House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Parliamentary Secretary to the Treasurer, the Hon Bernie Ripoll MP)

Chapter 2

Corporations Act 2001

Outline of chapter

2.1 The Bill amends the Corporations Act 2001 (Corporations Act) to:

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reform certain provisions that impose personal criminal liabilityfor corporate fault in line with the COAG Principles; and

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make clear thosecircumstances in which corporate officers can be heldpersonally criminally liable for corporate fault.

Context of amendments

2.2 There are numerous provisions in the Corporations Act that impose personal criminal liability on company officers for breaches of that Act by the corporation. The audit of Commonwealth legislation conducted as part of the COAG Directors' Liability Reform project identified a number of those provisions as inappropriately applying personal criminal liabilityon officers in a manner that did not accord with the COAG Principles.

Summary of new law

2.3 The Bill amends the Corporations Act to repeal the imposition of personal liability for corporate fault to bring the Act into alignment with the COAG Principles.

2.4 A company secretary is an officer designated by a company as being responsible for certain administrative functions within the company. Where a company breaches one of the listed statutory functions for which a company secretary is delegated responsibility, the company secretary is criminally liable for the breach. If the company does not have a secretary, each director of the company is instead responsible for the breach.

2.5 The Bill also amends the Corporations Act to

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replace the current criminal liability imposed on company secretaries and directors under that provision of the Corporations Act with a civil liability;

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impose a penalty for the breach of the civil liability; and

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improve the readability and clarity of the provision of that Act which imposes the liability.

2.6 The Bill adjusts the penalties associated with offences for which a company secretary is taken to be responsible to accord with general Commonwealth penalty principles.

Comparison of key features of new law and current law

Detailed explanation of new law

2.7 Section 188 of the Corporations Act currently makes company secretaries criminally liable for certain breaches of the Corporations Act by a company.

2.8 The Bill amends the Corporations Act to remove the personal criminal liability of company secretaries for offences listed within section 188. The offences generally relate to administrative defects for which criminal penalties are not justified under the COAG principles. [ Schedule 1, Items 1 and 21 ]

2.9 While it is inappropriate to impose criminal liability on company secretaries in the situations listed in section 188, there remains a strong public interest in requiring a company secretary to turn their mind to the need for a company to comply with the law. The Bill replaces the criminal liability for company secretaries with liability under the civil penalty framework of the Corporations Act. [ Schedule 1, Items 18 and 19 ]

2.10 The penalties for the underlying offences listed under section 188 are stated in Schedule 3 of the Corporations Act. A number of these penalties are inconsistent with the Guide to Framing Commonwealth Offences, Infringement Notices, and Enforcement Powers (Commonwealth Guide to framing offences), which describes appropriate levels of penalties, and relationships between the number of penalty units and the length of imprisonment terms appropriate for an offence. The Bill amends Schedule 3 of the Corporations Act to bring the offences to which section 188 applies into alignment with the Commonwealth Guide to framing offences. [ Schedule 1, Items 20, 22, 23, 24 and 25 ]

2.11 Subsection 254Q(13) applies personal liability in relation to a failure by a company to offer forfeited shares for sale by public auction, or to advertise such sales in accordance with the subsection. This provision has been identified as being in breach of the COAG Principles as the type of harm that this subsection aims to prevent is not significant enough to warrant strict personal criminal liability for the corporate fault. The Bill therefore removes the extension of liability to any officer of the company who is involved in the contravention. [ Schedule 1, Item 8 ]

2.12 Subsection 319(5A) mistakenly provides an offence for breach of a previously repealed section. The Bill removes this offence. [ Schedule 1, Item 14 ]

2.13 Section 601FC sets out the primary duties of a responsible entity of a managed investment scheme. Subsection 601FC(5) makes the breach of those duties by the responsible entity a civil penalty provision under Part 9.4B of the Corporations Act. A person who is involved in the responsible entity's contravention is also subject to a civil penalty. Currently, subsection 601FC(6) makes a person involved in the contravention of a responsible entity's duties personally criminally liable where the person's involvement was reckless or intentional. This provision has been identified as being in breach of the COAG Principles. The Bill therefore repeals subsection 601FC(6) and the related penalty item in Schedule 3 of the Corporations Act. [ Schedule 1, Items17 and 26 ]

2.14 A number of sections in the Corporations Act apply personal criminal liability to a person who is involved in a contravention of the section. The Bill annotates the Corporations Act to make clear upon the reading of those offence provisions that personal liability will apply, and that 'involved' is defined in section 79 of the Act. [ Schedule 1, Items 2, 3, 4, 5, 6, 7, 9, 10, 11, 12, 13, 15 and 16 ]

Application and transitional provisions

2.15 These amendments apply from the day after Royal Assent. [ Section 2 ]

2.16 The amendments apply only in relation to acts or omissions occurring on or after the day the Bill commences. [ Schedule 7, Item 1 ]