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Chapter 1
Introduction
The referral
1.1
On 20
September 2012 the House of Representatives referred the Personal Liability for
Corporate Fault Reform Bill 2012 ('the bill') to the Parliamentary Joint
Committee on Corporations and Financial Services ('the committee') for inquiry
and report. The committee set a reporting date of 29 October 2012.
Conduct of the inquiry
1.2
Details of
the committee's inquiry were made available on the committee's website. The
committee received four submissions, which are listed in Appendix 1.
1.3
The committee
held a public hearing in Sydney on 22 October 2012 and heard from Treasury and
the Department of Finance and Deregulation as well as industry representatives
and involved stakeholders. Appendix 2 lists the names of the witnesses who
appeared.
1.4
The committee
thanks the organisations and individuals who contributed to the inquiry.
Context of the inquiry
1.5
The bill
implements the Council of Australian Governments' (COAG) Directors' Liability
reform, which aims to harmonise the imposition of personal criminal liability
for corporate fault across Australian jurisdictions. In the Minister's Second Reading
Speech, the Parliamentary Secretary to the Treasurer, the Hon. Bernie Ripoll MP
stated that:
This
reform commits all jurisdictions to establishing a nationally consistent and
principled approach to the imposition of personal criminal liability on
directors and corporate officers for corporate fault. The initiative aims to
remove regulatory burdens on directors and corporate officers that cannot be
justified on public policy grounds, and to minimise inconsistency between
Australian jurisdictions in the way personal liability for corporate fault is
imposed in Australian laws.[1]
1.6
The
Directors' Liability Reform Project forms part of the COAG National
Partnership Agreement to Deliver a Seamless National Economy (NSE NP) which
was originally announced on 29 November 2008. The reform is the culmination of
earlier reviews that had recommended directors' liability reform in light of an
'increasing tendency for personal liability provisions to be introduced in
Australian law as a matter of course and without robust justification'.[2]
The Parliamentary Secretary to the Treasurer recently explained that such
provisions could operate in a manner that was:
- unfair in the
sense that an individual could face a criminal penalty for a breach of the law
by a corporation when the individual had no knowledge of or control over the
breach;
- inefficient
to the extent that company directors could face excessive risk of personal
criminal liability, which may detract from their strategic and entrepreneurial
responsibilities.
Further,
inconsistencies in the standards of personal responsibility both within and
across jurisdictions were resulting in undue complexity and a lack of clarity
about responsibilities and requirements for compliance.[3]
Proposed amendments
1.7
The bill
proposes to amend a number of Commonwealth Acts to:
- remove
personal criminal liability for corporate fault where such liability is not
justified;
- remove the
burden of proof on defendants to establish a defence to a charge;
- replace
personal criminal liability for corporate fault with civil liability where a
non-criminal penalty is appropriate; and
- clarify the
circumstances where personal criminal liability is justified.[4]
1.8
In relation
to personal criminal liability, the bill seeks to ensure that a person is only
made criminally liable for the fault of a corporation where it is fair and
reasonable to do so after taking into account the following factors:
-
the nature of
the harm that the crime would cause;
-
the extent to
which corporate officers can directly control the relevant corporate conduct;
and
- the
effectiveness of other forms of penalties and enforcement against the
corporation alone.[5]
1.9
The
amendments proposed to be made by the bill apply the principles across legislation
administered by various Commonwealth portfolios, including the Corporations
Act 2001, Corporations (Aboriginal and Torres Strait Islander) Act 2006,
Insurance Contracts Act 1984, Foreign Acquisitions and Takeovers Act 1975,
Income Tax Assessment Act 1936, Taxation Administration Act 1953,
Superannuation Guarantee (Administration) Act 1992, Polled Development Funds
Act 1992, Therapeutic Goods Act 1989, Health Insurance Act 1973, Veterans'
Entitlements Act 1986, Classification (Publications, Films and Computer Games)
Act 1995, National Measurement Act 1960 and the National Vocational
Education and Training Regulator Act 2011.
1.10
Once
implemented by all jurisdictions (i.e. the Commonwealth, states and
territories), the reform is expected to 'significantly reduce the overall
number of laws containing directors' liability provisions nationally' which
will in turn, reduce the 'regulatory compliance burden on businesses'. At the
same time, the reform retains laws that are 'necessary to ensure that company
directors and other corporate officers take reasonable steps to ensure that
their companies comply with their obligations under the law'. In terms of the
overall effect of the bill, the Parliamentary Secretary to the Treasurer held
that:
This is
an important red tape reduction that will benefit all Australian businesses. In
particular, the application of a consistent set of principles by the
Commonwealth and all states and territories will provide greater certainty for
companies that are subject to both Commonwealth and state or territory laws,
and those that trade in multiple jurisdictions, thus helping to promote a more
seamless national economy.[6]
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