventions of civil penalty provisions. First, under s 206C(1) of the Corporations Act, ASIC may apply for the court to disqualify a person from managing corporations for a period that the court considers appropriate. The disqualification power applies in relation to contraventions of specific Corporation Act civil penalty provisions: the corporation/scheme civil penalty provisions and certain ‘uncategorised’ civil penalty provisions (ss 670A(4), 727(6), 728(4) or 1309(12) of the Corporations Act). By comparison, under the ASIC Act there is a disqualification provision which applies to civil penalty contraventions of the unconscionable conduct and consumer protection provisions, as well as to criminal offences against those provisions.Footnote 32
Under the Corporations Act, there are several kinds of compensation orders that are civil penalty orders.Footnote 33 Each type of compensation order is only available in relation to a particular type of civil penalty contravention. For example, under s 1317H, the court may order a person to compensate a corporation, registered scheme, or notified foreign passport fund for damage suffered as a result of the person’s contravention of a corporation/scheme civil penalty provision. Unlike a pecuniary penalty order or a relinquishment order, it is not necessary for a declaration of contravention to be made under s 1317E of the Corporations Act in order for a compensation order to be made.Footnote 34
In comparison, while the ASIC Act, Credit Act, and Insurance Contracts Act do not provide for any compensation orders that are specific to the civil penalty regimes, the ASIC Act and the Credit Act contain general provisions regarding compensation orders for loss or damage suffered (or likely to be suffered) in relation to the contravention of a civil penalty provision (or the commission of an offence).Footnote 35
E. Other Orders and Remedies
Another civil penalty order, which was introduced into the Corporations Act in 2012 for s 962P contraventionsFootnote 36 (and was introduced in relation to ss 962R and 962S in 2021),Footnote 37 is the refund order — this order only applies in relation to contraventions of ss 962R (fee recipient must not deduct ongoing fees without consent), 962S (fee recipient must not arrange for deduction of ongoing fees without consent or accept such deductions) and 962P (charging ongoing fee after termination of ongoing fee arrangement).Footnote 38 These sections are part of Chapter 7 of the Corporations Act, which concerns financial services and markets. Regardless of whether a declaration of contravention has been made under s 1317E, if a person has knowingly or recklessly contravened ss 962R, 962S, or 962P of the Corporations Act, the court may make a refund order — if it is reasonable in all the circumstances to make the order.
There are also features of the ASIC Act and Credit Act regimes, due to their focus on consumer protection, which are absent from the Corporations Act. The court may, on application by ASIC, make an adverse publicity order in relation to a person who has ‘been ordered to pay a pecuniary penalty’ under s 12GBB of the ASIC Act;Footnote 39 and ASIC may apply for an adverse publicity order against a person who has ‘contravened a civil penalty provision’ under the Credit Act.Footnote 40
Another kind of order which ASIC has sought in civil penalty proceedings is a compliance order.Footnote 41 For example, the court may order that the defendant ensure that appropriate systems, policies and procedures are in place so as to prevent future contravening conduct and that the adequacy of those systems be assessed by an independent expert. A compliance order may be made under the broad discretionary power of the court under s 1101B of the Corporations Act to make orders in relation to certain contraventions (such as a provision of Chapter 7 of the Corporations Act), or it may be made under s 12GLA(2)(b) of the ASIC Act.Footnote 42
III. The Study: ASIC Data on Finalised Civil Penalty Actions
A. Previous Studies of Civil Penalties
Civil penalties have been the subject of previous research.Footnote 43 This research has added significantly to our understanding of the operation of civil penalties. Our study is distinct in the following ways. First, most research regarding civil penalties and ASIC enforcement does not examine the actual use of civil penalties. Rather, most of the literature examines legal issues associated with civil penalties including, for example, the approach of the courts to agreed penalty submissions in civil penalty cases and the procedural protections available to defendants in civil penalty actions. Second, while some earlier studies have examined ASIC’s use of civil penalties in discrete areas of ASIC enforcement, such as financial services misconduct or contraventions of directors’ duties, we examine all civil penalty actions within our study period. Third, we examine all of ASIC’s civil penalty actions over a substantial period of time — 10 years. Fourth, as noted earlier, the data we use for our study is a detailed dataset provided to us by ASIC, which has not previously been made publicly available by ASIC. In addition, as noted below, we have supplemented the data provided to us by ASIC with research of relevant court judgments and other documents published by ASIC, including media releases.
B. Methodology
On 6 June 2023 we submitted a request to ASIC under the Freedom of Information Act 1982 (Cth) seeking access to documents concerning civil penalty actions under the Corporations Act and ASIC Act that were finalised between 1 January 2013 and 31 December 2022. On 5 July 2023, ASIC provided us with spreadsheets summarising the outcomes for all civil penalty actions undertaken by ASIC that were finalised between these dates. The actions concerned alleged contraventions of the civil penalty provisions under the Corporations Act, ASIC Act and Credit Act — as well as contraventions under the Competition and Consumer Act 2010 (Cth) (‘Competition and Consumer Act’).Footnote 44 ASIC has not yet commenced any civil penalty proceedings under the Insurance Contracts Act.Footnote 45
The data included the following information: the name of the defendant, whether the defendant was an individual or an organisation, the jurisdiction (federal/state) in which the action was undertaken, the date on which the civil penalty action was finalised (‘decision date’), the statutory provision/s alleged to have been contravened, the result of the action (for example, ‘declarations and pecuniary penalty’, ‘declarations, pecuniary penalty and disqualification’, ‘dismissed’, ‘discontinued’ and ‘judgment against ASIC’), and whether the matter was considered to be a ‘successful’, ‘unsuccessful’ or ‘neutral’ outcome for ASIC.
In addition to the data provided by ASIC, we reviewed all the media releases published by ASIC that related to each civil penalty action listed in the spreadsheets. Where the information provided in the media release was insufficient (for example, where it was unclear what the role of an individual was or where it was unclear which Act a pecuniary penalty order had been made under), we also reviewed the relevant court judgments. After checking other sources such as court judgments, we amended the details for some of the civil penalty actions in the spreadsheets provided by ASIC and details of these amendments can be obtained from the authors.
C. Data Analysis
Our analysis of ASIC’s civil penalty actions completed between 1 January 2013 to 31 December 2022 focussed on the following issues: the number of finalised actions and matters; the jurisdiction in which the actions were litigated; the characteristics of the defendants; the number of successful and unsuccessful actions; the use of pecuniary penalties, disqualification orders and compensation orders; and the civil penalty provisions that were most commonly alleged to have been contravened.
1. The Number of Finalised Civil Penalty Actions and Matters
Between 1 January 2013 to 31 December 2022, ASIC completed 159 civil penalty actions. These actions comprised 86 matters. When we use the term ‘action’, we are referring to a proceeding in relation to a particular defendant (that is, an individual or corporation) — a ‘matter’ refers to a collection of actions concerning the same or related misconduct. We determined the number of matters by counting the number of finalised civil penalty actions with the same ‘Case ID’ and ‘Case name’ in the spreadsheets provided by ASIC.
There was one matter that involved seven civil penalty actions and one matter with six civil penalty actions. There were four matters that involved five civil penalty actions, five matters that involved four civil penalty actions and five matters that involved three civil penalty actions. There were 22 matters that involved two civil penalty actions and 49 matters that involved only one civil penalty action.
Table 2 shows that ASIC finalised seven civil penalty actions in 2013, six in 2014, nine in 2015, 12 in 2016, 19 in 2017, 14 in 2018, 10 in 2019, 16 in 2020, 22 actions in 2021, and 44 in 2022. That is, over the 10-year period covered by our research, 52 percent of ASIC’s civil penalty actions were completed in the final three years, from 2020 to 2022. Also, only 19 percent were finalised in the first four years from 2013 to 2016, with 81 percent being finalised from 2017 to 2022. Table 2 shows the increasing use being made by ASIC of civil penalty actions.
Table 2. Total number of finalised civil penalty actions by year
What might have caused this increase in the finalisation of civil penalty actions in the last three years of the study period? It is clear that ASIC’s enforcement strategy has been influenced by criticisms made of ASIC enforcement by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.Footnote 46 A major criticism of the Royal Commission was ASIC’s use of negotiated agreements and administrative sanctions rather than ASIC seeking court-imposed sanctions. In response, ASIC announced that it had established an Office of Enforcement and that it would increase its enforcement outcomes, including an increase in court-based enforcement action.Footnote 47 The criticisms made by the Royal Commission have likely influenced ASIC’s use of civil penalty actions in two ways. First, ASIC has brought civil penalty actions relating to misconduct identified by the Royal Commission.Footnote 48 Second, it would seem that ASIC has commenced more civil penalty actions in response to the criticism by the Royal Commission that ASIC was making insufficient use of court-based enforcement.
2. The Jurisdiction in which ASIC Litigated Civil Penalty Actions
Only a few of ASIC’s civil penalty actions were heard in a state Supreme Court; most actions were heard in the Federal Court. As shown in Table 3, between 2013 and 2022, there were 15 civil penalty actions finalised in a state Supreme Court and 144 in the Federal Court. That is, only 9 percent of ASIC’s civil penalty actions finalised between 2013 and 2022 were litigated in a Supreme Court. All civil penalty proceedings finalised between 2018 and 2022 occurred in the Federal Court. This indicates a strong preference by ASIC to litigate civil penalty proceedings in the Federal Court.
Table 3. Total number of finalised civil penalty actions by jurisdiction (federal/state)
Those 15 civil penalty actions in the state courts concerned only four matters and were finalised between 2013 and 2017.Footnote 49 Two matters were heard in the Supreme Court of New South Wales (the Hobbs and Macquarie Investment Management Limited matters), one matter was heard in the Supreme Court of Victoria (the AWB Limited matter) and one matter was heard in the Supreme Court of Queensland (the MFS Investment Management Limited matter).
We have not identified any public statements by ASIC concerning why it prefers to litigate its civil penalty actions in the Federal Court rather than the state Supreme Courts. Some possible reasons are (1) ASIC may have formed the view that as it is a federal regulator, it should be litigating in the Federal Court; (2) ASIC may have formed the view that the Federal Court has the greatest depth of expertise in the matters that it litigates; and (3) ASIC may have formed the view that the Federal Court offers greater consistency and certainty of interpretation concerning the statutes that it enforces compared to the possibility of different interpretations offered by different state Supreme Courts — although the need for consistency of interpretation of Commonwealth legislation by state Supreme Courts has been addressed by the High Court.Footnote 50
3. Characteristics of the Defendants
Between 2013 and 2022, ASIC finalised 104 civil penalty actions against companies and 55 actions against individuals. That is, 65 percent of civil penalty actions were against companies and 35 percent were against individuals. Of the actions against corporate defendants, 62 actions were against public companies and 42 actions were against proprietary companies. Therefore, 60 percent of the 104 civil penalty actions against companies were against public companies. As at 30 June 2022, 99 percent of registered companies were proprietary companies.Footnote 51 This means that public companies are over-represented in ASIC’s civil penalty actions. A likely reason for this finding is that some of the factors considered by ASIC when deciding to commence enforcement action are potentially more relevant to public companies than proprietary companies, including where misconduct has caused ‘widespread public harm’ or ‘is likely to have a significant market impact’.Footnote 52 In addition, ASIC states that it is more likely to take enforcement action where such action will send ‘an effective deterrence message to the market’,Footnote 53 and it may be that a deterrence message is stronger where enforcement action is taken against a public company than a proprietary company. This finding about the over-representation of public companies in ASIC’s civil penalty actions is consistent with other research that has examined ASIC’s enforcement of the duties owed by directors and officers of companies.Footnote 54
In relation to the individuals, there were seven actions against females and 48 actions against males. To determine the position that each defendant held within the company, we relied on the relevant media releases, and where this information was not available, we also referred to the relevant court decision. As shown in Table 4, many of the defendants occupied an executive position or managerial position within the company that they worked for.Footnote 55 Additionally, of the 55 individuals, 43 (78 percent) had roles that fell within the definition of ‘director’ under s 9 of the Corporations Act, either as an appointed director (including chairperson or managing director) or by acting as a de facto director.
Table 4. Role of individual defendants within their company
4. Number of Successful and Unsuccessful Civil Penalty Actions
ASIC has classified all of its finalised civil penalty actions as either ‘successful’, ‘unsuccessful’, or ‘neutral’. The spreadsheets provided by ASIC explained that whether a finalised civil penalty action is referred to as ‘successful’ or ‘unsuccessful’ is determined by whether the outcome of the court decision was ‘for’ (successful) or ‘against’ (unsuccessful) ASIC. As noted above, ASIC finalised 159 civil penalty actions between 1 January 2013 to 31 December 2022. Of these, 137 were successful, 21 were unsuccessful, and one was neutral.Footnote 56 That is, from 2013 to 2022, 86 percent of ASIC’s finalised civil penalty actions were successful, 13 percent were unsuccessful, and 1 percent resulted in a court outcome considered to be neutral. Table 5 classifies the number of successful and unsuccessful actions by year. The data in this table shows that in the most recent three years, the percentage of actions classified as successful was higher than the overall average of 86 percent from 2013 to 2022.
Table 5. Number of successful, unsuccessful and neutral finalised civil penalty actions
ASIC classified an action as unsuccessful where the action was dismissed by the court due to ASIC failing to prove its case against the defendant,Footnote 57 or where the action was discontinued by consent.Footnote 58 For example, one matter resulted in five civil penalty actions that were classified as unsuccessful.Footnote 59
5. Pecuniary Penalties Ordered by Courts
As shown in Table 6, courts imposed $604,561,500 in pecuniary penalties in total between 2013 and 2022, with the lowest amount of $670,000 in pecuniary penalties imposed by the courts in 2013 and the highest amount of $217,953,000 imposed in 2022. The data in Table 6 shows a significant increase in the total amounts of pecuniary penalties imposed by the courts between 2019 and 2020. Additionally, the total amount of pecuniary penalties imposed from 2020 to 2022 ($507,648,000) constitutes 84 percent of the total pecuniary penalties imposed from 2013 to 2022.
Table 6. Pecuniary penalties imposed by year
Table 7 shows that the courts made pecuniary penalty orders in 132 civil penalty actions. These actions were against 38 individuals and 94 companies. As ASIC considered 137 actions to be successful, that means that 96 percent (132 of 137) of successful civil penalty actions resulted in a pecuniary penalty order being made against the defendant. We note that some companies were involved in more than one finalised civil penalty action during the period of our study. For example, there were six civil penalty actions against Westpac Banking Corporation that were finalised in 2022, which resulted in pecuniary penalty amounts of $1,500,000, $20,000,000, $12,000,000, $15,000,000, $2,000,000, and $15,950,000, with a total of $66,450,000 ordered against the company in that year.
Table 7. Number of civil penalty actions against individuals and companies that resulted in pecuniary penalty orders and total amount of penalties
Between 1 January 2013 and 31 December 2022, penalties totalling $8,680,500 were ordered against individuals and $595,881,000 against companies. The penalty amounts imposed by the courts in civil penalty actions against individuals ranged from $5,000 to $3,000,000, and those imposed on companies ranged from $25,000 to $49,500,000.
Table 8 shows that between January 2013 and December 2022, the courts made 60 pecuniary penalty orders under the ASIC Act totalling $300,503,000, 53 pecuniary penalty orders under the Corporations Act totalling $84,370,000, 18 orders under the Credit Act totalling $45,138,500, and two orders under the Competition and Consumer Act totalling $500,000. There were also nine orders made under both the Corporations Act and ASIC Act totalling $169,850,000, and two orders made under provisions of the Corporations Act, ASIC Act, and Credit Acts totalling $4,200,000. That is, 42 percent of pecuniary penalty orders were made under the ASIC Act, 37 percent of orders were made under the Corporations Act, 13 percent of orders were made under the Credit Act, six percent of orders were made pursuant to both the Corporations Act and ASIC Act, one percent of orders were made under the Competition and Consumer Act, and another one percent were made pursuant to the Corporations Act, ASIC Act, and Credit Act.
Table 8. Total amount of pecuniary penalties by Act
The reason that there was a total of 144 pecuniary penalty orders between 1 January 2013 to 31 December 2022 in relation to 132 civil penalty actions is that there were a few actions in which a court made more than one pecuniary penalty order against a defendant.
6. Disqualification Orders Under s 206C of the Corporations Act
Table 9 shows that between 1 January 2013 and 31 December 2022, 27 individuals were subject to a court-imposed disqualification order under s 206C of the Corporations Act. The disqualification orders, which ban the individuals from managing companies, ranged in length from two years to permanent disqualification. One person received a disqualification for two years, one person received a disqualification for two years and three months, three people received a disqualification for three years, five people received a disqualification for four years, and three people received a disqualification for five years. Two individuals were subject to six-year disqualification orders, another two were subject to seven-year orders, one was subject to an eight-year order, and another was subject to a 10-year order. One person was subject to a 15-year order, three were subject to 20-year orders, and two were subject to 25-year orders. Two individuals received permanent disqualifications.
Table 9. Disqualification from managing corporations (s 206C)
If the two individuals that received permanent disqualifications are excluded, the average disqualification is eight years and eight months.Footnote 60 The fact that two individuals received permanent disqualifications suggests that in these two cases the court believed that a ban from managing a corporation for 25 years was insufficient.Footnote 61 Therefore, to gain a more accurate estimate of the average disqualification, we assumed that the permanent disqualifications should be allocated a notional value of more than 25 years and be allocated a notional disqualification of 30 years. This resulted in an average disqualification of 10 years and three months.Footnote 62
Some disqualification orders were made under both ss 206C and 206E of the Corporations Act. Where this was the case, the disqualification orders were to be served concurrently. Our focus here is on s 206C, as the power conferred by s 206C of the Corporations Act is predicated on the court making a declaration (pursuant to s 1317E of the Corporations Act) that the relevant defendant contravened a civil penalty provision and the court being satisfied that the disqualification is justified. By contrast, a s 206E disqualification order is not reliant upon a contravention of a civil penalty provision — the disqualification power pursuant to s 206E arises where a person has at least twice been an officer of a body corporate that has contravened the Corporations Act and has each time failed to take reasonable steps to prevent the contravention, or the person has at least twice contravened the Corporations Act while they were an officer of a body corporate.
A comparison of the results of Tables 7 and 9 shows that there have been many more finalised civil penalty actions in which a pecuniary penalty order was made against a defendant (132 actions) than actions in which a s 206C disqualification order was made against a defendant (27 actions). Of course, an important factor is that pecuniary penalty orders have been made against both individuals and corporate defendants, whereas orders under s 206C have only been made against individuals. Another factor is that a pecuniary penalty order can be made in relation to a contravention of any civil penalty provision under ASIC’s civil penalty regimes, whereas a disqualification order under s 206C of the Corporations Act may only be made in relation to certain types of civil penalty provision contraventions under the Corporations Act.
Table 10 demonstrates that disqualification orders have often been made in conjunction with pecuniary penalty orders.Footnote 63 Indeed, of the 27 individuals that were subject to a disqualification order under s 206C, 25 of those were also subject to a pecuniary penalty order. Table 10 also shows that there were 13 individuals who were subject to a pecuniary order but were not also subject to a disqualification order.
Table 10. Individuals subject to pecuniary penalties and/or disqualification under s 206C
7. Compensation Orders for Contraventions of Civil Penalty Provisions
There were only six civil penalty actions (in two matters) in which ASIC obtained a compensation order. One of the two matters involved former officers of a responsible entity of a managed investment fund being ordered (under the Corporations Act) to pay compensation to the fund; the other matter involved compensation to consumers under the Credit Act. In each of these actions, pecuniary penalty orders were also granted.
First, in Australian Securities and Investments Commission v Managed Investments Ltd (No 10), ASIC had sought compensation orders under s 1317H of the Corporations Act (as well as other orders) against four of the five individual defendants.Footnote 64 Those defendants were former officers of the responsible entity of a managed investment fund and were found to have not acted honestly in carrying out their duties.Footnote 65 They were ordered to pay compensation to the fund to a total of $617,266,803: one individual was ordered to pay $177,017,084 compensation to the fund, two were ordered to pay $205,755,601 each, and one was ordered to pay $28,738,517.Footnote 66
Second, in Australian Securities and Investments Commission v Lightspeed Finance Pty Ltd, Lightspeed Finance Pty Ltd and its director were both ordered to pay compensation, pursuant to ss 178 and 179 of the Credit Act, to Ms El Ghalemi in the sum of $150,000, in respect of the damage suffered due to Lightspeed’s breach of s 47(1)(m) of the Act by failing to give effect to a determination of the Australian Financial Complaints Authority.Footnote 67
A reason for the low number of compensation orders in comparison to the use of pecuniary penalty orders and disqualification orders is that seeking compensation for companies and consumers is not a key priority for ASIC in pursuing civil penalty action. Welsh has argued that ‘ASIC’s primary role is to target its enforcement activities strategically in a manner designed to lead to increased compliance and a decrease in harmful behaviour’Footnote 68 and, while a compensation order may have a deterrent effect, a compensation order is primarily concerned with corrective justice rather than encouraging greater compliance.Footnote 69 Welsh’s research on ASIC’s civil penalty applications made between February 1993 and June 2013 that alleged a contravention of the statutory directors’ duties found that, of the nine compensation orders which ASIC obtained during that research period, seven compensation orders were made against companies that were in liquidation — so ‘the compensation was of no benefit to the relevant company’s shareholders, but rather was of benefit to the relevant company’s unsecured creditors’.Footnote 70 Our research results reflect Welsh’s conclusion that ‘ASIC sees its role as the protection of the larger community interest, rather than the protection of the private interests of individual companies and their shareholders.’Footnote 71
8. The Civil Penalty Provisions Most Commonly Alleged to Have Been Contravened
ASIC provided us with data concerning all of the provisions that were alleged to have been contravened by each defendant that was the subject of a civil penalty action finalised between January 2013 and December 2022. The data was not comprehensive based on our cross-checking of the data against court judgments and ASIC media releases;Footnote 72 however, we determined that the data was sufficiently accurate to draw broad conclusions. In some cases, ASIC brought both civil penalty proceedings and other proceedings against the defendants. In these instances, ASIC provided us with data that included all of the provisions alleged to have been contravened, including provisions that were not civil penalty provisions. However, we have identified the most common civil penalty provisions alleged to have been contravened.
The data provided by ASIC indicates that the 10 most common civil penalty provisions that were alleged to have been contravened were as follows (in order of most frequently alleged):
• s 12DB of the ASIC Act (false or misleading representations);
• s 180 of the Corporations Act (duty of care and diligence);
• s 12CB of the ASIC Act (unconscionable conduct in connection with financial services);
• s 12DI of the ASIC Act (accepting payment without intending or being able to supply as ordered);
• s 182 of the Corporations Act (improper use of position);
• s 181 of the Corporations Act (duties to act in good faith in the best interests of the company and to act for a proper purpose);
• s 674 of the Corporations Act (continuous disclosure);
• s 601FD (duties of officers of responsible entity);
• s 12DF of the ASIC Act (certain misleading conduct in relation to financial services); and
• s 961L of the Corporations Act (financial services licensee to ensure compliance with certain best interests duties).
ASIC’s data therefore indicates that the civil penalty actions that were finalised between January 2013 and December 2022 often concerned false, misleading or unconscionable conduct or representations, breaches of directors’ duties, and misconduct by financial services licensees and other misconduct in connection with financial services.
IV. Further Analysis – Civil Penalty Actions are Now a Very Significant Part of ASIC’s Enforcement Strategy
Civil penalty actions were seldom used when they were first introduced.Footnote 73 ASIC commenced only 14 civil penalty actions during the first six years from when civil penalties were introduced.Footnote 74 Now, civil penalty actions are one of ASIC’s most important enforcement tools. According to reports published by ASIC, between 1 July 2022 and 30 June 2023, ASIC commenced 62 new civil actions of which 18 were civil penalty actions; by comparison, during the same period, ASIC commenced 32 criminal litigation actions.Footnote 75
It is important to highlight here that ASIC views civil penalty proceedings as often producing more key enforcement outcomes than other kinds of civil proceedings. This can be seen in the examples provided in ASIC’s enforcement reports, which highlight successful civil penalty cases more often than enforcement outcomes of other kinds of civil cases, and ASIC’s more recent enforcement reports also often note the civil penalty matters that were commenced during the relevant enforcement period as well as those finalised.Footnote 76 The reason that many civil outcomes are not considered to be as significant as civil penalty outcomes is civil proceedings often involve ASIC applying for interim court orders during an investigation, before the initiation of civil penalty proceedings or criminal proceedings — such as an order to protect assets or prevent them from being used or an order to restrain an individual from leaving Australia. Some of the civil action undertaken by ASIC, other than civil penalty actions, can be significant, and includes applying for an order to compel an individual or entity to make a corrective disclosure, applying for the appointment of an external administrator to a company, or applying for a company to be wound up.
The importance of civil penalty actions to ASIC’s enforcement strategy is further highlighted by several of our research findings. First, 81 percent of the civil penalty actions that were finalised during our 10-year research period were completed in the more recent six-year period (from 2017 to 2022), and over half of the civil penalty actions that were finalised during our research period were completed in the final three years (from 2020 to 2022). This indicates that ASIC has increased its use of civil penalty proceedings in recent years.
Second, ASIC’s high success rate in civil penalty proceedings, the significant periods of disqualification imposed by the courts, and the high pecuniary penalties that are imposed by the courts also demonstrate the importance of civil penalties to ASIC’s enforcement strategy. Our study found that 86 percent of ASIC’s finalised civil penalty actions were successful (resulting in a court outcome favourable to ASIC). Our study also found that 27 individuals were subject to disqualification orders under s 206C of the Corporations Act, with 14 individuals disqualified from managing companies for periods of six years or more. In addition, nearly all of ASIC’s successful civil penalty actions resulted in at least one pecuniary penalty order being made against the defendant. The courts imposed over $600 million in pecuniary penalties between 2013 and 2022, with the vast majority of this amount being imposed in recent years. In the first year of our study (2013), courts imposed a total of $670,000 in pecuniary penalties. In the final year of our study (2022), courts imposed a total of $217,952,000 in pecuniary penalties. In the final three years of the study, courts imposed a total of $507,648,000 in pecuniary penalties, which constitutes 84 percent of the total pecuniary penalties imposed during the 10 years of the study.
Additionally, there are two factors that are likely to lead to even higher civil pecuniary penalties in the future: (a) the 2019 amendments to the maximum pecuniary penalties that may be imposed for a contravention (these amendments are discussed below),Footnote 77 and (b) the 2022 decision of the High Court of Australia in Australian Building and Construction Commissioner v Pattinson (‘Pattinson’), which clarified that the court may impose the maximum civil pecuniary penalty in relation to a contravention even if it does not fall within the ‘worst category of contravening conduct’.Footnote 78
In Pattinson, the High Court rejected an argument that the maximum pecuniary penalty can only be imposed by the court for the worst category of contravening conduct. According to the High Court, considerations of deterrence and the protection of the public interest ‘justify the imposition of the maximum penalty where it is apparent that no lesser penalty will be an effective deterrent against further contraventions of a like kind’.Footnote 79 This means that conduct that is not in the worst category of contravening conduct may result in a penalty that is the maximum allowable where the court decides, because of a history of non-compliance with the law by the defendant, that this penalty is necessary to ensure the defendant complies with the law. This decision of the High Court is likely to result in the imposition of higher civil penalties in some cases.
Third, ASIC’s civil penalty actions involve some of the most important sections of the Corporations Act and ASIC Act focused on the prevention of harm to investors and consumers, and the actions brought against individuals are most often brought against directors and not those individuals occupying lesser offices in the company. As the Federal Court of Australia said in Australian Securities and Investments Commission v Healey:
A director is an essential component of corporate governance. Each director is placed at the apex of the structure of direction and management of a company. The higher the office that is held by a person, the greater the responsibility that falls upon him or her. The role of a director is significant as their actions may have a profound effect on the community, and not just shareholders, employees and creditors.Footnote 80
Fourth, our research found that 60 percent of the 104 civil penalty actions that were finalised against companies during the period of our study were actions against public companies. ASIC’s focus on public companies as defendants also illustrates the importance of civil penalties as an enforcement action. As discussed earlier, 99 percent of registered companies are private companies, yet an enforcement strategy that is focused on public companies may be explained by the larger potential impact of breaches of the law by these kinds of companies, as well as the potentially stronger deterrence message sent by ASIC when it takes legal proceedings against prominent public companies.Footnote 81
Fifth, Parliament has substantially increased the penalties available under ASIC’s civil penalty regimes – and this means ASIC can send a more powerful deterrence message by commencing civil penalty actions. Prior to 2019, there were considerable differences across and within ASIC’s civil penalty regimes in regards to the maximum pecuniary penalties available,Footnote 82 and there were increasing concerns that the penalties that could be imposed by the courts were too low. In particular, the maximum financial penalty for a contravention of a corporation/scheme civil penalty provision (including the important directors’ duties provisions),Footnote 83 or a financial services civil penalty provision,Footnote 84 or the manipulation of financial benchmark provisions,Footnote 85 was $200,000 for individuals and $1 million for bodies corporate. The maximum pecuniary penalties that could be imposed for other types of contraventions were also relatively low.Footnote 86
In 2017, the ASIC Enforcement Review Taskforce recommended that the maximum pecuniary penalty amounts in ASIC-administered legislation should be increased to 2,500 penalty units (then $525,000) for individuals.Footnote 87 This would have doubled the penalty available in respect of many contraventions; however, the Government rejected this recommendation and instead adopted the more significant proposal made by ASIC in its submission to the ASIC Enforcement Review Taskforce — that the maximum penalties for individuals should be set at the greater of 5,000 penalty units (then $1,050,000) or three times the value of benefits obtained or losses avoided for individuals.Footnote 88 By comparison, the Government accepted the Taskforce’s recommendation concerning corporations — that the maximum pecuniary penalty for a civil penalty provision contravention by a corporation should be the greater of (a) 50,000 penalty units (then $10,500,000), (b) three times the value of benefits obtained or losses avoided, or (c) 10 percent of annual turnover in the 12 months preceding the contravening conduct (but not more than 1 million penalty units (then $210,000,000)).Footnote 89
However, when the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 (Cth) was introduced into Parliament, the Greens and the Opposition argued that the cap on the penalties imposed based on the company’s annual turnover was too restrictive and would benefit larger institutions (such as banks).Footnote 90 The Opposition moved amendments to remove the cap (with the Greens supporting those amendments),Footnote 91 but they were negatived in the House of Representatives. The Opposition later proposed that the penalty cap on the turnover calculation be increased from 1 million to 2.5 million penalty units (then valued at $525,000,000)Footnote 92 — those amendments were accepted in the Senate.Footnote 93
Accordingly, the maximum financial penalty for a contravention of a civil penalty provision in the Corporations Act, ASIC Act, Credit Act and Insurance Contracts Act is now: for individuals, the greater of 5,000 penalty units and if the court can determine the benefit derived or detriment avoided because of the contravention, that amount multiplied by three; and for bodies corporate, the greater of the following (a) 50,000 penalty units, (b) if the court can determine the benefit derived or detriment avoided by the body corporate because of the contravention, that amount multiplied by three, and (c) 10 percent of the annual turnover of the body corporate, but to a maximum monetary value of 2.5 million penalty units.Footnote 94 These legislative amendments signify a dramatic increase in the pecuniary penalties that may be imposed on individuals and corporations for contraventions of the civil penalty provisions. As these changes came into effect in March 2019, the impact on the penalties imposed by the courts are just now starting to be seen.Footnote 95
V. Conclusion
A civil penalty regime was introduced into the Corporations Law in 1993. In 2010, further civil penalty regimes were introduced into the ASIC Act and the Credit Act, and in 2019 a new civil penalty regime was also inserted into the Insurance Contracts Act. The introduction of civil penalty regimes into the ASIC Act, Credit Act and Insurance Contracts Act expanded the scope of ASIC’s civil penalty powers significantly, and the scope of the Corporations Act civil penalty regime has also expanded over the years.
We have studied all 159 civil penalty actions undertaken by ASIC that were completed during the 10-year period from 2013 to 2022. These actions concerned contraventions of the Corporations Act, ASIC Act and Credit Act, and ASIC also used powers under the Competition and Consumer Act delegated to it by the ACCC. There were no civil penalty actions under the Insurance Contracts Act. Our analysis of these civil penalty proceedings allows us to make several conclusions about ASIC’s use of civil penalty actions. First, ASIC is increasing its use of civil penalty actions. Over the 10-year period covered by our research, 52 percent of ASIC’s civil penalty actions were completed in the final three years, from 2020 to 2022.
Second, ASIC has a very strong preference to litigate its civil penalty actions in the Federal Court rather than the state Supreme Courts, with 91 percent of the actions litigated in the Federal Court. Third, we examined who are the defendants in ASIC’s completed civil penalty actions. ASIC finalised 104 civil penalty actions against companies and 55 actions against individuals. That is, 65 percent of civil penalty actions were against companies and 35 percent were against individuals. Many of the defendants occupied an executive or managerial position in the company they worked for. Fourth, ASIC has a high success rate in its civil penalty actions, with 86 percent of ASIC’s finalised civil penalty actions being successful.
Fifth, the courts imposed over $600 million in pecuniary penalties between 2013 and 2022, with the total penalties imposed from 2020 to 2022 ($507,648,000) constituting 84 percent of the total pecuniary penalties over the 10-year period. Penalties totalling $8,680,500 were ordered against individuals and $595,881,000 against companies. Sixth, between 2013 and 2022, 27 individuals were subject to a disqualification order under s 206C of the Corporations Act. The disqualification orders ranged in length from two years to permanent disqualification. Disqualification orders have often been made in conjunction with pecuniary penalty orders. Of the 27 individuals that were subject to a disqualification order under s 206C, 25 of those were also subject to a pecuniary penalty order. Seventh, there have only been six civil penalty actions (in two matters) in which ASIC has obtained a compensation order, indicating that seeking compensation is not a priority for ASIC when bringing civil penalty actions. Eighth, ASIC’s civil penalty actions often concerned false, misleading or unconscionable conduct or representations, breaches of directors’ duties such as the duty of care and diligence, and misconduct by financial services licensees and other misconduct in connection with financial services.
Although civil penalty actions were seldom used when they were introduced, based on our analysis of all 159 civil penalty actions undertaken by ASIC that were completed during the 10-year period from 2013 to 2022, we have argued that civil penalty actions have now become a very significant part of ASIC’s enforcement strategy.
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