Rob Starr, Big4.com
19 August 2010
(blog) Earlier we had blogged about how KPMG Australia was going to fight its case against Australian Securities and Investments Commission (ASIC) in the Australian High Court arguing that the case against it was unconstitutional under Australian law (http://bigfouralumni.blogspot.com/2010/05/kpmg-goes-to-high-court-down-under.html)
We said in that blog post…
“From our viewpoint, this is an interesting situation, in that a regulatory authority is using its own platform and powers to start a case against a defendant on grounds of negligence on behalf of thousands of plaintiffs, and is justified in doing so under the purview of its own governing act. However, that its seeking property as damages (in this case A$200 million) from the defendant is seen as unconstitutional is a technical point that can be best judged by experts in Australian constitutional law. We take it that KPMG is objecting to the ASIC claiming money from the firm, as Section 51 of the Australian Constitution does say that only the Australian Parliament has this power.
More so, we are fascinated by the length that KPMG will go, in reaching out to the highest court in the land to defend its position, and challenging on a constitutional basis the authority of the governing investment authority of the country.
We have only touched the surface of a suit that is likely to be very complex and precedent setting. If KPMG wins, clearly ASIC will not be able to get the money it is seeking, but will it also lead to a weakening of its powers as it potentially goes against the country’s constitution.”
Now it appears that things are likely to get even more sticky for the Australian Securities and Investments Commission (ASIC) with a new report that states it claims to suppress a critical document dealing with the state of a collapsed property group, Westpoint, to the tune of $300 million.
The document was prepared by Deloitte before the collapse of Westpoint back in 1996 where it showed that Westpoint was arguably solvent. Then ASIC did take the step of declaring Westpoint insolvent, and was trying hard not to make the Deloitte report public as it potentially underscored ASIC’s position.
At the Victorian Federal Court, Justice Ray Finkelstein made draft orders that the Deloitte report into Westpoint’s solvency was now in the public domain and should be released.
The suppression and then any future release of the documents are of course going to lead to big questions about the management at ASIC since the reports were not included in the Federal Court wind-up application. And of course, to make matters even more complicated, KPMG is also being sued by ASIC for negligence as Westpoint’s auditors.
Westpoint’s founder Norm Carey knows how this game is played and has a cross-claim against ASIC for actually causing the downfall of his company.
And to add to all of this, the political angle, with Australian Senator Nick Xenophon making a statement that says, “ASIC timed their action to prevent the rollovers and repayments proceeding and that led to a chain of events that led to the collapse of this group when a solvency review found that the group was still solvent at that time.”
One wild card is Deloitte’s reaction on the release of its report, and whether it has any case or argument to suppress or release it depending on the firm’s best interest – and that is still not known yet.
This case seems to have many ingredients of a modern-day court thriller with all its twists and turns, and we’ll try to keep up as much as possible in our blog posts. (blog)