House of Representatives

Explanatory Memorandum

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

Chapter 7

Other Acts amended

Outline of chapter

7.1 The Bill amends a number of Acts that provide personal criminal liability for corporate fault. The Acts amended are the:

•

Child Support ( Registration and Collection ) Act 1988 (the Child Support Act;

•

Classification ( Publications, Films and Computer Games ) Act 1995 (the Classification Act);

•

Corporations ( Aboriginal and Torres Strait Islander ) Act 2006 (the CATSIA);

•

Income Tax Assessment Act 1936 (the ITAA);

•

Insurance Contracts Act 1984 (the ICA);

•

National Measurement Act 1960 (the NMA);

•

Pooled Development Funds Act 1992 (the PDF Act);

•

Superannuation Guarantee ( Administration ) Act 1992 (the SGAA);

•

Taxation Administration Act 1953 (the TAA); and

•

Veterans' Entitlements Act 1986 (the VEA).

7.2 Schedule 6 of the Bill reforms the application of personal criminal liability for corporate fault in relation to the Acts listed above, such that the Acts comply with the COAG Principles where appropriate on public policy grounds. To that extent the amendments include:

•

the repeal of provisions;

•

the reform of provisions to apply civil liability instead of criminal liability;

•

the reform of provisions to remove burdens of proof from defendants;

•

the reform of provisions to clarify the level of fault or involvement necessary to trigger personal criminal liability;

•

the insertion of notes signifying the imposition of personal criminal liability for corporate fault to provisions where such liability is not immediately evident on a reading of the provision; and

•

other minor and incidental amendments necessary to support these amendments.

Context of amendments

7.3 Section 104 of the Classification Act deems a body corporate manager liable where the body corporate commits an offence against sections 101, 102 and 103 of the Act. A corporate manager may defend this offence by showing that they did not know of the circumstances that constituted the offence, or that they took all reasonable steps to prevent the commission of the offence. These underlying offences relate to the possession, control or supply of prohibited material (such as pornography and violent material) in prescribed areas. Section 104 was put in place as part of the Northern Territory National Emergency Response. The main objective of Part 10 of the Classification Act, in which section 104 is contained, is to enable special measures to be taken to protect children living in Indigenous communities in the Northern Territory from being exposed to prohibited material.

7.4 The CATSIA substantially mirrors the Corporations Act by establishing a parallel regulatory regime directed towards Indigenous corporations. Consequently, many sections in the CATSIA (including those amended by the Bill) essentially replicate provisions in the Corporations Act.

7.5 Section 76A of the ICA is a blanket liability provision. This section applies to a number of offences, including offences in relation to the provision of documents to ASIC, and offences surrounding interactions between insurers and insured parties. The provision is in contravention of the COAG Principlesas it creates personal liability which applies to breaches of all relevant offences located elsewhere in the Act. The COAG Principles do not consider blanket liability provisions to be appropriate because they result in personal criminal liability being applied by default to the rest of an Act, and make the full extent of potential liability for the company breaching a requirement difficult to ascertain. In turn, this may make it more difficultfor company officers to ascertain exactly what their legal obligations and the required standard of conduct are.

7.6 Section 19G of the NMA operates as a blanket liability provision. It applies personal criminal liability to directors of a company where the company has committed an offence under the Act, as well as to an employee, agent or officer of the body corporate with duties of such responsibility that their conduct may fairly be assumed to represent the body corporate's policy.

7.7 Section 50 of the PDF Act provides that where a pooled development fund contravenes a provision specified in the section, it is not guilty of an offence, but any officer or investment manager involved in the contravention is guilty of an offence. The offences specified relate to conduct of a pooled development fund in relation to the making of investments, capital structure and activities, compliance with board directions, compliance issues, and registration.

7.8 Where a notice, process or proceeding may be given to, served upon or taken against a company or its public officerunder the ITAA, paragraph 252(1)(j) of the ITAA allows the Commissioner of Taxation to give, serve or take the same against any director, secretary or other officer of the company. That director, secretary or other officer will then have the same liability as the company or its public officer in relation to that notice, process or proceeding. Although this provision reads as a form of absolute liability, in Reynolds v Deputy Federal Commissioner of Taxation ( ACT ) (1984) 55 ALR 653 ( Reynolds )the Full Federal Court determined that the relevant director, secretary or other officer must first be put on notice that they must perform a particular act or fulfil a particular obligation, before they can be impugned with the same liability as the company under paragraph 252(1)(j) of the ITAA.

7.9 Section 444-15 of Schedule 1 to the TAA, subsection 57(7) of the SGAA, and subsection 62(7) of the Child Support Act also allow relevant regulators to give a notice to, serve a process on or take a proceeding against a company director, secretary or other company officer, and impose the same liability on this person as would have been imposed on the company or its public officer. These three provisions are drafted in substantially the same manner as paragraph 252(1)(j) of the ITAA, and therefore would probably also be interpreted in light of the decision in Reynolds .

7.10 Sections 93D and 93E of the VEA state that where an offence against the Act is committed by a corporation, an officer of the corporation who is in default is guilty of an offence. A reference to an officer who is in default is defined to include a reference to an officer who authorises or permits the commission of the offence. As with the FATA, this wording is ambiguous, in that it suggests that an officer who did not authorise or permit the commission of the offence could nonetheless be liable in some situations.

Summary of new law

7.11 The amendmentsremove the defence available under section 104 of the Classification Act, and instead require the prosecution to prove that a body corporate manager knew that an offence would be committed, was in a position to influence the conduct of the body corporate in relation to the offence, and failed to take all reasonable steps to prevent the offence. Notes will be inserted to highlight the offences to which section 104 of the Act applies.

7.12 Section 265-40 of the CATSIA will be amendedto replace the criminal liability of a secretary of an Aboriginal and Torres Strait Islander corporation with a civil penalty, in a manner analogous to the amendments to section 188 of the Corporations Act. Notes will be inserted into the provisions to which section 265-40 extends liability.

7.13 Section 76A of the ICA will be repealed, thereby removing the blanket liability imposed for all offences under the ICA. This will be replaced by a new section 11DA, which applies personal liability in relation to subsections 11C(2),11D(2) and 11D(3). This preserves personal liability in relation to ASIC'sability to obtain documents, and the supplying of false or misleading information to ASIC.

7.14 Section 19G of the NMA will be repealed, removing blanket liability from the Act.

7.15 Section 50 of the PDF Act will be repealed, removing personal criminal liability for corporate fault from offences in the Act.

7.16 Section 252 of the ITAA, section 444-15 of the TAA, section 57 of the SGAA and section 62 of the Child Support Act will be amended to remove the potential for directors to be made personally liable for corporate fault. However, the ability of the relevant regulators to still give a notice or serve a process on a company, by giving it or serving it on a director or other particular company officers, will be preserved.

7.17 Sections 93D and 93 E of the VEA will be amended to clearly apply personal liability only to company officers who intentionally authorised or permitted the commission of an offence.

Comparison of key features of new law and current law

Detailed explanation of new law

7.18 Section 104 of the Classification Act aims to protect children living in Indigenous communities in the Northern Territory from being exposed to prohibited material. Due to the significant public harm being addressed, the retention of personal liability for corporate fault is considered appropriate. However, in accordance with ordinary principles of criminal law, the Bill amends section 104 to place the burden of proof on the prosecution to show that a defendant was in a position to influence the conduct of the body corporate in relation to the offence, and failed to take all reasonable steps to prevent the offence from occurring. Redrafting will also clarify the penalties that apply in relation to individuals, taking into account the Commonwealth Guide to framing offences. [ Schedule 6, Item 6 ]

7.19 The Bill also amends the offence provisions in the Classification Act that continue to apply personal criminal liability through the operation of Section 104. The Bill inserts a note to these provisions to signify that section 104 applies in relation to the offences. [ Schedule 6, Items 4 and 5 ]

7.20 Section 265-40 of the CATSIA substantially replicates the operation of section 188 of the Corporations Act. For the purpose of consistency, sections in the CATSIA are kept as similar as possible to their equivalent sections in the Corporations Act. The offences in section 265-40 of the CATSIA generally relate to administrative defects for which criminal penalties are not justified under the COAG Principles. The Bill therefore amends section 265-40 to maintain consistency with section 188 of the Corporations Act. [ Schedule 6, Item 11 ]

7.21 The Bill amends the CATSIA to apply civil penalty provisions in place of the existing criminal penalties for section 265-40. This ensures that adequate incentives are in place to deter the conduct that section 265-40 aims to prevent. [ Schedule 6, Items 15 and 16 ]

7.22 The Bill also amends the provisions in the CATSIA that apply liability to company secretaries through the operation of section 265-40. The Bill inserts a note to these provisions to make clear that section 265-40 applies. [ Schedule 6, Items 7, 8, 9, 10, 12, 13 and 14 ]

7.23 The Bill repeals section 76A of the ICA, thereby removing the blanket liability imposed for all offences under the ICA. With the exceptions of subsections 11C(2), 11D(2), and 11D(3), the policy objectives of these offences are generally sufficiently protected by the ability of ASIC to cancel or place conditions on the financial services licence of an insurer. [ Schedule 6, Items 22 ]

7.24 The Bill inserts a new section 11DA into the ICA to retain personal criminal liability for corporate fault in relation to breaches of subsections 11C(2), 11D(2) and 11D(3), which relate to the ability of ASIC to obtain documents, and the supplying of false or misleading information to ASIC. Section 11DA will only apply where a person permits or authorises the conduct that constitutes an offence under these subsections. [ Schedule 6, Item 21 ]

7.25 The Bill also inserts a note to subsections 11C(2), 11D(2) and 11D(3) of the ICA to make clear that section 11DA applies. [ Schedule 6, Item 20 ]

7.26 The Bill repeals section 19G of the NMA. This section is no longer necessary to achieve the objectives of the Act. [ Schedule 6, Item 23 ]

7.27 Section 50 of the PDF Act willbe repealed thereby removing personal criminal liability for corporate fault from offences in the Act. Section 50 requires the involvement of the relevant corporate officer and is therefore not technically covered by the COAG Principles. This section is no longer necessary to achieve the objectives of the Act. A redundant reference in section 51 is also removed. [ Schedule 6, Items 24, 25 and 26 ]

7.28 The Bill amends section 252 of the ITAA, section 444-15 of the TAA, section 57 of the SGAA and section 62 of the Child Support Act to ensure that directors and particular company officers cannot be held personally liable for corporate fault through the operation of these sections. This is no longer necessary to achieve the objectives of the respective Acts. The ability of the relevant regulator to give a notice or serve a process on a company by giving it or serving it on a director (or other relevant company officer) has been preserved. [ Schedule 6, Items 2, 3, 18, 19, 28, 29 and 31 ]

7.29 The Bill also adds notes to the ITAA, TAA, SGAA and the Child Support Act to make clear that notwithstanding the amendments detailed above, the relevant regulators retain the ability to serve documents on a company by serving them on a specified officer or representative of the company. [ Schedule 6, Items 1, 17, 27 and 30 ]

7.30 The Bill amends sections 93D and 93E of the VEA to make clear that these sections apply personal liability only to an officer who intentionally authorised or permitted the commission of the offence. [ Schedule 6, Items 32, 33, 34 and 35 ]

Application and transitional provisions

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

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