House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, the Hon Michael Sukkar MP)

Chapter 19: Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021

Schedules 1 to 4 - Corporate collective investment vehicles regulatory framework

Overview

19.1 Schedules 1 to 4 to the Bill are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

19.2 Schedules 1 to 4 of the Bill amend corporate and financial services law to establish a CCIV as a new type of a company limited by shares used for funds management. A CCIV is an umbrella vehicle that is comprised of one or more sub-funds and is operated by its single corporate director.

19.3 Chapter 1 sets out an overview of the regulatory framework for the CCIV regime. Key aspects of the new CCIVs regime include:

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establishing the core requirements for a company to be a CCIV, such as having a corporate director instead of natural person directors, and segregation of assets and liabilities between sub-funds within the CCIV;

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different regulatory requirements for retail and wholesale CCIVs to ensure appropriate protections are provided to investors, tailored to their level of sophistication and capacity to negotiate bespoke contractual protections and assess investment risks;

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establishing the requirements for the management of share capital in a CCIV, including that all shares are referable to a particular sub-fund and facilitating the reduction of share capital in certain circumstances;

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other consequential modifications to corporate and financial services law, for example, for the regulation of financial services provided by a corporate director and CCIV and external administration of each sub-fund of a CCIV;

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ensuring the corporate director of the CCIV has overarching responsibility for any contraventions of the law by a CCV, including establishing a chain of liability that generally places the penalty for a contravention of any Commonwealth law by a CCIV upon the corporate director of the CCIV (although the natural person directors of the corporate director may be liable for certain offences and penalties); and

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introducing a new range of offences and penalties, including strict liability offences.

19.4 The structure of Schedules 1 to 4 to the Bill is set out below.

Objective. Schedule 1 to the Bill inserts a new Chapter 8B into the Corporations Act. Part 8B.1 sets out the objects of the new Chapter 8B that establishes the regulatory framework for CCIVs.

Registration requirements of a CCIV and sub-fund. Part 8B.2 sets out the registration requirements for a CCIV and a sub-fund of a CCIV. Part 8B.2 also sets out the rules for the CCIV's company register.

Corporate governance of a CCIV. Part 8B.3 sets out the rules relating to the corporate governance of a CCIV. This includes the rules regarding:

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governance of CCIVs (such as how a CCIV exercises company powers and the rules regarding a CCIV's constitution);

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the officers and employees of the CCIV (including the core obligations for the corporate director of the CCIV and the rules relating to its replacement);

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the officers, employees and auditors of the corporate director of the CCIV;

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the compliance plan of a retail CCIV;

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member protection (including related party transactions by retail CCIVs, rights and remedies for the member of a CCIV and the corporate director's civil liability to members);

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meetings (including resolutions of a CCIV and meetings of the members of a CCIV (or a sub-fund of the CCIV)); and

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corporate contraventions (including rules for establishing civil and criminal liability).

Securities of a CCIV. Divisions 1 to 3 of Part 8B.4 establish rules for of the management of share capital and other securities in a CCIV. It outlines the types of securities that CCIVs may issue and circumstances in which a CCIV is permitted to pay dividends. These Divisions also explain the requirements that must be satisfied before a CCIV may redeem its shares or reduce its share capital and set out circumstances in which the sub-funds of the CCIV may cross-invest.

Financial records and reporting for a CCIV. Divisions 4 and 5 of Part 8B.4 set out the rules for the maintenance of financial records by CCIVs and how financial reports and audits are to be prepared and conducted for sub-funds of CCIVs.

Operation of the CCIV and its sub-funds. Part 8B.5 establishes the requirements for operating a CCIV and its sub-fund(s), such as allocating assets and liabilities to sub-funds.

External Administration. Part 8B.6 outlines the process for winding up a sub-fund and how the other external administration processes apply in the CCIV context. It also outlines the process for deregistering a CCIV and sub-funds of a CCIV.

Control, financial services and disclosure. Part 8B.7 outlines the rules for control, financial services and disclosure. Divisions 1 to 3 of Part 8B.7 outline how the following Chapters of the Corporations Act apply to CCIVs:

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Chapters 6 to 6B regarding takeovers, compulsory acquisitions and buy-outs;

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Chapter 6C regarding information about ownership in listed entities;

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Chapter 6CA regarding continuous disclosure; and

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Chapter 6D regarding fundraising.

Financial services and markets. Division 4 of Part 8B.7 modifies the operation of Chapter 7 for CCIVs and sets out how markets and financial services regulation apply to CCIVs and corporate directors - including the requirements for disclosure.

Consequential amendments. Part 8B.8 outlines other consequential amendments to Chapter 9 of the Corporations Act, such amendments to the corporate whistleblower obligations contained in the Corporations Act.

Exemptions and modifications. Part 8B.9 allows ASIC to make exemption orders and modification declarations in relation to the application of specified parts of Chapter 8B. Regulations may also modify the operation the Corporations Act in relation to its application to CCIVs.

Human rights implications

19.5 The CCIV regulatory regime established in Schedules 1 to 4 to the Bill primarily deals with body corporates rather than individuals - as the core objective of the framework is to establish a new type of corporation that is operated by another body corporate. However, certain parts of the framework applies to individuals (such as the duties of natural persons acting for the CCIV or certain rights and powers for members in a CCIV). To the extent that the new regime applies to individuals, it engages, or may engage, the following human rights:

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the right to privacy;

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the right to the presumption of innocence; and

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the right to a fair and public hearing.

Engagement of the right against arbitrary or unlawful interference with privacy

19.6 Article 17 of the ICCPR requires parties to the ICCPR to uphold the individual right not to have one's private, family and home life or correspondence unlawfully or arbitrarily interfered with. It also includes the right to protection by law of one's reputation. According to the Parliamentary Joint Committee on Human Rights' Guide to Human Rights, the right to privacy includes:

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the right to respect for confidential and private information, particularly the storing, use and sharing of such information; and

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the right to control dissemination of information about one's private life.

19.7 The Parliamentary Joint Committee on Human Rights' Guide to Human Rights also states that in order to uphold the right to privacy, a State must adopt measures to protect people from arbitrary interference with their privacy from others, including by corporations.

19.8 The Privacy Act 1988 provides for the protection of personal information, including setting out Information Privacy Principles applying to the Commonwealth public sector and National Privacy Principles applying to many private sector organisations.

19.9 The right to privacy and reputation is not an absolute right and is subject to permissible limits. The implied limitation arises inter alia as a result of the interpreting term 'arbitrary' in Article 17 of the ICCPR, which prohibits unlawful or arbitrary interferences with a person's privacy, family, home and correspondence.

Overview of provisions that interact with the right to privacy

19.10 The new CCIVs regime in the Bill engages the right to privacy because it:

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involves the collection, security, use or disclosure of information that may include personal information; and

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regulates information held on a public register.

Personal information of members of a CCIV and the directors of the corporate director of the CCIV

19.11 A number of requirements in the new law require the collection, security, use, disclosure and access to information about the individuals acting in relation to the CCIV and individuals that are members of the CCIV.

19.12 At the point of registration of the CCIV, certain information must be provided in the application form that is relevant to the establishment of the corporate entity. New subparagraph 1222A(3)(c)(i) requires that in an application for registration of a CCIV, the application must include the name and address of each person who consents to be a member of the CCIV. On registration, these persons become members of the CCIV (see section 1222D). This extends and replicates the existing requirements in respect of the establishment of another company by ASIC (see existing paragraph 117(2)(c) and section 120).

19.13 At the point of registration of a sub-fund of the CCIV, certain information must be provided in the application form to establish the sub-fund. New paragraph 1222U(2)(c) requires that in an application for registration of a CCIV, the application must include the name and address of each person who consents to be a member of the sub-fund. This is similar to the above requirements for establishing a company under existing law. The significance of separate registration for sub-fund is explained in paragraph 2.91 above. Separate registration of each sub-fund of a CCIV helps to ensure the business of the sub-fund is protected from the business of other sub-funds of the CCIV. In effect, a sub-fund does not come into being until the day it is registered and given a unique name and identifier - its ARFN - by ASIC. A member in the CCIV's share is referable to one and only one sub-fund - which is require information about members is necessary as part of this process.

19.14 Like all other companies, a CCIV is subject to ongoing requirements to maintain a company register which records, among other things, the certain details about its members and other security holders - including their name and address which constitute personal information (see section 1222ZB of the new law - which extends and applies existing sections 169, 170 and 171 of the Corporations Act). This information is important for identifying the persons that have interests, powers and rights in relation to the CCIV. In particular, this register is used for identifying the persons that may vote on a resolution at a meeting of the CCIV or its sub-fund(s) (see section 1228D of the new law and subsection 252C(3) of the Corporations Act).

19.15 In addition, under new Subdivision C of Division 4 of Part 8B.4, a retail CCIV must prepare a directors' report and financial report in respect of each sub-fund of the CCIV. The directors' report involves a declaration by the directors of the corporate director to make assurances about its financial status, and include the names of each director of the corporate director of a CCIV during the financial year (as well as their signatures) (see subsection 300(1) of the Corporations Act). This extends and replicates the existing requirements for the directors' report and financial reports of other companies to CCIVs - adapted to the CCIV's legal structure.

19.16 These requirements pertain to personal information, and so create an interaction with the right to privacy.

Access to the personal information of members of a CCIV

19.17 Consistent with existing requirements for companies and registered schemes, a person may seek access the CCIV's register (which, as explained above, includes the certain details of members). In particular, a member of a CCIV has the right to inspect the register of members of that CCIV, free of charge. Other persons can request access to the register of members, upon payment of a fee, and subject to certain prescribed improper purposes (including soliciting donations, gathering information about a person's wealth, or unsolicited offers involving financial products). As explained above, this register is also used to determine the persons entitled to vote at a resolution of the CCIV or its sub-fund(s) (see section 1228D of the new law and subsection 252C(3) of the Corporations Act).

19.18 In addition, under the existing law in section 1274(5) of the Corporations Act, a person may apply to ASIC to obtain a copy or extract of the registration of a CCIV or sub-fund. That copy is admissible as evidence in any proceedings. These records contain the names and addresses of members of sub-funds in a CCIV, and so the members' personal information is accessible to any person allowed to access ASIC's record.

Justification for limitations on right to privacy

19.19 To the extent the provisions outlined above limit the right to privacy, those limitations are justified. These limitations are in pursuit of the legitimate objectives of ensuring:

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directors of the corporate director of a CCIV can be identified and therefore be held personally liable where relevant, particularly in respect of the declarations and assurances they make in relation to the CCIV (for example, in a directors' report);

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that CCIVs are transparent and keep accurate records in regard to their member base - noting that members are the ultimate 'owners' of a CCIV and have rights, powers and obligations in respect of the CCIV (in the same way as other members of other companies);

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that members of a CCIV or sub-fund can be identified and contacted in regard to their interests in the CCIV;

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members of a CCIV or sub-fund in a CCIV can identify and contact other members to hold a members' meeting; and

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that the laws applicable to CCIVs are, where possible, substantially the same as analogous laws in the Corporations Act.

19.20 These are the same objectives of the corresponding provisions which currently apply to companies and registered schemes under the Corporations Act.

19.21 There is a rational connection between the limitations on the right to privacy imposed by these provisions in the new CCIVs regime and the legitimate objectives described above. The provisions that engage the right to privacy are consistent with longstanding rights of the public to search ASIC's records in relation to companies and MISs, rights of members of a company or MIS to have access to some personal information of other members (so as to be able to call a members' meeting), and obligations on companies to be transparent in their operations.

19.22 These provisions are reasonable and necessary in pursuit of these legitimate objectives. A CCIV should not be exempt from the same obligations placed on other companies and MISs registered under the Corporations Act, and its members should not be deprived of rights enjoyed by members of other companies and MISs.

19.23 To the extent these provisions limit the right to privacy, they are proportionate to the legitimate objective they seek to give effect to. There are clear limits under the above provisions upon what kind of personal information can be recorded and accessed, and the purpose for which it can be used. Personal information of members and directors of the corporate director is limited to what is necessary to identify and contact them, which goes to the legitimate objective underpinning the provisions.

19.24 In addition, in respect of the existing powers to access company records of registration (which are extended to sub-funds as explained above), ASIC is not compelled to provide access. Under existing section 1274A of the Corporations Act, ASIC may permit a person to inspect a document containing personal information, but is not required to allow the inspection. ASIC can therefore choose not to permit a search in the event it is of the opinion that obtainment of personal information by a specific person from the records of transaction would not be in the interests of the individuals to which the personal information relates.

Engagement of the presumption of innocence

19.25 Paragraph 2 of Article 14 of the ICCPR protects the right of a person charged with a criminal offence to be presumed innocent until proven guilty according to law. The presumption of innocence is also a fundamental principle of the common law. As the Parliamentary Joint Committee on Human Rights has observed, the presumption of innocence 'imposes on the prosecution the burden of proving the charge, guarantees that no guilt can be presumed until the charge has been proved beyond reasonable doubt, ensures that the accused has the benefit of doubt, and requires that persons accused of a criminal act must be treated in accordance with this principle'. ^[14] The presumption of innocence generally requires the prosecution to prove each element of a criminal offence beyond reasonable doubt.

Strict liability offences

Overview of applicable strict liability offences

19.26 The new CCIVs regime in Bill engages the presumption of innocence because it includes new strict liability offences which allow the imposition of criminal liability without the need to prove fault. As such, the prosecution is not required to prove fault as part of the offence but merely prove that a contravention took place. In this instance, the defence of mistake of fact is available to the defendant.

19.27 The majority of the new strict liability offences inserted by the new CCIVs regime in the Bill apply to bodies corporate rather than natural persons. The legal person responsible for many actions under the CCIV's regime is a body corporate, namely, the CCIV, the CCIV's corporate director or some other body corporate (such as an auditing company).

19.28 However, there are specific instances under the CCIVs regime where a body corporate or a natural person may held liable for their conduct. The following are strict liability offences in the new law that may apply to a natural person, depending on the circumstances:

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Lodgement of notice with ASIC about the appointment of a temporary corporate director: A person (including a member of a CCIV) may apply to the Court for the appointment of a temporary corporate director in certain circumstances (for example, if the CCIV's corporate director is not eligible for the role). A member may be an individual, and an individual may choose to undertake this process for the CCIV. If a court appoints a temporary corporate director, then the person that made the application to the Court must lodge a notice with ASIC informing it of the appointment as soon as practicable, and in any event within 2 days after the order is made (see subsection 1222V(3)).

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Failure of an auditor of the CCIV's compliance plan to audit and report on compliance within three months after the end of a financial year: A CCIV must have, at all times, a registered company auditor, an audit firm or audit company engaged to audit compliance with the CCIV's compliance plan. In practice, such an auditor is commonly an audit company. However, an individual may choose to take on this role for the CCIV in certain circumstances (see subsection 1226F(3)). If an individual has chosen to take on this role, it must audit and report on the CCIV's compliance with the compliance plan (see subsections 1226G(1) and (6)).

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Failure of an officer of the corporate director of the CCIV to allow the auditor of the CCIV's compliance plan access to the books of the CCIV and other relevant information: to assist with the audit of the CCIV's compliance plan explained above, an officer of the corporate director of the CCIV must provide due assistance in the conduct of this audit (see subsections 1226G(3) and (6)). The officer of the corporate director will be an appropriately qualified individual who has chosen to take on this role for the corporate director and in respect of the CCIV operated by this corporate director. As explained above, the CCIV has a single corporate director and generally does not have natural person officers.

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Holding the money and property of the CCIV: the CCIV, being a company, may hold its money and property (including the assets of a sub-fund, of the money and property of the CCIV that is to be converted into a form that allows it to be allocated). The CCIV may also choose to appoint a person to hold its money and property on its behalf - on trust for the CCIV (see section 1234J). Generally, it is expected that a body corporate would undertake this role for the CCIV if a CCIV was structured in this way. This is consistent with current commercial practice for MISs - where body corporates act as a custodian and hold the money and property of the scheme on trust for the scheme's members. However, there is nothing in the law that prevents an individual from taking on this role if the CCIV chose to appoint an individual, and the individual chose to accept this position. If an individual held this role, then it is subject to certain requirements to ensure the money and property of the CCIV is held in the way required by the new law. In particular, the assets of each sub-fund must be held separately from the assets of all other sub-funds. This is an important integrity measure to ensure the separate and segregated treatment of sub-funds in a CCIV (as discussed in Chapter 6 above). If a person fails to hold the CCIV's money and property separately, then it may be liable for a strict liability offence (see subsections 1234J(1), (2) and (3)).

19.29 The penalties for a contravention of these strict liability offences that may apply to an individual in the new CCIVs regime comply with the Guide to Framing Commonwealth Offences as:

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the offences are not punishable by imprisonment and the fine does not exceed 60 penalty units for an individual;

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the potential harm to investors and to the reputation of Australia's financial system of extensive non-compliance is such that fault should not be an element of these offences; and

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individuals subject to the requirements covered by the offences should be on notice to guard against the possibility of contraventions.

Justification for limitations on right to the presumption of innocence in respect of these strict liability offences

19.30 Presumption of innocence is not an absolute right and is subject to permissible limits, for example in a situation in which threats to the rights of the innocent are minimal in comparison to the threats to the wider public interest. However, because proof of fault is one of the fundamental protections of criminal law, strict liability should only apply where there is adequate justification and subject to specific considerations.

19.31 The strict liability offences created by new law pursue the legitimate objectives of aiding the oversight and enforcement of the CCIV regime, protecting investors, ensuring the integrity of the CCIV's structure and supporting confidence in the CCIVs regime, as well as ensuring that the laws applicable to CCIVs are, where possible, substantially the same as analogous laws in the Corporations Act.

19.32 These strict liability offences are reasonable and necessary in pursuit of these legitimate objectives because of the potential harm that can be caused - to individual investors and third parties (such as creditors) and the integrity of the CCIV regime. It also supports confidence in the operation of the new CCIV regulatory regime more broadly - if individuals involved in operating CCIVs fail to comply with these regulatory obligations inherent to the regime.

19.33 There is a rational connection between the limitations on the presumption of innocence imposed by these new strict liability offences and the legitimate objectives described above. Given that these offences would only apply to those individuals who are intimately involved in the operation of a CCIV, and who have chosen to take on particular roles for the CCIV, these individuals should be cognisant of their regulatory obligations in doing so (and the potential imposition of strict liability offences for certain conduct). The imposition of these strict liability offences for failing to comply is likely to be effective in achieving greater compliance with these important regulatory obligations that are inherent to the effective operation of the CCIV regime.

19.34 These strict liability offences involve a penalty of either 20 or 60 penalty units for contravention by an individual. These penalties are minimal in comparison to the potential harm to the wider public interest, investors and third parties (such as creditors) if a person fails to comply with their regulatory obligations. The severity of the effects of these measures are proportionate to the legitimate objectives explained above.

Reversal of the burden of proof

19.35 An offence provision that requires a defendant to carry an evidential burden or reverses the burden of proof may be considered to engage the right to the presumption of innocence.

19.36 At common law, the prosecution ordinarily must prove all elements of any offence. This is an important aspect of the right to the presumption of innocence. Provisions that reverse the burden of proof and require a defendant to disprove, or raise evidence to dispose, one or more elements of an offence, interfere with this common law right.

19.37 One of the strict liability offences in the new law involves the reversal of burden of proof to a defendant. The defendant that has primary liability for this offence is a body corporate - being the CCIV.

19.38 If a CCIV becomes a retail CCIV, then the CCIV must notify ASIC of this status (see subsection 1222L(3)). A failure to do so is a strict liability offence with a penalty of 20 penalty units. However, it is a defence if the person (being the CCIV) did not know, and could not reasonably be expected to have known, that the CCIV is retail. A defendant bears the evidential burden for this defence in respect of this knowledge (see subsection 1222L(5)).

19.39 This offence pursues the legitimate objective of aiding the oversight and enforcement of the CCIV regime by ASIC, as well as broader confidence in the proper operation of the CCIV regime. It is important that ASIC, third parties and investors are readily able to identify the status of a CCIV as retail or wholesale.

19.40 As explained in Chapters 1 and 2, and in this Chapter 19 above, a CCIV may be either retail or wholesale, with retail CCIVs subject to a regulatory framework that encompasses additional regulatory protections necessary for retail investors. Wholesale CCIVs are subject to a more limited regulatory framework, reflecting the higher degree of investor sophistication among wholesale investors and capacity to negotiate bespoke arrangements with fund providers.

19.41 A CCIV will be a wholesale CCIV unless securities in the CCIV were issued or transferred to a retail client in circumstances that would have required that a PDS be given to that client under Chapter 7 of the Corporations Act. This is intended to ensure that a CCIV with one or more retail clients (within the existing meaning the Corporations Act) will generally be a retail CCIV.

19.42 Whether or not a CCIV is retail or wholesale, with reference to the nature of its clients, is a matter that is peculiarly within the knowledge of the defendant (being the CCIV). It would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish the matter. Accordingly, this reversal of the burden of proof is appropriate.

19.43 The application of certain existing regulatory requirements to the new CCIV regime means that the following provisions also provide an offence-specific defence, whereby a CCIV bears an evidential burden in any proceedings against the CCIV:

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Exemption from prohibition on hawking securities: The application of the existing prohibitions on hawking securities in Chapter 7 to CCIVs means that offence-specific defences are available to a CCIV in any proceeding based on subsection 992AA(1) or 736(1). The defendant bears an evidential burden when relying on one of these defences. [Schedule 1, item 4, sections 1241N(3) and (5)]

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The offences provided for in subsections 992AA(1) and 736(1) pursue the legitimate objective of ensuring retail investors are afforded adequate consumer protections in relation to an offer of securities. It is important that where a CCIV believes an offer of securities is not subject to this consumer protection, it possesses evidence to support this belief. It is appropriate to reverse the evidential burden of proof in relation to these offence-specific defences because the matters are peculiarly within the knowledge of the defendant, and it would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish the matter.

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Exemption from continuous disclosure requirements: The application of the existing continuous disclosure provisions in Chapter 6CA to an ED security in a CCIV means that subsection 1017B(2) provides an offence-specific defence, whereby a CCIV bears an evidential burden in any proceedings against the CCIV based on section 1017B. [Schedule 1, item 4, section 1241Z(1)]

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The extension of the existing subsection 1017B(2) to an ED security in a CCIV ensures consistency between the disclosure obligations placed on an ED security in a CCIV and an ED security in other financial products. It is appropriate to reverse the evidential burden of proof in relation to this offence-specific defence because the matter is peculiarly within the knowledge of the defendant, and it would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish the matter.

Engagement of the right to a fair and public hearing

19.44 Article 14 of the ICCPR ensures that everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law. This right is not limited by the new CCIVs regime in the Bill, as outlined below.

Infringement notices

19.45 Under the existing Corporations Act framework, certain offences and civil penalties are covered by an infringement notice regime. Relevantly, all strict liability offences are subject to infringement notices. In addition, certain prescribed civil penalty provisions may be subject to an infringement notice. Accordingly, under the existing Corporations Act framework, the strict liability offences contained in new Chapter 8B - including those that affect individuals outlined in this Statement above - may be subject to an infringement notice. The new law has not prescribed any civil penalty provisions to be captured by the existing infringement notice regime, however, the existing Corporations Act framework enables any civil penalties to be prescribed in regulations.

19.46 The infringement notice regime allows ASIC to issue an infringement notice as an alternative to court proceedings, for the payment of a pecuniary penalty in relation to an alleged contravention of specified Corporations Act provisions. If given an infringement notice, a person has the option to either pay the appropriate fine or contest the notice in a court.

19.47 If an infringement notice is complied with, no further action will be taken against the person, and the payment is not considered an admission of guilt (see section 1317DAU of the Corporations Act). However, if the infringement notice is not complied with, ASIC may take action in relation to the alleged contravention of the provision under which the infringement notice was issued.

19.48 To the extent that the infringement notice regime does engage the right to a fair and public hearing by a competent, independent and impartial tribunal, it does not limit the right as the person may still elect to have a matter heard by a court rather than pay the amount specified in the infringement notice.

Criminal process rights

19.49 Guidance Note 2: Offence provisions, civil penalties and human rights, provides that offence provisions need to be considered and assessed against the criminal process rights enshrined in Articles 14 and 15 of the ICCPR. These articles broadly protect the right to a fair trial and fair hearing, prevent the application of retrospective criminal laws, and provide minimum guarantees in criminal proceedings such as laws relating to double jeopardy and self-incrimination. ^[15]

19.50 The existing criminal offences framework in the Corporations Act will also apply to the offences contained in the new CCIVs regime, some of which do affect individuals as outlined in this Statement. The provisions in the new CCIVs regime do not affect the existing criminal process rights contained in the Corporations Act and therefore do not limit the right to a fair and public hearing by a competent, independent and impartial tribunal.

Civil penalties are not 'criminal' for the purposes of human rights law

19.51 Guidance Note 2: Offence provisions, civil penalties and human rights, provides that civil penalty provisions may also need to be considered and assessed against the criminal process rights enshrined in Articles 14 and 15 of the ICCPR. Civil penalty provisions may engage these criminal process rights where the penalty might be regarded as 'criminal' for the purposes of international human rights law. This is because the word 'criminal' has an autonomous meaning in international human rights law, regardless of how the provision might be considered in Australian domestic law.

19.52 When a provision imposes a civil penalty, an assessment is required as to whether the penalty is 'criminal' for the purposes of Articles 14 and 15 of the ICCPR. Such an assessment requires consideration of the classification of the penalty under domestic law, the nature of the penalty, and the severity of the penalty.

19.53 Where a civil penalty is assessed as a 'criminal' penalty for the purposes of international human rights law, it must be shown to be consistent with the criminal process guarantees set out in articles 14 and 15 of the ICCPR. If it is assessed as not being 'criminal', these processes need not apply.

19.54 The existing civil penalties framework in Part 9.4B of the Corporations Act applies to the new CCIV regime. The existing law sets out the circumstances that must be satisfied to establish a contravention of a civil penalty provision, such as proof of certain elements and circumstances, and procedural requirements to ensure a fair and proper process.

19.55 The new law creates several additional civil penalty provisions that apply to specified regulatory obligations under the CCIV regime. In certain circumstances, individuals may be liable for a contravention of these civil penalty provisions as follows.

19.56 In particular, the individual officers and employees of the corporate director of a retail CCIV owe certain statutory duties in respect of the CCIV (see subsections 1225(1) and 1225F(1)). These duties generally replicate those owed by the officers and employees of the responsible entity of a registered scheme under Chapter 5C of the Corporations Act and ensure investors in a retail CCIV are afforded comparable protections as investors in a registered scheme, with some differences tailored to the different legal structure of a CCIV (see detailed explanation in Chapter 3).

19.57 In addition, a failure to hold the money and property of the CCIV separately and in the manner required by the new law may attract a civil penalty. As explained in paragraph 19.28 above in relation to the strict liability offences for this conduct, it is generally expected that this role would be undertaken by another body corporate consistent with existing commercial practice for MISs - where body corporates act as a custodian and hold the money and property of the scheme on trust for the scheme's members. However, there is nothing in the law that prevents an individual from taking on this role if the CCIV chose to appoint an individual, and the individual chose to accept this position. If an individual held this role, then it is subject to certain requirements to ensure the money and property of the CCIV is held in the way required by the new law. In particular, the assets of each sub-fund must be held separately from the assets of all other sub-funds. This is an important integrity measure to ensure the separate and segregated treatment of sub-funds in a CCIV (as discussed in Chapter 6 above).

19.58 Further, under the existing civil penalties framework in Part 9.4B of the Corporations Act, a person 'involved' in a contravention of any civil penalty provision by another person is also liable for a civil penalty (see section 1317E of the Corporations Act). Section 79 of the Corporations Act defines the circumstances in which a person may be 'involved' in a contravention - including whether the person aided, abetted, counselled or procured the contravention. The existing civil penalties framework ensures there is personal culpability on the part of the person involved in the contravention in order to be held liable. A person involved in the contravention may include, for example, a natural person director of the corporate director, a lawyer or an accountant, depending on the circumstances. The existing civil penalties framework ensures individuals acting for bodies corporate are appropriately incentivised to ensure the body corporate complies with obligations in the Corporations Act that may give rise to a civil penalty.

19.59 These other new civil penalty provisions that involve obligations on a body corporate that may be contravened by individuals are as follows:

•

Duties owed by a director of a CCIV: A CCIV is operated by a single corporate director. In addition to its statutory duties as a director in Part 2D.1 of the Corporations Act, the CCIV's director owes additional duties that align with those owed by the corporate trustee and operator of a MIS (including under Chapter 5C of the Corporations Act and at general law) (see subsection 1224D(1), (2) and (4)). These additional duties ensure that investors in a CCIV are afforded comparable protections as investors in a MIS, with some differences tailored to the different legal structure of a CCIV. A detailed explanation of these duties is set out in Chapter 3. A person involved in a director's contravention of these duties may also be liable for a civil penalty.

•

Share capital requirements: A CCIV is subject to certain requirements with respect to the management of its share capital to protect the interests of creditors and investors - including requirements regarding the redemption of a member's share or other share capital reduction (such as a share buy-back). The CCIV is also subject to requirements if it engages in cross-investment within a CCIV. Further, the CCIV and its corporate director are subject to requirements to ensure that, if they acquire any shares in the CCIV, they do so for the consideration that another person would pay (and subject to terms and conditions that do not disadvantage other members) (see subsections 1224P(2), 1230F(5), 1230S(4), 1231B(4), and 1231J(5)). Consistent with the consequences that an ordinary company is subject to for breach, the CCIV itself is not liable for any contravention. However, a person involved in the contravention may be liable for a civil penalty. A detailed explanation of these requirements is set out in Chapter 4.

19.60 These new civil penalty provisions for the CCIV regime in the new should not be considered 'criminal' for the purposes of international human rights law.

19.61 Guidance Note 2: Offence provisions, civil penalties and human rights states that if the purpose of the penalty is to punish or deter, and the penalty applies to the public in general, then the penalty may be considered 'criminal' for the purposes of the ICCPR. Additionally, if the penalty carries a penalty of imprisonment or a substantial pecuniary sanction, the penalty may be considered 'criminal'. ^[16]

19.62 Whilst the new civil penalty provisions in the CCIVs regime in the new law have the purpose of deterring specific misconduct and incentivising compliance with the law (including incentivising corporate compliance with the law), the penalties apply only in a specific regulatory context, and only to the corporate director of a CCIV or specific persons actively engaged in the operations of the CCIV. Importantly, the CCIV regime is optional, and no element of the law will apply to any entity or person outside of the CCIV regime.

19.63 Additionally, the new civil penalty provisions will apply in response to misconduct in relation requirements that are core to the proper functioning and integrity of the CCIV regime - including ensuring the separate and segregated treatment of sub-fund(s) of the CCIV and the proper management of the CCIV's share capital. These requirements are important to safeguard the interests of investors and third parties (including creditors). Further, the additional statutory duties owed by the director of the CCIV and its officers and employees provide fundamental investor protections to members in a CCIV and ensure regulatory parity with existing structures used for the same investment activities. Mismanagement of a CCIV and its sub-funds could have significant consequences for investors in a CCIV, creditors and the financial market. As such, civil penalty provisions aimed at deterring such misconduct could be considered an important element of a robust consumer protection regime.

19.64 The maximum pecuniary penalties under the existing civil penalties framework in the Corporations Act apply to these new civil penalties. For individuals, a penalty may be ordered up to 5,000 penalty units or three times the benefit derived and detriment avoided because of the contravention (where relevant) (see subsection 1317G(3) of the Corporations Act). These pecuniary penalties may only be awarded if ASIC can demonstrate that the contravention materially prejudices the interests of the CCIV or its members, or materially prejudices the CCIV's ability to pay creditors, or is serious (see subsection 1317G(1) of the Corporations Act). While substantial, these maximum penalties are relative and proportionate to the potential pecuniary losses and detriment to investors that could result from misconduct by a CCIV, its corporate director, the officer or employee of the corporate director or other person involved in the contravention.

19.65 Guidance Note 2: Offence provisions, civil penalties and human rights notes that the nature of the industry or sector being regulated is relevant to the relative size of the pecuniary penalties and fines that may be imposed. ^[17] Whilst the new civil penalty provisions have substantial maximum penalties, these are proportionate to the relevant conduct and the relatively large size of the funds management sector and corporate structure of the CCIV support the fact that the new civil penalty provisions should not be considered 'criminal'.

19.66 Additionally, there is no sanction of imprisonment for non-payment of any penalty.

19.67 On that basis, the civil penalty provisions in the new CCIVs regime are not considered 'criminal' and do not limit the right to a fair and public hearing by a competent, independent and impartial tribunal.

Conclusion

19.68 The new CCIVs regime, established by Schedules 1 to 4 to the Bill, is compatible with human rights. It engages, or may engage, with the right to privacy and reputation, the right to the presumption of innocence, and the right to a fair and public hearing. However, to the extent that the new CCIVs regime in the Bill places limitations on these rights, these limitations can be considered legitimate, rational, and necessary in light of the objectives they aim to achieve, and reasonable and proportionate in their extent.

Schedule 5 - Corporate collective investment vehicles tax framework

Overview

19.69 Schedule 5 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

19.70 Schedule 5 to the Bill amends the taxation law to specify the tax treatment for the newly established CCIV. The amendments give effect to the core CCIV tax framework with the objective that the general tax treatment of CCIVs and their members align with the existing tax treatment of AMITs (and their members).

19.71 The CCIV tax framework achieves this objective by leveraging the existing trust taxation framework and the existing attribution flow-through regime (i.e., the new tax system for MITs, or the AMIT regime), rather than by creating a new bespoke tax regime.

19.72 Where the CCIV meets the AMIT eligibility criteria in respect of a sub-fund, then the CCIV will be able to attribute amounts of assessable income, exempt income, non-assessable non-exempt income, and tax offsets derived or received by the CCIV that have a particular character to the relevant class of members. Those amounts will retain that character and be recognised (and taxed) in the hands of each member.

19.73 Where a CCIV does not satisfy the AMIT eligibility criteria in respect of a sub-fund for a particular income year, then the CCIV tax treatment will generally default to the general trust taxation framework for that year.

Human rights implications

19.74 Schedule 5 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

19.75 Schedule 5 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 6 - Extension of temporary loss carry back

Overview

19.76 Schedule 6 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

19.77 Schedule 6 to the Bill amends the income tax law to extend the loss carry back rules by 12 months, allowing eligible corporate tax entities to claim a loss carry back tax offset in the 2022-23 income year.

Human rights implications

19.78 Schedule 6 to the Bill does not engage any of the applicable rights or freedoms

Conclusion

19.79 Schedule 6 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 7 - Deductible gift recipients

Overview

19.80 Schedule 7 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

19.81 Schedule 7 to the Bill amends the ITAA 1997 to:

•

specifically list the Greek Orthodox Community of New South Wales Ltd, Australian Associated Press Ltd, Virtual War Memorial Limited and SU Australia Ministries Limited as deductible gift recipients;

•

extend the deductible gift recipient specific listings of Cambridge Australia Scholarships Limited and Foundation 1901 Limited; and

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remove the deductible gift recipient specific listing of the East African Fund Limited

Human rights implications

19.82 Schedule 7 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

19.83 Schedule 7 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 8 - Minor and technical amendments Spring 2021

Overview

19.84 Schedule 8 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

19.85 Schedule 8 to the Bill makes a number of miscellaneous and technical amendments to various laws in the Treasury portfolio. The amendments are part of the Government's ongoing commitment to the care and maintenance of Treasury portfolio legislation.

19.86 The amendments make minor and technical changes to correct typographical and number errors, repeal inoperative provisions, remove administrative inefficiencies, address unintended outcomes, and ensure that the law gives effect to the original policy intent.

Human rights implications

Right to a fair trial

19.87 Subsection 350-10(4) of Schedule 1 to the TAA 1953, copies or extracts of certain tax documents may be used in substitute of the original document by the ATO for the purposes of court proceedings. Such documents may be used as evidence of the matters set out in the document to the same extent the original document would have been.

19.88 This provision replaced the now repealed subsection 177(1) of the ITAA 1936. Subsection 350-10(4) is intended to have the same substantive effect as the former subsection 177(1). The new provision expressed the same idea in a different form of words in order to use a clearer or simpler style.

19.89 This amendment engages the right to a fair trial under Article 14(1) of the ICCPR. This right is a fundamental part of the rule of law and the property administration of justice. It provides that all persons are equal before the courts and tribunals and have access to justice.

19.90 The amendment allows a Court to substitute a copy of a tax document for the original tax document for evidentiary purposes. The amendment supports the right to fair trial as it clarifies the operation of that section by more clearly and simply providing for the above effect.

Right to work

19.91 Amendments are made to the ITAA 199 7, TAA 1953 and the Income Tax Rates Act 1986 to ensure that the Seasonal Labour Mobility Program and Working Holiday Maker tax regimes functions properly despite disruptions caused by COVID-19.

19.92 Article 6(1) of the ICESCR provides for the right for all to gain a living by work which is freely chosen or accepted, and that steps must be taken to safeguard this right.

19.93 Individuals who are employed under the Seasonal Labour Mobility Program typically hold a subclass 403 visa. Holders of a subclass 403 visa may apply to the Department of Home Affairs to extend their stay in Australia under a COVID-19 Pandemic Event visa (subclass 408 visa). However, under the subclass 408 visa they will not be subject to the concessional Seasonal Labour Mobility Program tax regime. Currently, this issue is addressed by the Taxation Administration (Remedial Power - Seasonal Labour Mobility Program) Determination 2020, made by the Commissioner under section 370-5 of Schedule 1 to the TAA 1953.

19.94 Subparagraph 840-905(b)(ii) of the ITAA 1997 and section 12-319A of Schedule 1 to the TAA 1953 are amended to expand the scope of both provisions to holders of a subclass 408 visa who were previously holders of a subclass 403 visa.

19.95 Under section 3A of the Income Tax Rates Act 1986, an individual who holds a subclass 417 (Working Holiday) visa, subclass 462 (Work and Holiday) visa or certain bridging visas is considered a working holiday maker. Relative to non-resident taxpayers, working holiday makers are effectively subject to concessional tax rates under Part III of Schedule 7 to the Income Tax Rates Act 1986.

19.96 Eligible working holiday makers may apply to the Department of Home Affairs to extend their stay in Australia under a COVID-19 Pandemic Event 408 visa, which is defined in regulation 9204 of Schedule 13 to the Migration Regulations) 1994.

19.97 Section 3A of the Income Tax Rates Act 1986 is amended so that the definition of a working holiday maker includes holders of a Pandemic Event 408 visa if that visa was granted to allow holder to remain in Australia following the expiry of a subclass 417 visa, subclass 462 visa, or certain bridging visas.

19.98 The amendments promote this right as they ensure that workers under the above mentioned visas do not experience higher rates of income tax as a result of holding a new visa, granted for the purposes of providing relief in circumstances where COVID-19 has prevented cross-border international movements by temporary Australian visa holders.

Right to protection from arbitrary or unlawful interference with privacy

19.99 Amendments are made to the ITAA 1936 and TAA 1953 to permits the disclosure of TFNs to certain registrars for certain purposes. The Modernising Business Registers Program will consolidate multiple registers maintained by ASIC and the ATO. The registrars will share computer systems with the ATO to efficiently deliver the Australian Business Registry Services.

19.100 The amendments allow the Commissioner to disclose TFNs to the extent reasonably necessary to enable the registrars to share the ATO's computer systems in the performing of their functions or carrying out their powers. The amendments also amend section 8WB of the TAA 1953 regarding the prohibition of the recording or use of TFNs in particular ways. The section disapplies the prohibition in some circumstances. The amendments to this section add circumstances connected to the activities of the registrar to the circumstances in which the prohibition is disapplied.

19.101 Article 17 of the ICCPR requires parties to the ICCPR to uphold the individual right not to have one's private, family or home life or correspondence unlawfully or arbitrarily interfered with. According to the Parliamentary Joint Committee on Human Rights' Guide to Human Rights, the right to privacy includes the right to respect for confidential and private information, particularly the storing, use and sharing of such information.

19.102 The amendments to the ITAA 1936 and TAA 1953 engage the right to privacy because they provide for the collection and disclosure of information that may include personal information, such as an individual's TFN.

19.103 Such disclosure in this context is justified because the disclosure is limited to circumstances authorised by law to allow the Commissioner to effectively share the ATO's computer systems with the Registrar only as necessary to enable the efficient delivery of the Australian Business Registry Services. The disclosure is limited to the Registrar and otherwise the TFNs will remain subject to the general restrictions on the disclosure, use and recording of TFNs. However, enabling such disclosure will provide considerable efficiencies for users of the ABRS while substantially preserving the confidentiality of their TFNs.

Conclusion

19.104 Schedule 8 to the Bill is compatible with human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Schedule 9 - Retirement income covenant

Overview

19.105 Schedule 9 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

19.106 Schedule 9 to the Bill amends the Superannuation (Industry Supervision) Act 1993 to insert a new covenant that aims to ensure trustees maximise the expected retirement income of beneficiaries.

Human rights implications

19.107 The impact of Schedule 9 on the following human rights or freedoms has been considered.

Civil penalties for contravening section 52 covenants

19.108 Consistent with other section 52 covenants, the Retirement Income Covenant may attract a civil penalty for contravening section 52 of the SIS Act.

19.109 The penalty is appropriate given the need to create a sufficient deterrent to non-compliance with the covenant. Failing to comply with the covenant, may result in beneficiaries having poorer risk management of their retirement savings, being less informed about the options available in relation to retirement income and ultimately having worse retirement outcomes. It is therefore important that the penalty reflects the seriousness of potential non-compliance and aligns with community standards and expectations.

19.110 Imposing the civil penalty will act, foremost, as a deterrent but also as an appropriate disciplinary response to non-compliance. The civil penalty amount is reasonable and consistent with existing penalties that apply for existing covenants in the SIS Act and are necessary to improve retirement income outcomes for beneficiaries.

19.111 The civil penalty provision contained in the Schedule is not 'criminal' for the purposes of human rights law. While a criminal penalty is a deterrent or punitive, these provisions are regulatory and disciplinary. Further, the provisions do not apply to the general public, but to a sector or class of people who should reasonably be aware of their obligations under the SIS Act (that is, trustees of an RSE).

19.112 Schedule 9 engages human rights, but does not limit those rights

Criminal offence for contravening section 52 covenant

19.113 Where a contravention of the new civil penalty provisions involves dishonesty or intention to deceive or defraud, that contravention is punishable on conviction by imprisonment for a maximum of 5 years. This may be considered to engage the right to justice in Article 14 of the ICCPR and the right not to be convicted of something that was not a crime when the activity took place in Article 15 of the ICCPR.

19.114 The criminal offences remain consistent with the criminal process or procedural rights that currently exist and are upheld in accordance with Article 14 of the ICCPR.

19.115 The maximum penalty of imprisonment for a maximum of 5 years is adequate to sanction misconduct for the worst possible cases of non-compliance that involve dishonesty and intention to deceive or defraud. The offences are consistent with the existing penalty regime in the SIS Act that provides for when a contravention of a civil penalty provision is also a criminal offence. The penalty is necessary to improve retirement income outcomes for beneficiaries.

19.116 The penalty will apply to offences committed after Schedule 9 commences, and therefore apply prospectively and uphold Article 15 of the ICCPR.

19.117 Schedule 9 engages but does not limit the right to justice in Article 14 of the ICCPR and the right not to be convicted of something that was not a crime when the activity took place in Article 15 of the ICCPR.

Conclusion

19.118 This Schedule is compatible with human rights because to the extent that Schedule 9 may limit human rights, those limitations are reasonable, necessary and proportionate.

Schedule 10 - Employee share schemes: Removing cessation of employment as a taxing point

Overview

19.119 Schedule 10 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

19.120 Schedule 10 to the Bill amends the ITAA 1997 to remove cessation of employment as a taxing point for ESS interests which are subject to deferred taxation.

Human rights implications

19.121 Schedule 10 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

19.122 Schedule 10 to the Bill is compatible with human rights as it does not raise any human rights issues.