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ASIC to defend itself against KMPG action in High Court

The corporate regulator says it will vigorously defend itself in the constitutional challenge KPMG has initiated in the High Court.

user iconKate Gibbs 20 May 2010 The Bar
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THE corporate regulator says it will vigorously defend the constitutional challenge KPMG has initiated in the High Court against itself and the Commonwealth.

KPMG is embarking on the action in an effort to stop ASIC in its bid to obtain compensation against KPMG for Westpoint investors.

The Federal Court in February approved a $13.5 million settlement in the major ASIC-backed class action by Westpoint investors.


ASIC said at the time that the settlement allowed approximately 525 eligible investors to submit a proof of claim to participate in the distribution of the $13.5 million. It was estimated that Group Members should ultimately recover approximately 71 cents for every dollar they invested in the Mezzanine Notes.

The investors in Westpoint-related financial products had an outstanding total investment of $388m when the group collapsed.

ASIC is claiming negligent conduct by KMPG for the audits of financial accounts of various Westpoint companies for 2002, 2003 and 2004. It says KPMG should have notified ASIC that it had grounds to suspect that breaches of the Corporations Act were taking place within the Westpoint Group, including breaches of director’s duties and insolvent trading.

But KPMG is now seeking a declaration that section 50 of the ASIC Act is unconstitutional. It says that, as far as section 50 empowers ASIC to begin and carry a proceeding in the name of a company, it affects an acquisition of property otherwise then on just terms contrary to the provisions of section 51 of the Constitution, and is therefore invalid.

ASIC, however, claims that section 50, in empowering it to bring proceedings for the benefit of investors who have suffered loss and might otherwise not be compensation, is valid.

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