Accounting firm KPMG has launched a High Court challenge of the corporate regulator’s powers to avoid paying compensation to investors of failed property group Westpoint.

KMPG says powers used by the Australian Securities and Investments Commission (ASIC) Act to pursue KPMG for $200 million in damages are unconstitutional and therefore invalid.

Section 50 of the ASIC Act 2001 allows ASIC to pursue group damage claims against companies. Without Section 50, the regulator would need to launch cases for each individual investor of Westpoint, or more than 200,000 separate cases.

KPMG argues section 50 allows ASIC to take action on behalf of a company without seeking permission first.

“KPMG is testing the constitutional validity of section 50 of the ASIC Act, which has yet to be examined by the High Court of Australia,” the company said in a statement. “KPMG is defending itself and in doing so is seeking to ascertain whether ASIC has the power to take this action.

“The firm wants this constitutional issue to be resolved as soon as possible to avoid public and private resources being unnecessarily expended. KPMG has previously participated with ASIC and others in a mediation process that sought to resolve the Westpoint proceedings.”

ASIC says it will “vigorously defend” KPMG’s challenge.

It claims negligent conduct by KPMG over the three years it audited Westpoint was partly responsible for the investment company’s downfall. Action against KPMG was enacted in the Supreme Court last October, and was transferred to the Federal Court last month.

Last August KPMG agreed to stand down three partners involved in the audits, and gave an undertaking the trio would not practise as registered auditors for a minimum of nine months.

ASIC has so far retrieved $24.5 million for Westpoint investors, including $2.5 million from Glenhurst Corporation and its insurer, QBE, last week.