This week, ASIC flagged a change in its approach to the exercise of its power to make orders to recover expenses and costs associated with investigations. Information Sheet 204 indicates that ASIC will be making greater use of this power to seek recovery of its costs from individuals and companies that are the subject of an investigation. While technically the power only exists in relation to proceedings finally determined by a court, it is possible that the change in approach could be applied more broadly, with ASIC seeking to recover investigation costs as part of agreed resolutions to investigations. Partner Richard Harris and Senior Associate Alexandra Mason report.
Under section 91 of the Australian Securities and Investments Commission Act 2001, where a person is convicted of an offence, a judgment is awarded, or a declaration or other order is made against a person by a court in a prosecution begun as a result of an ASIC investigation, ASIC may make an order requiring the person to pay or reimburse to ASIC:
- the whole, or a specified part, of the expenses of the investigation; or
- a specified amount of such of the expenses of the investigation as ASIC has paid; or
- the whole, or a specified part, of the cost to ASIC of making the investigation.
ASIC also has similar powers under section 319 of the National Consumer Credit Protection Act 2009.
While these powers have long been available to ASIC, they have rarely been used.
Information Sheet 204 identifies that ASIC has determined to change its approach to the use of its cost recovery powers and will be exercising these powers more frequently from now on. ASIC states that it will apply its new approach to persons who are the subject of an investigation that commenced after 29 July 2015. Importantly, however, it may also choose to exercise these powers in respect of investigations that are already underway (provided court proceedings have not already commenced or an agreement has not already been reached with the party).
The information sheet sets out the factors that will be taken into account by ASIC when determining whether to make an order for payment of investigation costs. Of significance among these factors is the degree of cooperation that the person being investigated provides to ASIC in the course of the investigation (to the extent that this reduces the length of the investigation). ASIC also says it may consider not making, or reducing the amount of, any costs order where a person pleads guilty or agrees to orders being made to resolve the matter.
This new approach raises a number of issues for individuals or companies who are, or may become, involved in ASIC investigations.
Even where an individual or company provides full cooperation in relation to an ASIC investigation, when the matter involves complex commercial dealings or broad scale breaches, ASIC's investigation expenses are likely to be very high. While ASIC has stated that it will take into account the level of cooperation given by the person being investigated, there is a risk that, even with cooperation, ASIC may still seek to recover its costs. This seems particularly likely if the target of the investigation is a large, well-funded corporation.
It is clear from the information sheet (and what must be a real risk with this new approach), that ASIC may also seek to recover investigation costs as part of an agreed resolution of an investigation, for instance an enforceable undertaking, or even simply agreed remediation steps. As part of out-of-court resolutions, companies may be faced with bills covering work carried out by ASIC's investigation staff over the course of months, as well as the costs of external counsel or experts engaged by ASIC.
It is likely that we will, in the not too distant future, see ASIC seek to recover some of the extensive expenses it incurs in relation to complex investigations. While there is not much that can be done about this, it is a factor that will need to be borne in mind when considering how to approach regulatory investigations. When faced with the possibility of an investigation, it will be important to consider:
- what admissions can or should be made at an early stage in the investigation (including in the context of a section 912D breach report), with a view to minimising the costs of the investigation;
- balanced against the above, whether there is a risk that making any kind of concession may lead ASIC to suggest that its costs should be paid, given there may be more difficulty in making a defence; and
- the extent to which a party that is the subject of an investigation should seek to assist ASIC in driving greater efficiencies in the manner in which an investigation proceeds.