The former speaker Tony Smith has urged Josh Frydenberg to allow the corporate regulator to decide claims against itself, after investors had no one to resolve their bid for compensation over a failed retirement village empire.
Smith, acting in his capacity as chair of a parliamentary committee with oversight of the Australian Securities and Investments Commission (Asic), also criticised Treasury’s position that the treasurer could not decide claims against Asic under a government program known as the scheme for compensation for detriment caused by defective administration (CDDA).
The issue was brought to the parliamentary joint committee on corporations and financial services by the Labor MP Julian Hill after Guardian Australia revealed that investors seeking $200m in compensation from Asic over the collapse of retirement village group Prime Trust were unable to get either Asic or Treasury to decide their claim.
Asic said its authority to decide CDDA claims lapsed in 2015, while Treasury claimed that Frydenberg could not decide claims against Asic because it would interfere with the regulator’s operational independence.
But in letter to Frydenberg on a 23 March, Smith said the idea the treasurer was barred from deciding CDDA claims against Asic was “a change in position which contradicts the practice in previous years”.
“The committee also notes that Treasury’s advice that the treasurer is unable to decide claims against Asic under the CDDA scheme has failed to adequately address the question as to why the treasurer cannot do so and simply pay any compensation from consolidated revenue, thus avoiding a direction to Asic to pay compensation,” Smith said.
He said that the committee “considers that it is desirable as a matter of policy and practice in the future that Asic can be authorised to receive and consider claims under the CDDA scheme”.
“Accordingly, the committee recommends that the government make such legislative or policy changes as are necessary to overcome any barriers to any treasurer in the future authorising Asic to determine claims under the CDDA scheme.”
But any change to the rules would not be retrospective, leaving the Prime Trust investors in the hands of the treasurer.
“The treasurer’s claim that he cannot consider the Prime Trust claim under the CDDA scheme is dubious and he does appear to have the power,” Hill said.
“Nonetheless, the next treasurer should act to remove any doubt or ambiguity and ensure that Asic, the corporate regulator, is subject to the CDDA scheme like any other public entity, and accountable for their performance in the future.”
The investors, represented by the Prime Trust Action Group, lodged their CDDA claim with Asic more than three years ago but it has not progressed due to the legal catch-22.
They claimed Asic erred because it granted a financial services license to the company which controlled Prime Trust, Australian Property Custodian Holdings.
Asic should not have trusted that Prime Trust’s founder, Bill Lewski, possessed the good fame and character required to be named a key person on the licence, the investors said in their CDDA claim.
Prime Trust collapsed in 2010, taking with it $550m invested by more than 9,000 unit holders and sparking years of litigation involving Lewski, other directors, investors and the corporate regulator.
In October 2019 the full federal court banned Lewski from running a company for 15 years and fined him $230,000.
Steve O’Reilly, a representative for Prime Trust Action Group, said that Asic demanded accountability from participants in the financial services industry but “the treasurer’s failure to authorise Asic to determine CDDA claims provides an opportunity for Asic to avoid accountability”.
“As the regulator of the financial services industry, and as an agency which was heavily criticised by the Hayne royal commission, if Asic is not accountable, then investors can simply have no trust in this organisation,” O’Reilly said.
“We would welcome a scenario where Asic and Treasury show leadership and welcome accountability and scrutiny, especially when such scrutiny comes from the very investors that Asic claims to represent and protect.”
A spokesperson for Frydenberg did not answer Guardian Australia’s questions but repeated earlier statements that Asic’s governing laws prohibited the treasurer from deciding CDDA claims against it.
“However, investors in the Prime Trust are able to seek compensation by making an application to the Department of Finance for an act of grace payment under the Public Governance, Performance and Accountability Act 2013, and are able to achieve the same practical outcome as could have been achieved under the CDDA scheme,” the spokesperson said.
