One enforcement tool of regulators is to obtain a court ordered civil penalty against the respondent company or individual. That then allows the regulator to apply to the court for a ‘pecuniary penalty’ to be imposed. This is ‘a monetary penalty imposed by courts in civil matters where a contravention of a civil penalty provision in an Act has been proven on the balance of probabilities.’[1] Civil penalty regimes may allow the regulator to apply for other kinds of orders such as an order disqualifying an individual from managing a corporation for a period of time, or an order for compensation to be paid. However, a pecuniary penalty is the most common sanction applied.[2]
When such an order is made, the regulator, say ASIC or the ACCC, will invariably issue a media release announcing the victory it has achieved and report its success in its annual report.
Was the penalty in fact paid?
That is all very well but as I have said before, the regulator should also let us know whether the penalty is in fact paid, payable or to be paid. That may only be known in due course but in some cases it will be known when the court imposes the penalty, for example, against a company in liquidation. Such a penalty is not a provable debt[3] hence it is in financial terms an empty gesture, but there are reasons for making such orders in most cases, principally for the purposes of general deterrence.[4]
[Although as to the reality of general deterrence, see by how much could we reduce white collar crime by imposing 30 year jail sentences? “Zero”. – Murrays Legal ]
Certainly, the regulator should not fudge the legal outcome of the order by simply announcing its regulatory success.
As a positive example, the Federal Court imposed record penalties of $438 million against former vocational college Phoenix and its marketing arm CTI in proceedings brought by the ACCC and the Commonwealth. The Court had previously found that Phoenix and CTI had acted unconscionably in its dealings with students and that Phoenix had also failed to properly assess language, literacy, numeracy and computer skills of its many vulnerable and disadvantaged students to determine if they were suitable for the courses.
But as the ACCC did at least explain, Phoenix and CTI were and are in liquidation, and the $438m would not be paid.[5]
In the case of an individual, such an order may not be a provable debt in which case the person remains liable for payment; whether they actually pay is another matter. See Bankruptcy Act s 82(3)(3AA) and see ASIC’s civil penalty regime – an academic review – Murrays Legal.
Transparency is important, certainly from our regulators and courts.
ASIC’s use of civil penalties
Studies of the use of civil penalties are also useful: see ASIC’s civil penalty regime – an academic review – Murrays Legal.
It appears such penalties have been increasingly used by ASIC. In An analysis of the use of civil penalties by the Australian Securities and Investments Commission, Ian Ramsay and Miranda Webster report that only 14 civil penalties were pursued by ASIC in the first 6 years following their introduction in 1993. But over the last three decades, the civil penalty regime of ASIC has significantly expanded, such that civil penalty actions are now a very significant part of ASIC’s enforcement strategy.
In their detailed analysis, to 2022, they studied 159 civil penalty actions undertaken by ASIC that were completed during the 10-year period 2013 to 2022. They report that ASIC has a high success rate in its civil penalty actions, with 86 percent of ASIC’s finalised civil penalty actions being successful. Of these, 65 percent were against companies and 35 percent were against individuals.
Overall, the courts imposed over $600 million in pecuniary penalties between 2013 and 2022, with the total penalties imposed from 2020 to 2022 ($507,648,000) constituting 84 percent of the total pecuniary penalties over the 10-year period. Penalties totalling $8,680,500 were ordered against individuals and $595,881,000 against companies.
(Subsequently, ASIC’s 2023-2024 annual report shows a bit of a slide in these numbers, with its latest civil actions resulting in just over $90 million in court ordered penalties, out of 39 actions, compared to $185.4m the year before (52),[6] and $229.9m in 2021-22).
But nowhere is there reporting as to what extent these moneys were recovered, or irrecoverable because of insolvency or impecuniosity or were delayed in recovery.
While such actions may be brought for the purpose of general deterrence, and to ’send a message’, without expectation of financial recovery, the likelihood of recovery should be at least a factor in bringing proceedings. However, as an example, that likelihood is not referred to in ACCC’s Guidelines on ACCC approach to penalties in competition and consumer law matters,[7] September 2023; rather the expectation is that the company is fully financially resourced. Nor does it feature much in ASIC’s approach to enforcement – Information Sheet 151 (INFO 151).
Perhaps therefore the actual recovery of the pecuniary penalty is not much pursued or considered.
Directors
If the company is in liquidation, perhaps pursuit of the directors is an option, in the same way that the ATO takes direct action against directors for non-payment of the company’s tax. But as one example, referred to earlier, while $438m was ordered to be paid by Phoenix and CTI in liquidation,[8] a particular named company officer was not also sued by the ACCC, despite the Judge finding that his conduct formed an important basis for the company’s liability, about which the Judge expressed “regret”.
There is also the UK finding of a high rate of bankruptcy of directors against whom monetary orders have been made: see Does insolvent trading work? The UK may not think so. – Murrays Legal
Transparency
Ultimately recovery of civil penalties is pursued according to Commonwealth law and guidelines, including as to whether a debt is not economical to pursue, or if it is irrecoverable at law, or if it is written off under other legislation: see ASIC’s civil penalty regime – an academic review – Murrays Legal. In the case of ASIC, $600m is a lot of penalties. The regulators and others should be open as to whether penalties are paid, and, for that matter, as to the costs of their recovery.
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[1] Page 1 of An analysis of the use of civil penalties by the Australian Securities and Investments Commission, by Ian Ramsay and Miranda Webster. Forthcoming in the Federal Law Review, Volume 53, 2025. (Ramsay and Webster). An Analysis of the Use of Civil Penalties by the Australian Securities and Investments Commission by Ian Ramsay, Miranda Webster :: SSRN
[2] Ramsay and Webster page 1.
[3] Corporations Act s 553B
[4] See my Kicking a company when it’s down – a regulatory approach to penalising a company in liquidation[4] — (2007) 8(5) INSLB 90.
[5] Record penalties of $438m ordered against Phoenix Institute and CTI for acting unconscionably and misleading students | ACCC
[6] ASIC says these were higher due to several record penalties awarded by the court.
[7] Guidelines on ACCC approach to penalties in competition and consumer law matters
[8] See “Record penalties” imposed … against insolvent companies – Murrays Legal
