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Focus: No heads-up required for ASIC examination

30 August 2012

In brief: A recent Federal Court decision confirms that the Australian Securities and Investments Commission is not required to give notice to a potential examinee when it authorises receivers and managers to conduct an investigation of the examinable affairs of a company. Partner Michael Quinlan and Law Graduate Arlou Arteta report.

How does it affect you?

  • In Saraceni v Australian Securities and Investments Commission1 it was found that the Australian Securities and Investments Commission (ASIC) had not acted improperly by granting receivers and managers authorisation to make an application under Part 5.9 of the Corporations Act 2001 (Cth) (the Act) to examine the affairs of Luke Saraceni's companies.
  • Receivers and managers are likely to be considered eligible applicants under the Act, provided written authorisation has been obtained from ASIC.
  • Natural justice considerations are not required to be taken into account, as the Act does not require ASIC to give notice to the examinee of its intention to grant receivers and managers authorisation under Part 5.9 of the Act.

Background

In April 2009, Mr Saraceni's company, Westgem Investments Pty Ltd, borrowed money to develop the Raine Square project in Perth. Westgem subsequently defaulted and the lenders sought additional security. These securities were provided by companies of which Mr Saraceni was director: Seaport Pty Ltd, Newport Securities Pty Ltd and Mayport Nominees Pty Ltd (the companies). Receivers and managers were subsequently appointed over particular assets of the companies.

On 4 July 2011, ASIC authorised the receivers and managers of the companies to apply for examination summonses against Mr Saraceni under section 596A of the Act. On 28 July 2012, the application was granted, and summonses were issued on 12 August 2011 and served on Mr Saraceni on 15 August 2011.

Mr Saraceni sought a judicial review of the authorisation given by ASIC to the receivers and managers of the companies, alleging that ASIC had failed to afford natural justice and had improperly exercised its powers. Mr Saraceni also challenged the constitutional validity of the examination powers under Part 5.9 of the Act.

The decision

Mr Saraceni's constitutional challenge to the examination powers did not succeed because the recent decision of Saraceni v Jones2 found that Part 5.9 of the Act was constitutionally valid. Justice Barker then went on to dismiss Mr Saraceni's application on the following grounds:

Authorisation of receivers and managers

The court may grant an eligible applicant a summons on 'a person for examination' in relation to a 'corporation's examinable affairs' under Part 5.9 of the Act. While a receiver and manager of a company is not listed as an eligible applicant under the Act, it may become an eligible application through written authorisation from ASIC. The Act does not set out any specific factors that ASIC must consider when granting an authorisation. Therefore, his Honour held that, with written authorisation from ASIC, the receivers and managers appointed to the companies were considered to be eligible persons to make an application under Part 5.9 of the Act.

Natural justice

His Honour found that regard to natural justice is not required in the circumstances, as the Act does not require notice to be given to any potential examinee when authorisation is being sought from ASIC. Further, he found that granting authorisation to receivers and managers does not affect the rights of any individual potential examinee, as the potential examinees constitute a large and indeterminate class.

Improper exercise of power

The court held that ASIC had not improperly exercised its power as it is not required to consider submissions or comments that may have been made by Mr Saraceni as it is not required to consult a potential examinee.

Comment

This case confirms that ASIC has power to authorise receivers and managers to make an application to conduct an investigation into a company's examinable affairs and that, in doing so, ASIC is not required to have regard to natural justice considerations.

Footnotes
  1. [2012] FCA 688.
  2. [2012] WASCA 59.

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