When USA based WorldCom Inc fell victim to an $11 billion accounting scandal it resulted in the company filing bankruptcy. In 2002 it was the largest bankruptcy in U.S. history. Corporate Fraud occurs in Australian businesses.  Most business fraud is opportunistic so could be prevented.

Some of the lessons learned in the WorldCom collapse are explained in a video called Fraud and the Tone at the Top . This is a training video designed to help business owners prevent corporate fraud.

The video includes interviews with one of those charged and sentenced to a gaol term for their role in commercial fraud.

He explains how he was able, and even encouraged to manipulate accounting records. The culture of the leaders encouraged questionable ethics and even them having a written “Code of Ethics” was seen as helping staff avoid moral analysis of their actions.

Some of the commercial fraud started seemingly innocently enough with delaying write offs of accounts receivables. As staff were remumnerated on profit and results there was incentive to make revenues look better than they actually were. Actions were justified with a belief that they could be fixed in the future when things improved.

The setting of unreasonable goals combined with poor communication is seen as partly to blame for the fraud. Where loyalty is not displayed staff can become loyal only to themselves

The video is a reminder that preventing corporate fraud is good business.

To watch the 20 minute video click here: Fraud and the Tone at the Top

An expensive lesson in breaching a Contract of Employment

When you hire someone to do a job it is natural to expect them to not only do the job but to not help a direct competitor. Failure to do this proved to be an expensive error.

The Facts of Dinte v. Hales & Anor [2009] QSC 63 (25 March 2009)

Dinte, the Plaintiff in this action, hired Hales and Campbell to provide services to his business trading as Skycomm.  Hales held the position of “Service Manager” which included responsibilities for selling and servicing mobile communications equipment as a “premier dealer” for Motorola.

In the course of, and after his engagement with Skycomm, the Defendants entered into a partnership trading under the name of Dapcomm. Dapcomm operated in common areas of business as Skycomm; The two business were competing.

The claim was brought by Hales alleging that Hales had breached his implied term of Contract of Employment and his equitable duties owed to the Plaintiff as his employer.  Furthermore it was alleged that upon termination of employment, Hales retained copies of confidential information including lists of clients and customers together with commercially sensitive information which was used for the purposes of Dapcomm. It was alleged that Cambpell knew and approved of and assisted Hales in the impugned conduct and benefited from it.

Recovery of Damages more than loss of sales

The Plaintiff sued for damages. The Judge found that Hales was in breach of his obligations to Dinte and dishonestly diverted custom to the Dapcomm partnership through opportunities that were made available to him by virtue of his employment with Dinte.

This case is interesting because not only did the Court, having found liability, make an award of damages in the sum of $67,533.19 for loss of the diverted business but the Court also considered, as a consequence of the business diverted away from the Plaintiff’s business, that he should be compensated for loss of value of the business.  The loss of value of the business was calculated by using the amount of diverted business in the last financial year ($38,000) and taking the multiplier of 3.8 x EBIT which equated to $144,400.

Comment from Mark Streeter Sydney Lawyer

There are some important lessons to be learned from this case. This is an important decision in assessing and quantifying damages for recovery of Fraud in businesses.  Employees may divert business opportunities to themselves or other parties or merely destroy business opportunities. This may result in damages in excess of just the lost revenue for that financial year.

In this case the business was sold within a year after the Defendants had diverted the business but before the case went to hearing.  Accordingly the “loss” of goodwill was realised by the lower sale price obtained as a consequence of the reduced earnings because of the diverted business.

This case is consistent with the principles set down in To Robinson v Harman (1848) where Baron Parker said:
Where a party sustains loss by breach of a contract, he is, as far as money can do it to be placed in the same position, with respect to damages, as if the contract had been performed.

In this case the Plaintiff had lost the business but had also lost value in his business by way of goodwill (calculated as a multiple of EBIT) and suffered a reduced price in the sale of the business as a consequence.
 

Quick Action and Freezing Order in $300K Fraud Case

The Facts of Norco Co-Operative Limited v Kelly [2010] NSWSC 719

HK worked for Norco from 26 March 2001 to 10 February 2009.  In the course of her employment she fraudulently and dishonourably misappropriate amounts totaling at least $316,657.98!

These funds were used to pay off mortgages on properties she owned and also mortgages on properties she jointly owned with her life partner.

Upon discovery of the misappropriation, Norco made an urgent application for a “freezing order” which was granted on 19 March 2009.  This order prevented HK from removing from Australia or in any way disposing of or dealing with or diminishing the value of any of her assets in Australia up to the unencumbered value of $375,000.00.

Shortly before the “discovery”, HK transferred to her life partner title in one of the properties for nil consideration. His Honour Justice Lindgren found that Norco had an “equitable charge” over these properties but found the amount of the charge was limited to the amount of the misappropriated funds that had paid off the mortgage over the particular property.  It did not amount to a charge over each property for the full amount of the misappropriated funds.

Comment from Mark Streeter, Sydney Lawyer

This case uses the principle of constructive trust to “trace” the proceeds of the fraud.  As her life partner had not taken the property as a “bona fide” purchaser without knowledge and for fair value, the life partner did not have a basis for resisting a claim by Norco.

This case teaches an important lesson. Act quickly to firstly freeze and then recovery misappropriated monies or property or assets.  It may be possible to “trace” monies and obtain a secured position under an equitable charge (as illustrated by the Norco decision).




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Macquarie Bank's recorded phone calls used as evidence against them

What would you do if faced with a call on a margin loan of $160,000 from Macquarie Bank and given three working days to pay it? Over the past 12 months this has became a common situation in Australia, and around the world.

Last year one investor’s offer to meet the Bank’s call didn’t go exactly as planned and the Bank sold his shares at a substantial loss. However the Federal Court agreed that the investor’s efforts were sufficient to meet the Bank’s call. They ordered the Bank to compensate the investor. The Bank’s own recorded phone calls actually helped the case against them.

This court decision could impact every investor who uses margin lending arrangements.

Background to the case of Goodridge v Macquarie Bank Ltd and Leveraged Equities Ltd

Next time you hear the words “this call may be recorded for training purposes” it may just help you. Lawfully obtained ‘surveillance’, in this case recording of phone calls, were used in this court decision.  This type of surveillance evidence is often most useful in the detection and proof of frauds but this case was different.

In the Federal Court decision on 12 February 2010 of Goodridge v Macquarie Bank Ltd and Leveraged Equities Ltd recorded telephone conversations were used to prove an aspect of the case. The Plaintiff is a Barrister (as a litigant in person) and he decided to take on the might of Macquarie Bank and Adelaide Bank.

The main issue was whether or not the Borrower had satisfied a Bank’s “call” under a Margin Loan.

The Situation

On Thursday 5 February 2009 the Bank made a margin call upon the Borrower. This required a payment of nearly $160,000 be paid by the following Tuesday 10 February – or three business days.

The Borrower sought to negotiate an extension. The Borrower knew that 10 days after the deadline he would receive approximately $175,000 of dividends from these units. His offer was for the dividends to be paid directly to the Bank in satisfaction of the Call. The Bank verbally agreed to this offer in a phone conversation.

Recorded Phone Calls Used as Evidence

The Bank had a procedure for recording telephone calls of its customers and brokers.  Two of these recordings were used in evidence as between the Borrower and the account manager. 

As agreed the Borrower signed an authority and instruction directing the dividend from his investments be credited to the Bank. As part of a subsequent conversation the account manager told the Borrower that he had done his part and that it was “perfect”. 

For an unexplained reason this authority was not acted upon and the dividend payment was still made directly to the Borrower’s bank account. It was then transferred to the Bank by the Borrower.

His Honour Justice Rares found that this action by the investor completely satisfied the margin call based on the evidence. The Plaintiff had successfully proven this aspect of his case using the Defendant’s own phone records.

Comment by Mark Streeter Sydney Lawyer

This case is illustrative of the high value Courts give to records held in objective media. These may include film, tape of voice recording or other electronic media such as emails, Skype or SMS records.

In a Court of Law it is not enough to be right. You must be able to prove, on the balance of probabilities, that you are right.  In this situation the recorded phone calls were the proof that was needed.

However any surveillance evidence must be in admissible form. It must not be obtained illegally. Otherwise it cannot be used in a Court of Law.  In Australia there are very strict rules regulating the collection of information and data.

This case actually involved two more margin loan calls with very interesting results. See the next blogpost.

Bank told to compensate for selling shares in low market

Macquarie Bank's sale of loan book creates problems for clients

The facts behind the case

Mr Goodridge (the Borrower) entered into a margin lending loan arrangement with Macquarie Bank in May 2003.  On 8 January 2009 Macquarie Bank sold their “loan book” (which included Mr Goodridge’s margin lending account) to a subsidiary of Bendigo and Adelaide Banks – Leveraged Equities Ltd (the Second Defendant in these proceedings).  Notices were issued on 19 January 2009 purporting to notify all customers of the Bank of the transfer and the new “ownership” of the Banking arrangements.

The Bank (either Macquarie Bank or Leveraged Equities) made a “calls and demands” under the loan on 5 February 2009 and 23 February 2009.
The evidence was accepted (form the Bank’s recording of a telephone conversation) that there was a negotiated arrangement between the Bank and the Borrower and the 5 February 2009 margin call was fully satisfied by the Borrower.

The enquiry then focused on whether or not a “call” under the margin loan by the Bank on 23 February 2009 expired unsatisfied which justifying the Bank selling the securities to pay down the margin loan.

The Borrower had purchased units in a listed units in Macquarie Country Wide Trust (MCW Trust).  The market price of these units on 11 November 2008 was 31 cents.  The discounted cashflow valuation that Macquarie Equities Ltd had placed on these Units was $1.15.  The price of these Units came under a degree of stress and by 23 February 2009 the price had fallen to 14.5 cents per Unit and during the day had dropped to 13 cents.  On the afternoon of 23 February 2009 an email was despatched from Leveraged Equities to the Borrower requiring payment of the margin call of $190,000.  The Borrower was given 24 hours to pay this amount to maintain the Loan Valuation Ratio (LVR) at 70%.  The “margin call” was not met within this timeframe and the Bank sold the Units for prices that went down to 10.5 cents per Unit.  All 5.6 million units were sold and because of the depressed price (in part caused by the fact that the market could not absorb the sale of 5.6 million units in a 24 hour period!)  There was still an amount outstanding to the Bank.  It remained in debit of over $58,000.00.

What's the Story?

The relationship between a Lender and the Borrower under a margin loan facility is one of substantial interdependence.  Unlike real estate which could take somewhere between three and six months for the Bank to take possession and sell, listed securities can be sold quite quickly.
The relevant clause of the margin lending loan required the Bank to give three business days notice for compliance with a margin call.  Other clauses in the agreement provided for the ability, at the discretion of the Bank, to modify the terms of the agreement.  However, His Honour Justice Rares found that this three days notice as an expressed term offered the Borrower a substantial contractual right and any alternative construction would lead to a very unreasonable and uncommercial result!

His Honour Justice Rares noted that the liability to meet a margin call remained contingent up until the time of the compliance and only matures into an actual liability if at the time of the application of the formula (to ascertain the LVR) the loan balance and the valuation of the securities is in breach of the required ratio.  His Honour Justice Rares delivered a lengthy 57 page judgement which dealt with many legal and factual complexities in a rational and well reasoned judgment.  The judgment will provide essential reading in construing any contracts relating to margin lending accounts.

His Honour found that the margin call was in breach of the terms of the margin loan agreement and accordingly invalid. There was no right on the part of the Bank (either of the two defendants) entitling them to sell.  Accordingly the sale of the units was unlawful and damages were payable.

If that was not enough, the judge also found that in the event that it was validly assigned that the “shortening” of the time for meeting the margin call from 3 to 1 days was a breach of section 12CB of the ASIC Act.  His Honour found that in all the factual circumstances, there had been a misuse of the power of sale and that the second defendant had required the Borrower to comply with conditions that were not reasonably necessary to protect his legitimate interest in breach of section 12CB(2)(b) ASIC Act in that it required him to pay money in accordance with a timetable and a series of demands that were not valid and secondly threatened, and then proceeded to, sell his property without a legitimate interest that it was entitled to protect. 

Accordingly this misuse of the power of sale was unconscionable.

The Borrower sought relief and an order that 5,603,562 in the MCW Trust be restored to him.

Since 23 February 2009 these units have increased in price substantially.  Additionally the units paid dividend (which also part of his damages claim) together with interest on the dividends.  As at 26 February 2010 they are 56.5 cents / Unit.  (That is his units would be worth over $3,000,000 plus dividend, plus interest on the lost dividend).

Another important issue - Invalid Assignment

Another significant legal issue to be determined was the question of whether or not a Bank can assign and “sell” a loan portfolio.  In the second paragraph of the judgement His Honour notes that:
“It was common ground that contractual obligations are generally incapable of assignment and that these can only be transferred by novation of the original contract.” 

His Honour found against the Banks on multiple counts. He found that they had not been a valid assignment of the entitlement under the loan to the second defendant which entitled them to make the call on the margin loan.

Comment from Mark Streeter - Sydney Lawyer

Inevitably this court decision will be appealed. Macquarie Bank sold a $1.5 billion loan portfolio to Leveraged Equities Ltd. They certainly would not want to see some sort of class action by other Borrowers seeking compensation for margin calls that were unlawfully made!

The saga will continue in the meantime - Happy investing!

The first margin loan in this particular case also involved the use of a phone recording as evidence. Read the full story on the blogsite

David beats Goliath using a recorded phone call

Solicitor resigns and fights against signed employment agreement

In recent years the pros and cons of employment contracts have been hotly debated. When a Solicitor in a country town resigned from his firm to work for another he was accused of being in breach of his employment contract. It was up to the Supreme Court of New South Wales to decide what “restraint of trade” in employment agreements could apply to the solicitor and what was unreasonable.

Explanation of Restraint of Trade

A common term of an employment contract, or contract of sale of business, is a “restraint of trade”. These clauses restrict or limit the competitive activities of the seller or the employee. This is to protect the goodwill and “value” of the purchaser. A 2010 decision in the Supreme Court of New South Wales shows the limitations of these clauses being binding.

The facts of the Employment Contract

M was employed as a solicitor by a firm in Taree and had signed a contract of employment.  The contract of employment contained three restraints which were to apply following the cessation of employment. These were to apply whether he resigned, was dismissed or they agreed on a mutual termination. The Restraints were:

1. Prohibition against soliciting Clients of the Firm. (A Client of the Firm was defined to mean someone who is at termination, or during the preceding one year had engaged the firm).

2. Prohibition against soliciting employees to leave the firm and related companies.

3. Prohibition on engaging in “Competitive Activity”. The definition of Competitive Activity is "any activity which involves carrying on either alone, as a director or in partnership with any person or persons or as an employee of any person or persons the business or profession of a lawyer within ten (10) kilometres of the post offices at Taree or Wingham".

On or about 27 November 2009 M resigned his employment from the firm.  He expected he could stay in the town where he lived and obtained employment with another local firm.  His previous employer commenced proceedings. They sought to restrain M by Court order from working for his new employer due to it being a contravention of the employment agreement.

Such a case could at times drag on. However as there was a need for the solicitor to have gainful employment and the requirement that the issues and construction of the restraint of trade clauses be construed quickly, the hearing was speeded up. Judgment by Justice McDougall J was handed down on the 28th of January 2010.

Case Facts

M ceased employment with the firm on 27 November 2009.

Clause 13 of his contract of employment imposed three restraints, each of them to be effective for 12 months.

His Honour Justice McDougall restated the rule that a restraint of trade could be justified insofar as it is no more than is necessary for the reasonable protection of the legitimate interests of the plaintiff.  In the circumstances and in the particular facts of this case, the plaintiff’s interests were identified as the goodwill of its legal practice.  The plaintiff identified a legitimate interest that was capable of being the subject of restraint and led evidence that the firm had introduced the employee to clients of the firm.

M offered undertakings to the Court to abide by the second restraint of not soliciting other employees to leave. The scope of the second and the third  restraints were what were being questioned.

In respect of the First Restraint, His Honour was asked to determine whether or not the restraint against solicitation should be limited to clients of the firm for whom the defendant had provided legal services. In it's original form it was worded to extend to all clients of the firm generally. That is any client of the firm whether or not the employee had any contact or association with the client.  His Honour determined (at paragraph nine) that the restraint should be limited to the solicitation of clients of the firm for whom the defendant had performed work (or legal services) in the preceding 12 months.

In deciding how long this restraint should take place His Honour considered this to be a question partly of principle and partly of fact.  His Honour found support in the view that the length of time should reflect the amount of time taken to end the connection between the client and the employee and how long it would take to train up someone else to fill the employee’s place.  His Honour found 12 months to be justified on the evidence.  Accordingly His Honour read down the restraint against solicitation of clients with whom the defendant had not worked with.

The Third Restraint was the most contentious. It provided a prohibition on competition on an absolute basis within a 10 kilometre radius of the designated places. This was not only a restriction on acting for clients of the firm but anyone (and everyone) else within this area. Taree and the surrounding countryside has a population of 48,000. Due to the size of the town the 10 km restraint covered the entire town.

His Honour was mindful that it was his role to assess what was reasonably necessary in all the particular circumstances of this case having regard to the application of principles established by previous cases.

His Honour found that the Third Restraint was a blanket covenant against competition. It protected not only the plaintiff’s legitimate interests in its own clients but also competition in respect of those who are not, nor had never been its clients. His Honour found that the Third Restraint went further than was reasonably necessary for the protection of the firm and did not consider this restraint reasonable.

His Honour also determined the question of costs.  Acknowledging that costs generally follow the event and each party had had a “measure of success”. Nevertheless, His Honour ordered that the Plaintiff pay 80% of the Defendant’s costs of the proceedings.

Comment from Mark Streeter Sydney Lawyer

The Restraint of Trade Act 1976 (NSW) is a very small piece of legislation.  The full Act is only four sections. The Restraint of Trade Act provides that ‘Restraints’ are valid to the extent to which it is not against public policy, whether they are in severable terms or not and empowers the Supreme Court to set aside a restraint of trade on the basis that it is offensive to public policy.

Sub section 4(3) provides that the Supreme Court may, on such terms as it thinks fit, order the restraint be invalid or accordingly valid only to the extent the court thinks fit.

How does a Court determine whether or not a restraint of trade infringes public policy? – That’s why it’s helpful to read this judgment as an exposition of principle. The Act is not limited to employment contracts but could also be applied to shareholder agreements or partnership contracts.

Mark Bouris raises Contempt of Court case against former directors

The Situation - Ignoring Interim Freezing Order

 In June 2009, Mr Mark Bouris became the chairman of TZ Ltd. Mr Bouris is well known as the star of The Apprentice reality TV show and as founder of Wizard Home Loans.
TZ Ltd commenced action to recover monies from former directors of the company.  One of the proceedings commenced was against an entity called ZMS Investments Pty Ltd (‘ZMS’).  On 16 September 2009 the Supreme Court of New South Wales made interim freezing orders (also called Mareva orders) under Uniform Civil Procedure Rule (UCPR) 5.11.  These orders restrained ZMS, by its directors, officers or agents, employees or others acting on its behalf, from:


Assets were defined in the orders to include a number of specifically identified properties.  It was alleged that after the making of the freezing orders, Mr Andrew John Sigalla (‘Sigalla’) caused ZMS to enter into a contract of sale for one of the properties that were subject of the Freezing Orders of September 2009.  The properties were listed for auction on 3 December 2009 and one of the properties was exchanged on 10 November 2009.  By Notice of Motion under Part 5 of the Supreme Court rules an application was made by TZ Ltd who also filed a Statement of Charge dated 13 November 2009, seeking orders that ZMS and Sigalla be found guilty of contempt for failing to comply with the orders of the court of 16 September 2009 and that they be convicted and made liable to such punishment as the court considers appropriate.

The Court Decision

Justice Austin, as Corporations Judge, heard the application in a hearing on 16 December 2009 and handed down a 12 page judgment on 23 December 2009.  His Honour found the contempt proved and imposed a $5,000 fine by way of penalty on each of ZMS and Sigalla and that ZMS and Sigalla pay TZ Ltd’s costs on an indemnity basis jointly and severally.

Comment from Mark Streeter Sydney Lawyer

Compliance with court orders is critical for the continued proper administration of justice in New South Wales and public confidence in the judicial system. This case is a helpful reminder of the sharp edge of the judicial system and the application of force, in this case through $5,000 fines, for failing to comply with orders made by the Court.

The court extracted a helpful summary of principles applicable in an application for contempt.  In short these principles are as follows:
(a) The order alleged to be breached must be clear and unambiguous.
(b) The proper construction of an order is not a matter of fact but a question of law.
(c) It is not necessary for an applicant to approve an alleged contemnor intended to disobey the order.
(d) Deliberate conduct which is in breach of the order will constitute wilful disobedience of the order and therefore civil contempt unless the conduct be casual, accidental, or unintentional.
(e) The facts in issue in a contempt charge must be proved beyond reasonable doubt.

The Situation – Theft of Intellectual Property

An Australian company had an extremely well developed website. Hundreds of hours had gone into its development in optimising design and content to inform and direct new business. A competitor was accused of “cutting and pasting” significant portions of text from the company web site onto their own website.

The Solution

Streeterlaw wrote a letter of demand requesting the removal of the infringing text from the website. Only part of the text was removed in response to the letter of demand. Urgent proceedings were then commenced in the court seeking an injunction requiring the removal of the offending text within two days.

The Defendant provided an “enforceable” undertaking to the Court that they would remove the text. The deadline for removal of the offending text expired without compliance with the enforceable undertaking. Streeterlaw sought enforcement orders and filed an application for contempt joining the Directors of the defendant corporation as a further respondent and defendant to the action.

The Result

The situation was resolved with the offending text being removed. The defendant company paid all legal costs plus a confidential sum for damages.

This is just one example of Streeterlaw's very precise strategy for clients. Protect your intellectual property. Call Streeterlaw for a free no-obligation phone consultation.

The Australian Securities and Investments Commission (ASIC) has found a North Sydney Solicitor guilty of advising eight of his clients engage in activity which breached the Corporations Act. This significant case sends a warning to all business advisors. These two judgments of Acting Justice Windeyer are very important decisions of the Court in considering Section 79 of the Corporations Act 2001 (CTH).

The Facts - ASIC v Somerville & Ors (No 2) [2009] NSWSC 998 & ASIC v Somerville & Ors [2009] NSWSC 934 

The First Defendant was a solicitor practicing in North Sydney.  He was sued together with eight of his clients for alleged “phoenix” activity.  The solicitor had provided similar advice to each of the eight businesses (which were facing insolvency) on separate occasions. 

The effect of the advice and the transactions taken by the companies and directors in reliance on this advice was that the company would sell its “business” to a new entity in consideration for being issued “V Class” shares in the new entity which will be paid by dividends.  The debts and liabilities of the previous company stayed in the old company.  No dividends were ever paid by the new entity back to the old company.

The result of the implementation of this advice was that the purchaser acquired all the assets of the old company free of any of the liabilities of the old company leaving trade creditors, taxation debts and debts for insurance premium to sue an asset-less company.  

The Decision

The solicitor was found to be involved in the Directors’ misconduct.  The Company Directors were found to have breached Sections 181, 182 and 183 Corporations Act 2001 (CTH). In the second judgment the directors unsuccessfully sought to make an application for exoneration under section 1318 on the basis that they relied on their solicitor’s advice and should not be personally liable. The solicitor was disqualified from managing corporations for a period of six years and the other directors (of the subject corporations) were disqualified from managing corporations for a period of 2 years.  

Comment from Mark Streeter Sydney Lawyer

This case stands as a solitary warning to all participants involved in advising debtors in respect of their statutory obligations under the Corporations Act.

When ASIC investigators give you a notice of examination it means they believe you have information which will help them in an investigation. You do not have the "right of silence".

The Situation

A businessman who had had dealings with a particular Company and had purchased a substantial amount of goods and services from it and was then issued a notice under Section 19 of the Australian Securities and Investments Commission Act 2001 (the ‘ASIC Act’) requiring the businessman to appear for examination on oath and answer questions put to him by ASIC investigators.

ASIC Power

ASIC has the power to require a person to attend to be examined if it believes, on reasonably grounds, or suspects or believes that a particular person can give information relevant to a matter that it is investigating under Division 1 of Part 3 of the ASIC Act.

The notice to the proposed person to be examined may require them  to give ASIC all reasonably assistance in connection with their investigation; including answering questions put to them by the ASIC investigators or deliver up documents.

What Protections do you have?

There are limited protections afforded to the examinee.  Unlike the police, you do not have an unqualified “right” to silence.  If you refuse to answer or provide this responsible assistance you may be liable for contempt of ASIC or contempt of the ASIC Act and liable for substantial penalties.  You are permitted to take a lawyer with you to attend the examination and you are permitted to claim the protection under Section 128 of the Evidence Act 1995 (Cth) in respect of privilege against self-incrimination.

Section 68(3) of the ASIC Act limits the scope of the protection against self-incrimination and excludes the proceedings specified in Section 1349 of the Corporations Act 2001.

You may maintain the protection in respect of Solicitor Client Legal Professional Privilege. 

How does The Examination work?

Section 22 provides that the examination is to be in private and often the ASIC investigator will provide a direction that no question, information, document or anything related thereto can be discussed to any other person for a period of in access of a year.  

Evidence will be required to be provided under oath or affirmation and failure to comply without reasonable excuse will expose the person to a penalty of $11,000.00 or 2 years in prison or both. Often there is a record of the examination and Section 24 provides that there may be a transcript and if this transcript is reduced to writing a copy will be provided to the examinee who may be required to read it and sign it.

In some cases you will not even be able to tell your business colleagues why you were required to be out of the office for the day!

Comments from Mark Streeter Sydney Lawyer

There are important lessons to be learnt.

• Treat this examination process very seriously
• If you are in receipt of a notice of examination you should immediately seek independent legal advice

You should not rely this information memorandum as anything but general information.