House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Outline

Liability of directors of corporate trustees

Schedule 1 to this Bill amends the Corporations Act 2001 (the Corporations Act) to clarify the scope of the potential personal liability of the directors of corporate trustees. The amendments will address concerns that have arisen in the light of the recent decision of the South Australian Supreme Court in Hanel v O'Neill
[2003] SASC 409 , namely, that directors of corporate trustees could be personally liable in any case where there are insufficient assets to discharge the liabilities of the trust. This interpretation could significantly expand the personal liabilities of the directors of all corporate trustees, from large superannuation trusts through to trading trusts running a small business.

Schedule 1 will replace existing subsection 197(1) of the Corporations Act with a new subsection 197(1) that unambiguously only imposes personal liability on a director of a corporate trustee where the corporation's right of indemnity as trustee is lost through disentitling conduct on the part of the corporation (whether through breach of trust or ultra vires conduct) or through a restriction in the terms of the trust that purports to deny a right of indemnity against trust assets.

Technical amendment to auditor independence provisions

Schedule 2 to this Bill will clarify the operation of subsection 1462(2) of the Corporations Act to ensure that the auditor independence provisions in repealed sections 324 and 331AA of the Corporations Act continue to apply to financial years commencing prior to 1 July 2004. This technical amendment has been backdated to the commencement of section 1462 of the Corporations Act (30 June 2004) to ensure that there is no gap in the operation of these provisions.