IN SUMMARY:
A recent High Court decision could have a ripple effect across the financial services space.
Professional advisers should be aware of the potential adverse consequences for them and for the directors and employees of a client company which breaches the financial services laws.
There are a number of different potential consequences under the Corporations Act (and other legislation) if someone breaches the financial services laws and regulations.
But how wide can the regulatory net be cast? If a company contravenes the financial services laws, then could there also be adverse consequences for its professional advisers, directors and employees?
A recent High Court decision concerning the Australian Consumer Law and funding under a Federal Government vocational education scheme is likely to inform the answers to those questions.
Even though the decision specifically related to the Australian Consumer Law, it is probable that the principles decided in the case could be applied in the context of the financial services regime. For example, a director of a company involved in a breach of the financial services laws (for say raising money without an AFSL) could end up facing sanctions, even though the director didn’t realise the company’s actions were illegal. It is possible the company’s professional advisers (accountants or lawyers) could also be implicated.
Professional advisers should be aware of the potential adverse consequences for them and for the directors and employees of a client company which breaches the financial services laws.
THE CASE
The ACCC was successful in legal action against an education provider, claiming the company was involved in unconscionable conduct in relation to procuring unsuitable students for its courses. The ACCC also had success in obtaining a finding that the company’s COO had been involved in the unconscionable conduct of the company.
An appeals process led to the High Court, where the Court found in favour of the ACCC.
Although the case did not relate to the Corporations Act or concern the provision of financial services, the findings in relation to the COO’s liability are of great interest, and could quite likely impact a range of laws where accessory liability might come into play.
This is because the Court had to consider when a person is “knowingly concerned” in another person’s (or entity’s) conduct.
“KNOWINGLY CONCERNED”
The concept of being “knowingly concerned” (for example in a breach of law) is one which appears in a lot of legislation. ASIC has power to make banning orders against a person who has been involved in the contravention of a financial services law; and under the Corporations Act, a person can be deemed to have been “involved” in a contravention if they have been “…in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention”.
Another example is in the area of misleading or deceptive conduct in relation to a financial product or service. A person who suffers loss as a result of that misleading or deceptive conduct can take action to recover the loss directly against any other person who was involved in the contravention.
THE DECISION
The High Court decided that the COO was knowingly concerned in or party to his company’s contravention of the Australian Consumer Law, because he had knowledge of the essential circumstances, matters or facts that constituted the contravention.
This means a person could be found to have been knowingly involved in a contravention, even though they might not have known that what happened was actually in breach of the law.
