15.39 The Australian Securities and Investments Commission (ASIC) highlighted provisions in corporate and commercial regulation that may be characterised as denying procedural fairness, noting that these provisions are ‘the exception rather than the rule’.
15.40 ASIC submitted that ‘there are limitations to procedural fairness in provisions of the Corporations Act 2001 (Cth)’ which are designed to prevent financial loss caused by fraud or improper financial management. The provisions highlighted by ASIC in the Corporations Act 2001 (Cth) included the following:
Section 739 empowers ASIC to issue interim stop orders for offers of security made under a disclosure agreement where ASIC believes that an agreement contains: a misleading or deceptive statement; an omission of information required under legislation; or some new circumstance has arisen since the lodgement of the disclosure document. Stop orders are administrative mechanisms which can be issued by a regulatory agency without recourse to a court. Under an interim stop order issued in accordance with s 739, a company cannot offer, issue, sell or transfer shares. While this may be seen as denying procedural fairness, an interim order only operates for 21 days, after which time ASIC must hold a hearing to determine if the order should be ongoing.
Section 915B enables ASIC to suspend or cancel an Australian Financial Services (AFS) licence without first providing procedural fairness by way of a hearing where, among other things, the licensee becomes insolvent, is convicted of serious fraud, loses their legal/mental capacity; or in the case of responsible entities of managed investment schemes—where the scheme members have or are likely to suffer loss because of a breach of the Corporations Act. However, ASIC is required under s 915B to give written notice to the person or licence-holder. Further, under s 915C, ASIC may offer a licensee an opportunity to appear or be represented at a hearing.
15.41 The content of the hearing rule required by the duty to afford procedural fairness may be reduced in such a statutory context. Also, given the operation of safeguards in both of these provisions which provide some opportunity for a hearing, it is not clear that these provisions could be characterised as denying procedural fairness. The ALRC welcomes submissions on this question.
15.42 ASIC’s regulatory guide on licensing and administrative action explains that, where appropriate in all the circumstances, an AFS licence may be suspended without first offering a hearing or providing the party with an opportunity to make submissions. Under s 915C, ASIC has the discretion to offer the party a private hearing. ASIC’s regulatory guide also outlines the factors ASIC will take when considering—on a case-by-case basis—the suspension or cancellation of an AFS licence including the following;
whether ASIC has jurisdiction in the matter;
the strategic significance of taking action;
the benefits of pursuing misconduct;
issues specific to the case; and
alternatives to formal investigation.
Australian Securities and Investments Commission, Submission 74.
The principles and procedures ASIC adopts for such hearings are set out in a Regulatory Guide: Australian Securities and Investments Commission, Licensing: Administrative Action against Financial Service Providers Regulatory Guide 98 (July 2013). There is further information available about the process for conducting hearings under s 915C of the Corporations Act 2001 (Cth) on the Australian Securities and Investments Commission website, see: <www.asic.gov.au/hearingsmanual>.