Many practitioners will be aware of the wide power given to regulatory agencies, such as ASIC and the ACCC, to intervene when a person is (or may be) acting in breach of the law. ASIC in particular has wide powers pursuant to s. 1323 and s. 1324 of the Corporations Act 2001 (Cth) (Act) to seek orders, including injunctive relief, in particular circumstances.
What may not be as widely known is that practitioners may be able to use such powers for the benefit of their clients in certain circumstances. These statutory powers can be extremely broad, and can be obtained on an interim or ex parte basis. Practitioners should keep such tools in mind when acting for persons who may be affected by financial misconduct or other possible breaches of the Act.
Section 1324 of the Act provides that where a person is engaging in (or proposing to engage in) conduct that would contravene the Act, the Court may restrain the first-mentioned person from engaging in the conduct and, if desirable, require that person to do any act or thing.
A similarly broad power is given by s 1323 of the Act where a person is under investigation by ASIC, or there is a prosecution or civil proceeding on foot in relation to a contravention of the Act. Section 1323 allows the Court to make a broad range of orders, including freezing assets, appointing a receiver, or restricting a person’s travel.
In each case ASIC is not the only possible applicant for the orders available. A person to whom the respondent is or may be liable to pay money may bring an application pursuant to s 1323. Section 1324 provides that an application under that provision may also be brought by a person whose interests have been, are or would be, affected by the conduct in question.
This article will address the following issues that practitioners should bear in mind when considering whether to make an application pursuant to s 1323 or s 1324 of the Act:
- Who can apply for the orders
- What type of orders can be made
- What discretionary factors do the courts take into account
Who can apply for the orders?
A person can apply for an injunction under s 1324 where their interests are at risk due to another person acting in contravention of the Act. A person who is or may be owed money by another person by reason of a contravention of the Act is entitled to bring an application against the other person pursuant to s 1323.
In the matter of Courtenay House Capital Trading Group Pty Ltd (in liq),1 Black J in the Supreme Court of New South Wales made freezing orders against a number of individuals and associated companies pursuant to s 1323 on the application of a company (in liquidation) claiming to have paid those persons substantially more than had been invested with the company.
A person will generally have standing to bring an injunction under s 1324 if they have an interest beyond the mere interest of a member of the public.2 It is not necessary for the affected person to suffer a special injury or have their personal rights of a proprietary nature affected.3
Similarly, a creditor or member of a company will often have standing to apply for an injunction.4 Sub-section 1324(1A) non-exhaustively specifies circumstances in which the interests of a creditor of a company would be affected. These include where:
- the insolvency of the company is an element of the contravention
- a share buy-back prejudices a company’s ability to pay creditors in contravention of s 257A(1)(a)
- a share capital reduction prejudices a company’s ability to pay creditors or fails the fair and reasonable test in contravention of s 256B(1)
- financial assistance for share acquisition would prejudice the company or shareholders, or the company’s ability to pay creditors in contravention of s 260A(1)(a).
What type of orders can be made?
Section 1323 allows the Court to make a wide range of orders, including:
- orders preventing persons holding money or other property on behalf of a “relevant person” (ie the person the subject of the order) from transferring the money or property to another person
- the appointment of receivers
- orders restricting the travel of the “relevant person”, including orders requiring the person to deliver up their passport to the Court.
Section 1324(1) provides a broad power for the Court to restrain a person from engaging in conduct, and require that person to do any act or thing. Types of injunctions that can be sought include:
- restraining a director acting in breach of their directors’ duties;5
- preventing a takeover that dilutes the creditor’s voting rights and breaches takeover rules;6
- blocking a corporate sale of interests or a share buy-back agreement;7 and
- restraining the movement of assets of a company.8
In BPESAM IV M Ltd v DRA Global Ltd (2020) 381 ALR 252, shareholders of a company sought an injunction to restrain the company from acting upon a resolution supporting a share buy-back agreement. The shareholders alleged that they had been provided inaccurate financial information prior to their approval of the resolution and that conditions precedent to the share buy-back had been inappropriately waived by the respondent directors. The Federal Court granted a permanent injunction in favour of the applicants, finding that the financial statements disclosed to shareholders had been misleading and deceptive.
Where the Court has power under s 1324 to grant an injunction, the Court also has power to order that person to pay damages to any other person (either in addition to or substitution for the grant of the injunction).9 However, an award of damages will not be permitted where the person’s interests were affected by a contravention of a civil penalty provision.10
What discretionary factors will the Court take into account?
The court’s power to grant an injunction under each of s 1323 and s 1324 is discretionary. The jurisdiction which the court exercises under those provisions is a statutory jurisdiction, not the court’s traditional equity jurisdiction. Therefore, it is not to be confined by the considerations that would be applicable if it were exercising its traditional equity jurisdiction.11
Noting that the statutory jurisdiction to grant an injunction is essentially a public interest provision, a key factor the court will consider is whether it is in the public interest for the injunction to be granted.12 The court will consider whether the injunction would have some utility or serve some purpose within the contemplation of the Corporations Act, and whether on the balance of convenience the injunction ought to be granted.13
The court must also be satisfied, in the case of s 1324, that there will be an actual or proposed contravention of the Corporations Act. Section 1323 applies if an investigation is being carried out by ASIC of an act or omission that may constitute a contravention of the Act (or if a relevant prosecution or civil proceeding has begun).
If the ground relied on in an application for an injunction is conduct that would constitute a contravention of one of the following provisions, then the onus is on the contravening person to disprove that their conduct constitutes a contravention of the Corporations Act:14
- s 256B(1)(a) (fair and reasonable test for share capital reduction)
- s 257A (share buy-back not to prejudice ability to pay creditors)
- s 260A(1)(a) (financial assistance for share acquisition not to prejudice company or shareholders or ability to pay creditors),
In these circumstances, the defendant will be required to disprove each element of “the conduct” that “would constitute” a contravention of the specified section of the Act.15
However, for applications relating to other contraventions of the Act, it will be necessary for the applicant to demonstrate proof of an actual or proposed contravention of the Corporations Act.16 An injunction may be granted under s 1324 irrespective of whether the contravening conduct is ongoing or whether there is an imminent danger of substantial damage.17
It is well known that provisions such as s 1323 and s 1324 provide regulators with useful tools when dealing with actual or potential breaches of the Act.
However, what is less well understood is that those same provisions can also, in some circumstances, be called upon by individuals and others who may be affected by potential breaches of the Act. They may be called on in aid of securing assets claimed by the affected (or “aggrieved”) persons, or in preventing dissipation of assets or a relevant person leaving the jurisdiction.
The broad powers provided to the Court in restraining potential defendants should be borne in mind by practitioners, and consideration given to their use in appropriate cases.
Footnotes
1 [2018] NSWSC 1918.
2 Broken Hill Proprietary Company Ltd v Bell Resources Ltd (1984) 8 ACLR 609.
3 Ibid.
4 Airpeak Pty Ltd v Jetstream Aircraft Ltd (1997) 73 FCR 161; Allen v Atalay (1993) 11 ACSR 753 at 757–758; Phoenix Constructions Queensland Pty Ltd v Coastline Constructions Pty Ltd [2011] QSC 167; Huang v PEEQ Global Education Pty Ltd, Re PEEQ Global Education Pty Ltd (2019) 136 ACSR 109 at [18].
5 Allen v Atalay (1993) 11 ACSR 753; Airpeak Pty Ltd v Jetstream Aircraft Ltd (1997) 73 FCR 161.
6 Emlen Pty Ltd v St Barbara Mines Ltd (1997) 24 ACSR 303.
7 BPESAM IV M Ltd v DRA Global Ltd (2020) 381 ALR 252; Eastern Petroleum Australia Ltd v Horseshoe Lights Gold Pty Ltd (1985) 3 ACLC 594.
8 Airpeak Pty Ltd v Jetstream Aircraft Ltd (1997) 73 FCR 161; Oates v Hawkins [2010] NSWSC 491.
9 Corporations Act 2001 (Cth) s 1324(10).
10 McCracken v Phoenix Constructions (Qld) Pty Ltd [2013] 2 Qd R 27.
11 ASIC v Mauer-Swisse Securities Ltd (2002) 42 ACSR 605; [2002] NSWSC 741 at [36] (Palmer J), applied in ASIC v Financial Circle Pty Ltd (2018) 353 ALR 137 at [11].
12 Re Idylic Solutions Pty Ltd [2013] NSWSC 106 at [69].
13 ASIC v Mauer-Swisse Securities Ltd (2002) 42 ACSR 605; [2002] NSWSC 741 at [36] (Palmer J), applied in ASIC v Financial Circle Pty Ltd (2018) 353 ALR 137 at [11].
14 Corporations Act 2001 (Cth) s 1324(1B); Connective Services Pty Ltd v Slea Pty Ltd (2019) 267 CLR 461 at [28].
15 Connective Services Pty Ltd v Slea Pty Ltd (2019) 267 CLR 461 at [28].
16 Mawhinney v Australian Securities and Investments Commission (2022) 405 ALR 292.
17 Corporations Act 2001 (Cth) s 1324(6), (7).
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