Second Reading Speech
Mr Pearce (Parliamentary Secretary to the Treasurer)
I move:
That this bill be now read a second time.
Today I introduce a bill which will clarify the scope of the personal liability of directors of corporate trustees.
The bill will address concerns that have arisen in the light of the recent decision in Hanel v O'Neill, which extended the personal liability of these directors under subsection 197(1) of the Corporations Act 2001.
Prior to the December 2003 decision of the full court of the South Australian Supreme Court in Hanel, section 197 and its predecessors had traditionally been interpreted as applying in very limited circumstances.
These were where the director's right of indemnity of the corporate trustee was lost due to the conduct of the trustee, or where the terms of the trust deed were designed or could operate to deny creditors access to trust assets to meet liabilities incurred by the corporation.
It is the government's view that it is vital to address business uncertainty and to clarify the legislative intent of section 197 in the wake of the Hanel decision.
Hanel v O'Neill significantly expands the potential personal liability of directors of corporate trustees, from large superannuation trusts through to trading trusts running a small business. In essence, the decision effectively makes directors of corporate trustees guarantors of trust liabilities.
The proposed amendment contained in this bill will restore the longstanding interpretation of section 197.
It will work to clarify the circumstances in which directors of corporate trustees are liable to discharge a liability incurred by the corporation, acting in its capacity as trustee.
In addition to the clarification of subsection 197 of the Corporations Act, the bill also contains a technical amendment to clarify the operation of a transitional provision in the CLERP 9 legislation.
This will ensure that the auditor independence provisions applying before the enactment of that legislation continue to apply to financial years commencing prior to 1 July 2004.
In concluding, I note that I have, in accordance with the Corporations Agreement, consulted the Ministerial Council for Corporations prior to introducing this bill. I have also obtained MINCO approval of the bill.
I therefore present the explanatory memorandum to the bill and commend the bill to the House.
Debate (on motion by Mr Edwards) adjourned.