House of Representatives

Personal Liability for Corporate Fault Reform Bill 2012

Second Reading Speech

Mr Ripoll (Parliamentary Secretary to the Treasurer)

I move:

That this bill be now read a second time.

Today I introduce a bill to amend a number of Commonwealth acts across several portfolios, including the Corporations Act, as part of the government's commitment to implement the directors' liability reform-a reform of the Council of Australian Governments (COAG) National Partnership Agreement to Deliver a Seamless National Economy.

This reform commits all jurisdictions to establishing a nationally consistent and principled approach to the imposition of personal criminal liability on directors and corporate officers for corporate fault. The 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 way personal liability for corporate fault is imposed in Australian laws.

This reform, agreed to by COAG in November 2008, followed earlier reviews that had recommended reform.

Calls for reform stemmed from the recognition that there appeared to be an increasing tendency for personal liability provisions to be introduced in Australian law as a matter of course and without robust justification.

These provisions had the potential to operate in a manner that was both unfair and inefficient-unfair in the sense that an individual could face a criminal penalty for a breach of the law by a corporation when the individual had no knowledge of or control over the breach, and inefficient to the extent that company directors could face excessive risk of personal criminal liability, which may detract from their strategic and entrepreneurial responsibilities.

A further concern was that inconsistencies in the standards of personal responsibility both within and across jurisdictions were resulting in undue complexity and a lack of clarity about responsibilities and requirements for compliance.

For example, directors and corporate officers have been held to be personally liable in one jurisdiction for an act by a company, but not in another, or been held personally liable for an act by a company in day-to-day business operations, over which they could not reasonably be expected to exercise control.

To address these concerns, COAG endorsed a three-step approach to reforming derivative liability in Australia.

Firstly, COAG endorsed principles to guide jurisdictions when imposing personal liability for corporate fault. Guidelines were also developed to provide greater clarity and consistency in the way the COAG principles would apply.

Secondly, all jurisdictions would undertake a thorough audit of their legislation against these principles and recommend amendments to bring them into line with the principles.

The outcomes of the audits by the Commonwealth, states and territories were also collectively reviewed to ensure that the principles had been applied appropriately.

Thirdly, jurisdictions would commit to implementing the audit outcomes by introducing legislation to make any necessary amendments to their laws by the end of 2012, and to apply the COAG principles when drafting future legislation.

The COAG principles and guidelines, which have guided the amendments in this bill, are concerned with personal liability provisions that hold directors and other corporate officers criminally liable because an offence has been committed by the corporation. They are not concerned with circumstances where such officers may be held liable as a result of their personal involvement in the commission of an offence.

While recognising the need for a more principled and consistent approach to the imposition of personal liability for corporate fault, this need has been balanced against the importance of holding corporate officers directly accountable to the community for the actions of their company, where there are important public policy considerations at stake. Personal liability would typically be justified in circumstances where directors and corporate officers have been negligent in relation to their company's contravention, resulting in significant public harm, and where the liability of the corporation is unlikely on its own to sufficiently promote compliance.

Examples of significant public harm include corporate misconduct which could result in significant harm to the national economy, to public health, or to vulnerable persons. For this reason, a number of offences that provide personal criminal liability for corporate fault will remain in the law.

In assessing the appropriateness of the directors' liability provisions in the Commonwealth legislation against the reform principles, we have taken into account a number of factors-including the seriousness of the harm a corporate offence would cause, the effectiveness of only penalising the corporation, and the general appropriateness of punishing the individual for the conduct of a corporation.

To give effect to the COAG directors' liability reform commitment, the bill removes a number of provisions in Commonwealth legislation-such as in the Corporations Act and the Therapeutic Goods Act. The bill also reforms various provisions either to remove criminal penalties, or to make clear the circumstances in which criminal penalties will apply.

MINCO Approval

The Ministerial Council for Corporations has been consulted in relation to amendments to the Corporations Act, and has approved the amendments contained in this bill.

Summing Up

In summing up-the Personal Liability for Corporate Fault Reform Bill amends Commonwealth legislation to bring it into alignment with the COAG principles and guidelines for the imposition of personal criminal liability for corporate fault. This bill will ensure that a person is only made criminally liable for the fault of a corporation where it is fair and reasonable to do so after taking into account:

the nature of the harm that the crime would cause;
the extent to which corporate officers can directly control the relevant corporate conduct; and
the effectiveness of other forms of penalties and enforcement against the corporation alone.

This reform, once implemented by all jurisdictions, will significantly reduce the overall number of laws containing directors' liability provisions nationally.

This will reduce the regulatory compliance burden on businesses, while at the same time retaining laws that are necessary to ensure that company directors and other corporate officers take reasonable steps to ensure that their companies comply with their obligations under the law.

This is an important red tape reduction that will benefit all Australian businesses. In particular, the application of a consistent set of principles by the Commonwealth and all states and territories will provide greater certainty for companies that are subject to both Commonwealth and state or territory laws, and those that trade in multiple jurisdictions, thus helping to promote a more seamless national economy. I commend the bill to the House.

Debate adjourned.