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Chapter 5
Committee view
5.1
The committee
recognises that reforming directors' liability is an important step to
providing certainty for company directors and greater economic confidence. The
bill fulfils the Commonwealth's commitment to the Council of Australian
Governments' (COAG) reform agenda by amending the law relating to personal
liability for offences committed by corporations. By significantly reducing the
scale of legislation that imposes director liability and providing for greater
national consistency, the bill and the broader reform is expected to cut red
tape, promote confidence in directors' decision-making and reduce risks,
enabling a greater focus on productivity.
5.2
Evidence
before the committee not only affirmed the growing need for reform in this area
in light of a substantial number of director liability provisions, but also the
groundswell of support for such reforms. As Mr Bruce Cowley of the Law Council
of Australia noted:
The
notion of director liability provisions started to appear in state laws in
Australia as a trickle during the 1980s. But they became a flood in the 1990s
and 2000s, to the extent of which by a couple of years ago there were over 700
laws throughout Australia which imposed personal liability on directors.[1]
Restoring confidence
and balance
5.3
Notwithstanding
reservations regarding some of the bill's provisions and COAG principles, there
was common appreciation among witnesses to the inquiry that the reform as
reflected in the bill will reduce the level of risk for directors and the
burden to corporate officers while providing greater certainty and restoring
confidence.[2]
5.4
The purpose
of the bill and wider reform is to focus attention on key areas of liability
laws to ensure compliance while reducing the burden of liability laws to enable
greater focus on corporate performance. The committee acknowledges that this
reform involves a process to provide for type 1 offences as the default
position: type 2 and 3 offences will be the exception for which specific public
policy grounds must be established. The committee considers that the retention
of derivative liability laws, provided for in the bill, is consistent with this
position and adheres to COAG principle 4.
5.5
Furthermore,
the committee holds the view that the bill establishes a balance in relation to
corporate responsibility. The committee appreciates that the Australian
community expects company directors to take a higher level of responsibility in
relation to the companies they direct. Where directors' liability provisions
are justified, it is vital that directors are aware of what those offences are
and concern themselves with compliance with the law. By providing for a
narrower range of type 3 offences, the emphasis and therefore the attention of
directors will be given to those offences. As Mr Paul Miller of the New South
Wales Department of Premier and Cabinet noted:
In that
way, it assists with compliance and proper risk management by boards by
indicating more clearly to boards that there are particular categories of offences
where we as a society think that you should pay special attention and where we
think that it is clearly your responsibility to ensure that the company
complies with this.[3]
5.6
At the same
time, however, the removal of criminal liability in relation to provisions such
as section 188 of the Corporations Act and the imposition of strong civil
penalties ensures this balance. The committee accepts that it is inappropriate
to impose criminal liability in such instances, but that the proposed civil
penalties fulfil public expectations regarding the need for a deterrent and 'a
strong public interest in requiring a company secretary to turn their mind to
the need for a company to comply with the law'.[4]
COAG reform process and
reform agenda
5.7
Evidence to
the committee highlighted the extensive and rigorous process undertaken by COAG
and related bodies including the Business Regulation and Competition Working
Group (BRCWG) to establish consensus in relation to corporate fault reform.
COAG committed to this important economic reform in late 2008 and undertook an
exhaustive consultation process culminating in agreement across Australian
jurisdictions to apply a common set of principles and guidelines to
Commonwealth, state and territory legislation.
5.8
The committee
is satisfied that the process to develop both the COAG principles and
guidelines that underpin the reform agenda and draft the bill itself was
rigorous, extensive and took into consideration the recommendations of
stakeholders, including the AICD's model provision. Furthermore, the committee
acknowledges work undertaken at the federal level whereby public consultation
on the bill before the committee was conducted in three tranches from January
to September 2012. The development of COAG principles and guidelines was a
prolonged process which took into consideration a range of options and
approaches, including a model provision. These guidelines have in turn been the
basis of a rigorous auditing process by the states and territories.[5]
5.9
The committee
notes the concerns of some stakeholders that the reform does not go far enough.
Mr Cowley of the Law Council of Australia emphasised to the committee that
while the Law Council was 'strongly supportive of what the Commonwealth is
doing through the bill, we do believe that there are other areas of reform and
that the bill could in fact go further'.[6]
Similarly, while noting the complexities involved in working across Australian
jurisdictions, Professor Baxt of the Law Council of Australia acknowledged the
gravitas of the reform but expressed the view that it was a first step.[7]
Likewise, CSA supported the bill but had some reservations 'about its lack of
reach in some instances'.[8]
5.10
The proposal
to establish a model provision that all jurisdictions undertake to implement is
one example in this regard. The committee is satisfied that a model provision
would not work for reasons explained by the Parliamentary Counsel's Committee.
However, the committee does recognise that the reform process has been taken a
step further given that the Commonwealth has issued drafting instructions to
its Office of Parliamentary Counsel to ensure that the COAG principles and
guidelines are met when the imposition of criminal responsibility on directors
is under consideration. These administrative arrangements are expected to
provide for greater consistency in future legislation. They will be reviewed by
Treasury and the Attorney-General's Department to ensure compliance with the
COAG principles and guidelines. This will ensure that:
in the
drafting process, any proposed new personal liability provisions will be
considered in the context of previously drafted provisions. This will
facilitate increased consistency in future legislation, subject to the policy
objectives of the legislation.[9]
5.11
Further, the
committee was assured by the Department of Finance and Deregulation that the
chairs of the BRCWG have written to the chairs of the Ministerial Council for
Corporations to ensure that consistency applies to national model laws into the
future.[10]
Conclusion and
recommendations
5.12
The committee
is confident that the bill and the wider reform agenda will provide greater
certainty for company directors and reduce red tape. A reduction in the number
of offences that include directors' liability provisions will provide for a
significant reduction in the legislative and regulatory burden.
5.13
The committee
is satisfied that the bill fulfils the Commonwealth's obligations to the reform
of personal liability for corporate fault. It recommends that the bill be
passed.
Recommendation 1
5.14
The committee
recommends that the Personal Liability for Corporate Fault Reform Bill 2012 be
passed.
Recommendation 2
5.15
The committee
recommends that the Department of Treasury monitor the application of the
reverse onus of proof for company directors and corporate officers. The
committee recommends that Treasury report its findings to the Minister 12
months after the bill has been passed, and report any matters of concern to the
Parliamentary Joint Committee on Corporations and Financial Services.
Ms
Deborah O'Neill MP
Chair
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