Explanatory Memorandum
(Circulated by authority of the Minister for Housing and Assistant Treasurer, the Hon. Michael Sukkar MP)Chapter 6 Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Phoenixing offences and property transfers to defeat creditors
6.1 This Schedule 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 .
Overview
6.2 Schedule 1 to the Bill introduces new phoenixing offences to prohibit creditor-defeating dispositions of company property, penalise those who engage in or facilitate such dispositions, and allow liquidators and ASIC to recover such property.
6.3 In particular, the amendments in this Schedule create the following offences and civil penalty provisions:
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- a criminal offence that applies to officers that engage in conduct that results in the company making a prohibited creditor-defeating disposition;
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- a civil penalty provision that applies to officers that engage in conduct that results in a company making a disposition where a reasonable person would have known the disposition was a prohibited creditor-defeating disposition;
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- a criminal offence that applies to persons that procure, incite, induce or encourage a company to make a prohibited creditor-defeating disposition;
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- a civil penalty provision that applies to a person that procures, incites, induces or encourages a company to enter into a disposition where a reasonable person would have known the disposition was a prohibited creditor-defeating disposition;
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- a strict liability criminal offence that applies to a person that does not comply with an ASIC order for the recovery of property disposed of under a voidable creditor-defeating disposition.
Human rights implications
6.4 Consideration has been specifically given to the guidance in the Parliamentary Joint Committee on Human Rights' Guidance Note 2: Offence provisions, civil penalties and human rights and to the Attorney-General's Department's Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers , September 2011 Edition.
6.5 The amendments in Schedule 1 engage the right to be presumed innocent until proven guilty according to law under Article 14(2) of the ICCPR.
6.6 Article 14(2) of the ICCPR protects the right of a person charged with a criminal offence to be presumed innocent until proved guilty according to law. Generally, consistency with the presumption of innocence requires the prosecution to prove each element of a criminal offence beyond reasonable doubt. It may, however, be appropriate to limit this right in certain circumstances.
6.7 The amendments provide for some offence-specific defences where the evidential burden is shifted from the prosecution to the defendant. In these cases, a defendant has an evidential burden to point to some evidence that suggests a reasonable possibility that a matter exists or does not exist.
6.8 The following defences apply to the criminal offences established by the amendments (other than the offence for failing to comply with an ASIC order):
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- the disposition was made under a deed of company arrangement or scheme of arrangement;
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- the disposition was made by the company liquidator or provisional liquidator;
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- the disposition was made in connection with a course of action and the safe harbour applies to the defendant.
Creditor arrangement defence
6.9 The main criminal offence provisions do not apply if the defendant can meet an evidential burden that the impugned disposition was made under a deed of company arrangement or scheme of arrangement.
6.10 In this case, it is appropriate for a defendant to have the burden of pointing to some evidence that the disposition is made under a deed of company arrangement or scheme of arrangement because it will be peculiarly within the defendant's knowledge. Defendants are likely to:
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- be an officer of the company or have a strong connection to the company;
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- have been involved in a court process related to a scheme of arrangement;
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- be parties to a deed of company arrangement; and
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- have access to company records and documents that would establish a deed of company arrangement or scheme of arrangement was entered into.
6.11 It would also be significantly more difficult and costly for the prosecution to disprove the fact that the disposition was under a deed of company arrangement or scheme of arrangement.
Liquidator defence
6.12 The second of the offence-specific defence is that the main criminal offence provisions do not apply to a liquidator or provisional liquidator of the company that causes a company to make the impugned disposition.
6.13 In this case, it is appropriate for a defendant to point to some evidence that the relevant agreement or transaction was entered into by a liquidator because the circumstances of the disposition will be peculiarly within the defendant's knowledge.
6.14 It would also be significantly more difficult and costly for the prosecution to disprove the fact that the relevant disposition was not by a liquidator.
Safe harbour defence
6.15 A company officer or other person relying on the safe harbour defence will be required to point to evidence that suggests that they started to develop a course of action reasonably likely to lead to a better outcome for the company after starting to suspect the company was insolvent.
6.16 It is appropriate for an evidential burden to apply to a person wishing to rely on safe harbour because:
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- details about the courses of action developed are peculiarly within the person's knowledge; and
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- it would be significantly more difficult and costly for the prosecution to disprove the possibility that the person developed a course of action reasonably likely to lead to the better outcome for the company.
Civil penalty provisions
6.17 Civil penalty provisions within the Corporations Act 2001 currently allow courts to order individual defendants to pay penalties of up to $200,000 where there has been a breach of a relevant civil penalty provision. Once a court decides a breach of a civil penalty provision has occurred, ASIC can apply to the Court to seek disqualification orders of relevant persons from managing corporations for a period of time the Court considers appropriate.
6.18 The amount of civil penalties the court may impose will be increased under the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018. The maximum penalty for contravening a civil penalty provision for an individual is increased to either 5,000 penalty units or the benefit derived or detriment avoided, multiplied by three. The increased penalty ensures civil penalties for individuals proportionately align with the increase in civil penalties for bodies corporate, and act as a sufficient deterrent for misconduct.
6.19 The Parliamentary Joint Committee on Human Rights' Guidance Note 2 observes that civil penalty provisions may engage criminal process rights under Article 14 of the ICCP R , regardless of the distinction between criminal and civil penalties in domestic law. This is because the word 'criminal' has an autonomous meaning in international human rights law. When a provision imposes a civil penalty, an assessment is therefore required as to whether it amounts to a 'criminal' penalty for the purposes of Article 14 of the ICCPR.
6.20 While the civil penalty provisions are not classified as criminal under Australian law, consideration must be had to the nature, purpose and severity of the penalties.
6.21 While the purpose of the civil penalty is to act as a sufficient deterrent for misconduct, the penalties apply to people who, in light of their conduct, should be aware of their obligations, such as company directors, officers and professional advisers.
6.22 In practice, it is intended that courts would determine which method provides the greatest penalty, and then use discretion to impose an appropriate penalty up to that amount. The penalty is the maximum that a court can impose, taking into account the facts and circumstances of each case.
6.23 While the civil penalty amounts are intended to deter misconduct, neither of the civil penalty provisions carry a penalty of imprisonment. The civil penalty provisions should not be considered 'criminal' for the purpose of human rights law due to their application in the regulatory environment for corporate insolvency. Therefore, the civil penalty provisions do not create criminal offences for the purposes of Article 14 of the ICCPR.
Conclusion
6.24 To the extent that the Schedule engages the rights under Article 14 of the ICCPR, it is compatible with human rights as the offences and civil liability provisions are appropriate because it:
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- achieves the legitimate objective of protecting a company's creditors from serious misconduct;
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- is rationally connected to the objective by improving the likelihood of compliance with the law; and
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- imposes proportionate penalties for misconduct.
Improving the accountability of resigning directors
6.25 This Schedule 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 .
Overview
6.26 Schedule 2 to the Bill ensures directors are held accountable for misconduct by preventing directors from improperly backdating resignations or ceasing to be a director when this would leave the company with no directors. This will reduce the incidence of illegal phoenix activity and its effect on employees, creditors and government revenue.
6.27 The amendments in this Schedule make it a strict liability offence for a person to fail to notify ASIC of certain Court orders affecting their position as director of a company.
Human rights implications
6.28 Consideration has been specifically given to the guidance in the Parliamentary Joint Committee on Human Rights' Guidance Note 2: Offence provisions, civil penalties and human rights and to the Attorney-General's Department's Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers , September 2011 Edition.
6.29 This Schedule engages the right to a fair trial in Article 14 of the ICCPR.
6.30 A strict liability offence is considered appropriate in the case of non-compliance with this obligation. It is necessary to strongly deter misconduct that can have serious detriment for the accuracy of the company registry, which members of the community may rely when dealing with companies and their directors.
6.31 The application of strict liability, as opposed to absolute liability, preserves the defence of honest and reasonable mistake of fact. This defence maintains adequate checks and balances for persons who may be accused of such offences.
6.32 The Attorney General's Department's Guide suggests an appropriate penalty for a strict liability offence is 60 penalty units for an individual. While the amendments depart from the Guide, the penalty is at the lower end of the penalty scale and does not include imprisonment.
6.33 The offence and the penalty is consistent with the strict liability offence for failing to notify ASIC that a company director has ceased to be a director (subsection 205B(5) of the Corporations Act 2001 (as amended by the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 )).
Conclusion
6.34 To the extent that the Schedule engages the rights under Article 14 of the ICCPR, it is compatible with human rights as the strict liability offence is appropriate because it:
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- achieves the legitimate objective of protecting the general public from misconduct;
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- is rationally connected to the objective by improving the likelihood of compliance with the regulatory regime; and
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- imposes proportionate penalties for misconduct.
GST estimates and director penalties
6.35 This Schedule 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 .
Overview
6.36 Schedule 3 to the Bill allows the Commissioner to collect estimates of anticipated GST liabilities and make company directors personally liable for their company's GST liabilities in certain circumstances.
6.37 Director penalties are a mechanism to make company directors personally liable for certain tax debts of the company. They are not criminal in nature.
Human rights implications
6.38 The Schedule does not engage any of the applicable rights or freedoms.
Conclusion
6.39 This Schedule is compatible with human rights as it does not raise any human rights issues.
Retention of tax refunds
6.40 This Schedule 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 .
Overview
6.41 Schedule 4 to the Bill authorises the Commissioner to retain tax refunds where a taxpayer has failed to lodge a return or provide other information to the Commissioner that may affect the amount the Commissioner refunds. This ensures taxpayers satisfy their tax obligations and pay outstanding amounts of tax before being entitled to a tax refund.
Human rights implications
6.42 The Schedule does not engage any of the applicable rights or freedoms.
Conclusion
6.43 This Schedule is compatible with human rights as it does not raise any human rights issues.