Civil Penalties and Responsive Regulation: The Gap between Theory and Practice

Article excerpt

In theory it is possible to map the civil penalty provisions contained in Corporations Act 2001 (Cth) part 9. 4B on to an enforcement pyramid in a manner envisaged by responsive regulation. However, the data examined in this article reveals that there is a gap between theory and practice. If the civil penalty regime were being utilised in a manner envisaged by responsive regulation, the Australian Securities and Investments Commission ('ASIC') would consider whether or not a civil penalty application was an adequate regulatory response prior to considering a criminal prosecution in the majority of cases. It, lore civil penalty proceedings titan criminal prosecutions would be issued in relation to the same types of contraventions. Neither of these is occurring. The examination of ASIC's use of the civil penalty regime reveals that its decision-making process is different from that suggested by responsive regulation. ]

CONTENTS

I   Introduction
II  Responsive Regulation
      A A Range of Sanctions
      B The Use of the Sanctions
III Does ASIC Consider whether a Civil Penalty Is Appropriate Prior to
    Considering a Criminal Prosecution?
IV  Does ASIC Issue More Civil Penalty Applications than Criminal
    Prosecutions?
V   The Gap between Theory and Practice
VI  ASIC's Use of the Civil Penalty Regime
VII Conclusion

I INTRODUCTION

The civil penalty regime contained in part 9.4B of the Corporations Act 2001 (Cth) ('Corporations Act') came into operation on 1 February 1993. (1) It was adopted on the recommendation of the Senate Standing Committee on Legal and Constitutional Affairs (then known as the 'Cooney Committee'). (2) its purpose was to overcome apparent deficiencies in the law relating to the enforcement of the statutory directors' duties. (3) Prior to the introduction of the civil penalty provisions, the directors' duties provisions were criminal provisions. (4) The civil penalty provisions are designed to provide the regulator with an enforcement regime that complies with responsive regulation theory. (5) Responsive regulation defines the regulator's goal as the need to secure compliance with the law and offers guidelines as to the best method of securing that compliance. (6)

This article examines the Australian Securities and Investments Commission's ('ASIC's') use of the civil penalty regime for the purpose of determining whether or not ASIC utilises that regime in a manner envisaged by responsive regulation. The examination is limited to a consideration of criminal and civil penalty applications issued in relation to alleged contraventions of the directors' duties contained in Corporations Act ss 181, 182 and 183. These provisions have been selected because both civil penalty applications and criminal prosecutions are available for their enforcement. While other provisions of the Corporations Act may give rise to both civil penalty proceedings and criminal prosecutions, the majority of the civil penalty applications issued by ASIC have alleged a contravention of the directors' duties provisions. (7) The number of civil penalty proceedings issued alleging contravention of other provisions is so small as to render a comparison with criminal prosecutions meaningless.

The examination undertaken in this article reveals that, in situations where a criminal prosecution is available, the civil penalty regime is not being utilised in a manner envisaged by responsive regulation. If ASIC were following an enforcement strategy which was consistent with the guidelines suggested by responsive regulation, two consequences would follow. First, in relation to alleged contraventions of the directors' duties provisions, ASIC would consider whether or not a civil penalty application was an appropriate regulatory response prior to issuing a criminal prosecution in the majority of cases. Secondly, ASIC would issue more civil penalty applications than criminal prosecutions. …