Bills Digest no. 85 2007–08
Commonwealth Authorities and Companies Amendment Bill 2008
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Commonwealth
Authorities and Companies Amendment Bill 2008
Date introduced: 13 February 2008
House: House
of Representatives
Portfolio: Finance and Deregulation
Commencement: The operational provisions commence on various dates, but the
majority commence on either Royal Assent or 1 July 2008, whichever
is the latest date.
Links: The relevant links to the Bill,
Explanatory Memorandum and second reading speech can be accessed via BillsNet,
which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is at http://www.comlaw.gov.au/.
To amend the Commonwealth Authorities and Companies
Act 1997 to, amongst other things:
- overhaul the process by which relevant Commonwealth bodies may be
notified that they must comply with specified government policies
- introduce new, and revise existing, penalties relating to contraventions
of various reporting and accountability obligations, and
- bring various provisions into line with equivalent provisions in the
Corporations Act 2001.
The main financial reporting and
related accountability obligations of Commonwealth government bodies are
set out in either the Financial Management and Accountability Act 1997
(FMA Act) or the Commonwealth Authorities and Companies Act 1997
(CAC Act).
Commonwealth Government bodies regulated
under the FMA Act are financially and legally part of the Commonwealth,
holding public money that can only be spent under the authority of an
appropriation from the Australian Parliament. Such bodies are generally
headed by a Chief Executive.
By comparison, bodies that are both legally and financially separate
from the Commonwealth are regulated by the CAC Act. Such bodies usually
have a governing board. Unlike bodies subject to the FMA Act, CAC Act
bodies are generally not required to comply with general government policies
unless specifically required to do so under either:
- a direction from the responsible Minister (where this is possible
under the relevant enabling legislation or a company’s constitution),
or
- a notice provided about a ‘general policy of the Australian Government’
under existing sections 28 or 43 of the CAC Act.
The range of Commonwealth Government
bodies governed by the CAC and FMA Acts can be accessed via a list
held by the Department of Finance and Deregulation.
According the Bill’s second reading speech:
The amendments in the bill are primarily intended to
improve accountability and transparency arrangements for Commonwealth
authorities and Commonwealth companies. The amendments in the bill also
improve the alignment of the CAC Act with equivalent provisions in the
Corporations Act and update the CAC Act based on experience from over
10 years of operation.[1]
The CAC Act was reviewed by the Parliament Joint Committee of Public
Accounts and Audit (JCPAA) during 1999-2000. The terms of reference for
that inquiry were wide-ranging, and included accountability issues. The
Committee’s report, Review of the
Financial Management and Accountability Act 1997 and the Commonwealth
Authorities and Companies Act 1997, was released in March 2000.
Subsequently, the Government
released an exposure draft of the Financial Framework Legislation Amendment
Bill in 2003, which was the subject of a further JCPAA report.
However that Bill, which was passed by Parliament in 2005, mainly concerned
the FMA Act rather than the CAC Act.[2] The amendments proposed by the current Bill do
not appear to have derived from any formal review process.[3]
The Senate Standing Committee for the Scrutiny of Bills (the Committee)
reviewed the Bill in its report
tabled on 12 March 2008.[4]
However, it did not make any adverse comments on the Bill or request any
advice from the relevant Minister.
The Bill does not appear to have attracted
any significant public or political comment.
The Explanatory Memorandum states that the Bill will have no financial
impact.[5]
The CAC Act sets out various duties and obligations that officers of
Commonwealth authorities and bodies must discharge. In some cases, a failure
to do so may constitute an offence and carry significant criminal sanctions.
Items 8 and 9 change part of the existing definition of ‘officer’.
They do so by replacing the current concept of an officer as including
a ‘person who is concerned in, or takes part in, the management of the
authority’ with the concept of ‘senior manager’. The term ‘senior manger’
is imported from the Corporations Act 2001 (the Corporations Act).
In least in some cases, this would appear to widen the range of persons
who might be subject to officers duties and obligations to include not
only persons directly involved in the management and decision-making process
of the relevant body but also persons who have the ‘capacity to affect
significantly the authority’s financial standing’.
Division 2 of Part 3 places various obligations on directors of a Commonwealth
authority. Among them is the requirement to prepare an annual report for
presentation to the relevant Minister. Existing section 11 provides that
directors may be subject to civil penalties if they contravene their reporting
obligations. Item 18 amends section 11 to include a criminal offence
where a contravention of any of the directors reporting obligations rules
is ‘dishonest’.[6] The maximum
penalty in such a case is a fine of 2,000 penalty units ($220,000) or
five years imprisonment, or both.
The concept of a dishonest contravention is also contained in item 24,
which amends section 20. Section 20, which deals with an officer’s obligations
with respect to the authority’s accounting records, currently contains
a criminal office containing a penalty of six months imprisonment. Item
24 reduces the ‘non-dishonest’ contravention to a civil penalty offence,
but a dishonest contravention carries a maximum penalty of a fine of 2,000
penalty units or five years imprisonment, or both.
Existing section 27D deals with the circumstances under which a director
of a Commonwealth authority may reasonably rely on information or advice
provided by others in discharging their duties or obligations. One of
the conditions that must be fulfilled is that the director must first
make ‘proper inquiry’ about the information or advice ‘if the circumstances
indicated the need for inquiry’: existing subparagraph 27D(b)(ii). That
is, the director cannot necessarily accept the information or advice on
face value. Item 33 replaces existing subparagraph 27D(b)(ii) with
the same language used in the Corporations Act. Thus the proposed condition
is that the director can only place reliance ‘after making an independent
assessment of the information or advice, having regard to the director’s
knowledge of the authority and the complexity of the structure and operations
of the authority’. So for example if the Director has only modest understanding
of relevant aspects of the authority, they may need to seek substantial
independent assessment of the information or advice.
Subject to some exceptions, existing subsection 27F(1) requires a director
of a Commonwealth authority to disclose any material personal interests
in a matter relevant to the authority’s affairs. However, the CAC Act
does not contain any penalty for breach of this obligation[7] – in comparison the equivalent Corporations Act
provision (section 191) carries a maximum penalty of 10 penalty units
($1,100) or imprisonment for 3 months, or both. That provision is also
a strict liability offence. Items 34 and 35 make a breach
of subsection 27F(1) a strict liability offence, carrying a maximum penalty
of 10 penalty units, but does not add the penalty of imprisonment. The
Explanatory Memorandum comments in relation to these items that:
If ultimately penalties for these provisions under the
CAC Act differ from their Corporations Act equivalent, further consideration
may be given to amending those penalty provisions.[8]
It is not clear whether such ‘further consideration’ means that that the
proposed CAC Act penalty be expanded to include possible prison time or
whether this element might be dropped from the Corporations Act.
Existing subsection 27J(1) also contains restrictions on a director who
has a material person interest in a matter from being present at a director’s
meeting at which that matter is being discussed, or voted on. These restrictions
can be waived in certain circumstances. Items 37 and 38
introduce similar Corporations Act ‘consistency’ provisions as items
34 and 35 discussed above. In this case, the proposed penalty
for contravention is 5 penalty units ($550).
Items 40, 50 and 53 contain some of the key amendments in the Bill
– those introducing the concept of ‘General Policy Orders’ or GPOs. These
GPOs are to replace the concept of ‘general policies of the Australian
government’ currently in the CAC Act. The Explanatory Memorandum comments
that:
A general policy of the Australian government is a policy
that is made by the government, usually by Cabinet or senior ministers,
that applies to all or most bodies subject to the FMA Act and CAC Act.
A policy Minister oversees the development and administration of the
policy. [9]
The CAC Act currently allows the particular Minister responsible for the
authority or company to notify the directors of any general policies that
are to apply to the body.[10]
In relation to companies, the provisions only apply to companies that
are ‘wholly-owned’ by the Commonwealth. The Minister must consult the
directors before such notification. The directors must ensure that the
authority or company complies with the policies, and to the extent practical,
that subsidiaries of the authority or company likewise comply.
Under the proposed changes, GPOs are made only by the Finance Minister via
legislative instrument and thus must be both tabled in Parliament and
placed on the Federal Register of Legislative Instruments. However, proposed
subsection 48A(5) (item 53) provides they are not disallowable,
nor subject to standard sunsetting provisions under the Legislative
Instruments Act 2003.
The GPOs may be expressed to apply to all authorities or companies, or only
specified ones, or specified classes of authorities or companies. They
may also provide that only particular parts of the GPOs apply to specified
authorities, companies or classes of these. Before making a GPO, the Finance
Minister must be satisfied that the Minister(s) responsible for the authorities
and companies to which the GPO will apply have consulted the Chair and/or
directors of those authorities and companies on the application of the
policy. Once the GPO is made, the Directors have the same duty to ensure
compliance as is presently the case under the CAC Act.
The Explanatory Memorandum comments:
These changes to the notification of general policies
of the Australian government are aimed at improving efficiency and transparency
in the way general policies are notified, through reducing the number
of letters involved in the process and making it easier to identify
what policies have been applied to Commonwealth authorities and wholly-owned
Commonwealth companies. The amendments only change the notification
process and would not affect the underlying general policies of government.[11]
Item 41 inserts proposed section 28A to allow authorities
to use credit cards and credit vouchers. This regularises and clarifies
current practices and is consistent with similar provisions in the FMA
Act. Item 42 inserts proposed section 28B, which contains
a criminal offence for misuse of credit cards and credit vouchers. Existing
section 60 of the FMA Act contains a similar provision. The maximum penalty
is seven years imprisonment.
Existing section 34 defines a Commonwealth company as one in which the Commonwealth
has a ‘controlling interest’. Item 44 amends this definition to
a company which the Commonwealth ‘controls’, and defines what ‘control’
means. This brings it into line with the equivalent provision in the Corporations
Act (section 46). The Commonwealth will be deemed to control a company
if:
- it controls the composition of the company’s board; or
- it is in a position to cast, or control the casting of, the majority
of votes that may be cast at a meeting of members; or
- it holds a majority of the share capital in the company (excluding
any part of the issued share capital that carries no right to participate,
beyond a specified amount, in a distribution of either profits or capital).
The change will widen the range of companies that fall within the meaning
of Commonwealth company and thus be subject to the CAC Act.
Existing section 36 requires a Commonwealth company to give the responsible
Minister an annual report. Failure to do so within the required timeframe
renders the company liable to a penalty of 50 penalty units. Item 46
amends this by providing that a company director, rather than the company,
is liable for the offence if they either ‘cause’ the contravention of
the reporting obligation or fail to take reasonable steps to secure compliance
with it. The maximum penalty is 2,000 penalty units, or if the contravention
is dishonest, five years imprisonment. Again the Explanatory Memorandum
comments that this is to bring the CAC Act into line with the Corporations
Act.[12]
Existing Schedule 2 of the CAC Act sets out how the penalties for contravening
the Act’s civil penalty provisions are enforced. Items 58-66 insert
various references into Schedule 2 to cover the new civil penalty provisions
inserted into the CAC Act by the Bill.
Angus Martyn
13 March 2008
Bills Digest Service
Parliamentary Library
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