On 27 January 2012, the Government announced the release of the first tranche of proposed reforms to laws imposing personal liability for corporate offences. The exposure draft of the Personal Liability for Corporate Fault Reform Bill seeks to amend a number of Commonwealth Acts that impose personal liability on officers for offences committed by corporations.
Background to the Personal Liability for Corporate Fault Reform Bill 2012
The exposure draft of the Personal Liability for Corporate Fault Reform Bill 2012 (Bill) is the first tranche of reforms that the Government is proposing in relation to the personal liability of company officers. These reforms are one of 27 deregulation priorities identified by the Council of Australian Governments (COAG) in 2009 and are intended to harmonise the imposition of personal criminal liability for corporate wrongs in accordance with stated principles (see below).
The amendments proposed by the Bill are limited. All relate to derivative liability imposed on directors following an offence by their company, even where they may not be aware or able to prevent the commission of the offence. The amendments do not address accessorial liability - that is, an officer’s liability for breaches of law by a company where the officer is an accessory to, or otherwise involved in, the breach. The Government proposes to release another draft bill in February/March 2012 which it says will contain all proposed amendments on directors’ liability. We await the next tranche with interest.
The draft Bill can be accessed here. The explanatory document for the draft Bill can be accessed here.
What are the proposed amendments to the Corporations Act?
The amendments to the Corporations Act proposed by the Bill are broadly as follows:
Liability of company secretaries |
Section 188 currently imposes liability on company secretaries for a company’s breach of specified sections of the Corporations Act relating to administrative requirements.1 The Bill will amend this section to make it a civil penalty provision, rather than an offence provision.
The Bill also amends section 188 to impose liability on officers and employees if they are involved in a company’s breach of section 1302 (location of company registers). Section 1302 will be amended to clarify the change.
Section 1317G will be amended to allow for a lighter penalty to be imposed for liability under section 188. |
|---|
Liability for breaches of duty by responsible entities of registered schemes |
The current section 601FC(6) imposes personal liability on individuals for intentional or reckless involvement in the breach of specified duties owed by responsible entities of registered managed investment schemes. The Bill will repeal this sub-section, however liability may still arise under the legal principles governing accessorial liability and section 601FC(5) will remain which imposes liability on persons involved in a responsible entity’s breach of duty. |
|---|
Increase in penalties |
Schedule 3 of the Corporations Act, which sets out the maximum penalties available for breaches of specified provisions, will be amended to increase the maximum penalty for certain offences.
For example, the maximum penalty for failing to notify ASIC of the appointment or retirement of directors will be increased from 10 penalty units and/or 3 months imprisonment to 60 penalty units and/or one years imprisonment.
The explanatory document for the Bill states that the increases are for the purpose of deterrence. |
|---|
- For example, requirements to notify ASIC of certain changes to the company, the lodgement of financial reports and requirements in relation the registered office of a company.
The Bill also inserts a number of notes to highlight provisions which attract personal criminal liability if breached.
What other acts are amended?
The Bill also proposes some minor amendments to a number of other Commonwealth laws. These amendments include:
Foreign Acquisitions and Takeovers Act 1975 |
This amendment introduces a level of involvement required of an officer in order for personal liability to be imposed. The relevant provision now refers to officers who “authorise or permit” the commission of an offence.
The Bill will also insert several notes to clarify when the personal liability sections will apply. |
|---|
| Insurance Contracts Act 1984 |
Section 76A will be repealed and replaced by a new section 11DA. The new section will impose liability on directors, employees or agents of a company who permit or authorise a contravention of the Insurance Contracts Act. Previously, this liability referred to persons who “recklessly or intentionally” authorise or permit such an offence to be committed. |
|---|
| Pooled Development Funds Act 1992 |
Section 50 will be repealed. This section sets out a number of offences for which officers or managers of pooled development funds are personally liable. |
|---|
What is the policy behind the amendments?
The principles agreed by COAG on which the amendments are based include:
Where a corporation contravenes a statutory requirement, the corporation should be held liable in the first instance.
Directors should not be liable for corporate fault as a matter of course or by blanket imposition of liability across an entire Act.
A ‘designated officer’ approach to liability is not suitable for general application.
The imposition of personal criminal liability on a director for the misconduct of a corporation should be confined to situations where:
a) there are compelling public policy reasons for doing so;
b) liability of the corporation is not likely on its own to sufficiently promote compliance; and
c) it is reasonable in all the circumstances for the director to be liable, having regard to factors including:
– the obligation on the corporation, and in turn the director, is clear;
– the director has the capacity to influence the conduct of the corporation in relation to the offending; and
– there are steps that a reasonable director might take to ensure a corporation’s compliance with the legislative obligation.
Where directors’ liability is appropriate, directors could be liable where they have encouraged or assisted in the commission of the offence or have been negligent or reckless in relation to the corporation’s offending.
In addition, in some instances, it may be appropriate to put directors to proof that they have taken reasonable steps to prevent the corporation’s offending if they are not to be personally liable.
Conclusions and next steps
The amendments to the Corporations Act proposed by the Bill are generally cogent and welcome, however they do not address director liability in a significant manner. It is unclear to what extent real change will be reflected in in the next draft bill to be released in coming months.
Submissions on the exposure draft close on Friday, 30 March 2012.