House of Representatives

Explanatory Memorandum

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

Chapter 1

Council of Australian Governments Directors' Liability Reform Project

Background

1.1 The Directors' Liability reform project is part of the Council of Australian Governments' National Partnership Agreement to Deliver a Seamless National Economy (SNE NP). The COAG reform initiative commits all jurisdictions to establishing a nationally consistent and principled approach to the imposition of personal liability on directors and other corporate officers for corporate fault.

1.2 The reform initiative aims to remove regulatory burdens on directors and corporate officers that cannot be justified on public policy grounds, and to minimise inconsistency between Australian jurisdictions in the application of personal liability for corporate fault in government laws.

1.3 In November 2008, COAG agreed to the reform of personal criminal liability for corporate fault across Australian law, other than for laws relating to workplace health and safety and environmental protection (which were then the subject of separate reform processes).

1.4 COAG's decision followed earlier reviews, including by the Australian Law Reform Commission, the Corporations and Markets Advisory Committee (CAMAC) and the Commonwealth Government Taskforce on Reducing the Regulatory Burden on Business (Banks Taskforce), which had recommended reform.

1.5 In December 2009, COAG agreed to a set of Principles ('COAG Principles') proposed by the Ministerial Council for Corporations (MINCO) for national adoption as the basis upon which personal liability for corporate fault should be imposed. The implementation plan for the SNE NP requires all existing Commonwealth, State and Territory legislation to be audited against the COAG principles and jurisdictions to introduce legislation by the end of 2012 to reform their directors' liability provisions to ensure consistency with the COAG Principles. It also commits all jurisdictions to agree to apply the COAG Principles in future legislation.

1.6 At the request of COAG, the Business Regulation and Competition Working Group (BRCWG), comprising senior officials from Commonwealth, State and Territory governments and chaired by the Commonwealth Minister for Finance and Deregulation and Commonwealth Minister Assisting for Deregulation, developed a set of supplementary Guidelines to assist jurisdictions in auditing their legislation against the COAG Principles. On 25 July 2012, COAG agreed to apply these Guidelines when drafting future legislation. The audits do not cover core environmental protection legislation or Acts based on national model legislation.

Scope of reform

1.7 The Guidelines clarify the scope of matters to be covered by the jurisdictional audits as only applying to provisions where a director is held criminally liable for an offence that was committed by the corporation. The Guidelines make clear thatthe COAG Principlesdo not extent to situations where a director may have committed an offence personally, or where a director might be held liable as an 'accessory' to an offence (where the director aided, abetted, counselled or procured the corporation's offence, or was knowingly concerned in the corporation's offence).

1.8 To give effect to the COAG reform, jurisdictions were required to implement the audit outcomes by introducing legislation to make the necessary amendments by the end of 2012 and to continue to apply the COAG principles and guidelines when drafting future legislation.

1.9 The amendments in this Bill represent those directors' liability provisions in Commonwealth legislation recommended for repeal or amendment in line with the COAG Principlesand Guidelines.

COAG Principles for the imposition of personal liability for criminal fault

1.10 The following are the agreed COAG Principles:

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Where a corporation contravenes a statutory requirement, the corporation should be held liable in the first instance.

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Directors should not be liable for corporate fault as a matter of course or by blanket imposition of liability across an entire Act.

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A 'designated officer' approach to liability is not suitable for general application.

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The imposition of personal criminal liabilityon a director for the misconduct of a corporation should be confined to situations where:

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there are compelling public policy reasons for doing so (for example, in terms of the potential for significant public harm that might be caused by the particular corporate offending);

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liability of the corporation is not likely on its own to sufficiently promote compliance; and

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it is reasonable in all the circumstances for the director to be liable having regard to factors including:

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the obligation on the corporation, and in turn the director, is clear;

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the director has the capacity to influence the conduct of the corporation in relation to the offending; and

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there are steps that a reasonable director might take to ensure a corporation's compliance with the legislative obligation.

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Where principle 4 is satisfied and directors' liability is appropriate, directors could be liable where they:

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have encouraged or assisted in the commission of the offence; or

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have been negligent or reckless in relation to the corporation's offending.

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In addition, in some instances, it may be appropriate to put directors to proof that they have taken reasonable steps to prevent the corporation's offending if they are not to be personally liable.