Tony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | Link to this | Hansard source

On the Personal Liability for Corporate Fault Reform Bill 2012, I speak on behalf of the shadow Treasurer and member for North Sydney. This bill is part of a process to introduce some sensible reforms to the laws imposing liability on a director for acts or omissions of their companies. Former Treasurer Costello began the hard work to implement reforms to this area of over-regulation. It was a coalition government that tried to bring some sensible reform to this area of Commonwealth law. The Corporations and Markets Advisory Committee reported to the then Treasurer back in September of 2006. The committee recommended a principled and consistent approach to personal liability across various jurisdictions. The committee summed up the concerns as follows:

The Advisory Committee is concerned about the practice in some statutes of treating directors or other corporate officers as personally liable for misconduct by their company unless they can make out a relevant defence. Provisions of this kind are objectionable in principle and unfairly discriminate against corporate personnel compared with the way in which other people are treated under the law.

That is the mischief that this bill is aimed at: situations of so-called derivative liability or positional liability that are imposed on a person for acts of the corporation because a person holds a particular position, regardless of their involvement in the company's contravention. Derivative liability or positional liability laws imposed on directors hinder productivity, as these types of laws encourage directors to make decisions that are excessively risk averse and to be overly cautious in their decision making, rather than having their focus on ways to improve productivity and competitiveness. A less common but unjustifiable approach to imposing personal liability on directors for corporate fault has been the practice of reversing the onus of proof. Whilst the states and territories have more laws on their books that reverse the onus of proof than does the Commonwealth, the Law Council of Australia, for one, has been advocating that the Commonwealth take the lead and remove all its legislation that reversed the onus of proof.

The bill will implement the COAG directors' liability reform. The COAG reforms aim to harmonise the imposition of personal criminal liability for corporate fault across Australian jurisdictions, remove regulatory burdens on directors and corporate officers that cannot be justified on public policy grounds, and minimise inconsistency between Australian jurisdictions. COAG agreed to a set of principles proposed by the Ministerial Council for Corporations, otherwise known as MINCO, for national adoption as the basis upon which personal liability for corporate fault should be imposed. The principles are:

1. Where a corporation contravenes a statutory requirement, the corporation should be held liable in the first instance.

2. Directors should not be liable for corporate fault as a matter of course or by blanket imposition of liability across an entire Act.

3. A "designated officer" approach to liability is not suitable for general application.

4. 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 (e.g. in terms of the potential for significant public harm that might be caused by the particular corporate offending);

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:

  i. the obligation on the corporation, and in turn the director, is clear;

  ii. the director has the capacity to influence the conduct of the corporation in relation to the offending; and

  iii. there are steps that a reasonable director might take to ensure a corporation's compliance with the legislative obligation.

As the parliamentary secretary outlined during the introduction, the bill amends various acts to remove personal criminal liability for corporate fault where such liability is not justified; to remove the burden of proof on defendants to establish a defence to a charge; to replace personal criminal liability for corporate fault with civil liability where a non-criminal penalty is more appropriate; and, where personal criminal liability is justified, to make clear the circumstances where such liability would apply.

While this bill is an improvement on the status quo, it has not removed all provisions that impose a reversed onus of proof. At this month's hearing into the bill by the Parliamentary Joint Committee on Corporations and Financial Services, the Law Council identified that section 8Y in the Taxation Administration Act had not been removed despite that provision imposing a reversal of the onus of proof. Another recent example of this approach to directors' liability is found in the area of executive remuneration legislation. In his evidence to the committee, the distinguished and respected expert on corporate law Professor Baxt identified a recent taxation provision that he described as totally unacceptable because it is a provision of strict liability that reverses the onus of proof and imposes liability on a director who has not been appointed at the time of the relevant act or omission. Professor Baxt was referring to a provision that imposes liability for a superannuation levy not on the directors who were directors of the company at the time the levy was collected but on any new director who comes onto the board after the levy.

Professor Baxt believes that a provision of this kind has not been copied into any other democracy that adopts an English common law system of legislation.

Given that the changes have been agreed through the COAG process and are supported by stakeholders as an improvement to the status quo, the coalition does not oppose the bill but urges the government to re-examine its decision not to remove provisions that reverse the onus of proof and provisions that not only reverse the onus of proof but also impose strict liability. On behalf of the shadow Treasurer the coalition will not be opposing this legislation.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

I want to commend the Parliamentary Secretary to the Treasurer for the great work he has done. He has been a real champion of reform in these areas and work in relation to the Storm inquiry when he was the chair of a parliamentary committee. My friend the member for Oxley has been a big advocate for reform in these areas in the past and I am pleased that in his current role he has undertaken this work. The genesis of this legislation came about in 2008 when the Labor Party took an approach in the 2007 election that we would do this kind of good work, which had been argued for for quite some time. It came about through a COAG process where they agreed to the reform of personal criminal liability.

This bill is about the specific form of derivative liability. It is a situation where a director or a corporate officer could be found to be criminally liable for the acts of the corporation they serve. It may be the case that that person is found in those circumstances, where they may not have had particular intent or knowledge, and they had not acted recklessly in relation to the particular issue. What distinguishes this sort of liability is that they could be found liable simply because they are a director of a company that has committed the offence. The offence will continue to apply in relation to the company.

There are some amendments in relation to the Corporations Act, the Foreign Acquisitions and Takeovers Act, the Health Insurance Act and the Therapeutic Goods Act. To be very specific, these acts are amended to remove the imposition of personal criminal liability for corporate fault except where the director or officer knew of the offence, was involved in the offence or failed to take reasonable steps to prevent the offence, such as putting appropriate procedures in place to prevent the offence—in other words, acted recklessly—or if the harm that the offence causes is of a serious public interest nature, particularly in terms of the protection of public health and safety and the like, or if corporate penalties alone would be ineffective to prevent the conduct in question. This is particularly a pro-business and pro-economic approach. It also helps those businesses that are across jurisdictions.

I can recall my former lecturer in government at the University of Queensland a long time ago, Ken Wilshire, saying that these types of things, with the oddities and eccentricities of the federal jurisdiction that we have today, used to cause him sleeplessness at night. There is quite strange behaviour because of the way the Federation that we call Australia was created. So, this is a good approach. It means that we will have consistency across the length and breadth of the country. It is a very pro-business and pro-company reform. I commend it to the House and thank the member for Oxley for his great work in this area.

Bernie Ripoll (Oxley, Australian Labor Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

I thank those members on both sides of the chamber who have taken part in the debate on the Personal Liability for Corporate Fault Reform Bill 2012. The reform of directors' liability is one of an ambitious package of 27 deregulation reforms that this government has been progressing through the Council of Australian Governments National Partnership Agreement to Deliver a Seamless National Economy to improve regulatory performance. The directors' liability reform commits all jurisdictions to significant law reform in line with COAG endorsed principles that will establish a nationally consistent and principled approach to the imposition of personal criminal liability on directors and corporate officers for corporate fault. The bill delivers on the reform through a package of amendments that, when passed, will bring all Commonwealth laws into alignment with the COAG endorsed principles and guidelines for the imposition of directors' criminal liability for corporate fault.

Reforming personal criminal liability for corporate fault in Australia is a significant red-tape reduction that will benefit all Australian businesses. Personal liability on company directors and officers has developed in a piecemeal fashion over many years and successive Australian governments across all jurisdictions have passed laws imposing personal liability for corporate fault with differing standards of fault and responsibility. The vast majority of provisions imposing such liability were contained in state and territory legislation. This has led to inconsistent laws and significant complexity and uncertainty for business. A consistent approach to applying personal liability for corporate fault by all jurisdictions will provide greater certainty for businesses that are subject to both Commonwealth and state or territory laws or that trade in multiple jurisdictions, thus helping to promote a seamless national economy.

Substantial work has also been undertaken by state and territory jurisdictions to deliver on this reform in line with their commitments under the national partnerships agreement. All jurisdictions are working to reform their laws to bring them into alignment with the COAG principles to achieve a more nationally consistent and principles based approach to directors' liability. This collaborative approach ensures that, when all jurisdictions have enacted legislation to meet commitments under the reform, there will be increased consistency in the imposition of personal criminal liability for corporate fault in Australia. Importantly, it will also substantially reduce the number of acts across all jurisdictions that impose this type of liability.

This bill implements the Australian government's commitments under the COAG National Partnership Agreement to Deliver a Seamless National Economy to reform personal criminal liability for corporate fault. This bill will significantly reduce the overall number of offences under Commonwealth law which hold a person criminally liable for the fault of a corporation. The passage of this bill will see the removal of several hundred offences across Commonwealth legislation. This will reduce the compliance burden on businesses without compromising the need to have corporate officers take due care in ensuring that their company complies with the law. It also ensures that under Commonwealth law, where a corporation has committed an offence, a person will not be found guilty of that same offence unless it is fair and reasonable to do so.

The COAG directors' liability reform is not just about reducing red tape or the number of regulations on the statute books; it is also about having smarter and more efficient regulation that achieves the right policy outcomes without creating unnecessary compliance burdens for companies. At the end of the day governments have an obligation to achieve a balance when it comes to deregulation reform to ensure effective and appropriate regulatory frameworks are in place to protect the integrity and confidence of the market. I commend the bill to the House.

Question agreed to.

Bill read a second time.