By Eric Johnston and Adele Ferguson
AUDIT firm KPMG will launch a High Court appeal as it tries to block the Australian Securities and Investments Commission's efforts to secure a $200 million compensation payout on behalf of investors caught out by the collapsed Westpoint empire.
In a high-stakes case, the audit firm will argue the corporate watchdog is overstepping its authority in claiming the funds for investors exposed to the failed property schemes.
The case is also shaping up as a test of ASIC's ability to step in and claim compensation on behalf of investors from audit firms. Normally it is companies or liquidators that reclaim funds from an auditor for alleged negligence. In late 2008, ASIC launched a lawsuit claiming $200 million in compensation from KPMG for alleged negligent auditing of Westpoint's accounts.
ASIC also claims KPMG should have notified the regulator it had grounds to suspect breaches of the Corporations Act in the Westpoint Group, including breaches of directors' duties and laws against insolvent trading.
ASIC and KPMG entered into mediation last year over compensation but failed to reach an agreement. ASIC said yesterday it would vigorously defend the High Court action. The Commonwealth has also been named as a party to the case.
KPMG's case will argue that section 50 of the ASIC Act is unconstitutional. KPMG claims that while section 50 allows ASIC to launch legal proceedings against a company, it could result in property being acquired on unjust terms. KPMG believes this breaches section 51 of the constitution, which guarantees just compensation for property rights.
''KPMG is defending itself and in doing so is seeking to ascertain whether ASIC has the power to take this action,'' the accounting firm said in a statement.
ASIC warned that if KPMG succeeded, it could not collect compensation from the accounting firm on behalf of investors exposed to the Westpoint scheme.
The $200 million is by far the largest proportion of compensation being claimed by ASIC, covering up to 80 per cent of investors.
ASIC has finalised nearly $60 million in compensation settlements from several financial advisory firms involved in selling Westpoint products.
This week ASIC reached a settlement with collapsed financial planning group Glenhurst Corp and its insurer, QBE Australia, for $2.5 million. Other claims include $5.9 million from Professional Investment Services and $2.6 million from Bongiorno Financial Advisers.