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Thursday, 1 November 2012
Page: 12968

Mr TONY SMITH (Casey) (12:53): On the Personal Liability for Corporate Fault Reform Bill 2012, I speak on behalf of the shadow Treasurer and member for North Sydney. This bill is part of a process to introduce some sensible reforms to the laws imposing liability on a director for acts or omissions of their companies. Former Treasurer Costello began the hard work to implement reforms to this area of over-regulation. It was a coalition government that tried to bring some sensible reform to this area of Commonwealth law. The Corporations and Markets Advisory Committee reported to the then Treasurer back in September of 2006. The committee recommended a principled and consistent approach to personal liability across various jurisdictions. The committee summed up the concerns as follows:

The Advisory Committee is concerned about the practice in some statutes of treating directors or other corporate officers as personally liable for misconduct by their company unless they can make out a relevant defence. Provisions of this kind are objectionable in principle and unfairly discriminate against corporate personnel compared with the way in which other people are treated under the law.

That is the mischief that this bill is aimed at: situations of so-called derivative liability or positional liability that are imposed on a person for acts of the corporation because a person holds a particular position, regardless of their involvement in the company's contravention. Derivative liability or positional liability laws imposed on directors hinder productivity, as these types of laws encourage directors to make decisions that are excessively risk averse and to be overly cautious in their decision making, rather than having their focus on ways to improve productivity and competitiveness. A less common but unjustifiable approach to imposing personal liability on directors for corporate fault has been the practice of reversing the onus of proof. Whilst the states and territories have more laws on their books that reverse the onus of proof than does the Commonwealth, the Law Council of Australia, for one, has been advocating that the Commonwealth take the lead and remove all its legislation that reversed the onus of proof.

The bill will implement the COAG directors' liability reform. The COAG reforms aim to harmonise the imposition of personal criminal liability for corporate fault across Australian jurisdictions, remove regulatory burdens on directors and corporate officers that cannot be justified on public policy grounds, and minimise inconsistency between Australian jurisdictions. COAG agreed to a set of principles proposed by the Ministerial Council for Corporations, otherwise known as MINCO, for national adoption as the basis upon which personal liability for corporate fault should be imposed. The principles are:

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

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

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

4. The imposition of personal criminal liability on a director for the misconduct of a corporation should be confined to situations where:

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

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

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

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

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

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

As the parliamentary secretary outlined during the introduction, the bill amends various acts to remove personal criminal liability for corporate fault where such liability is not justified; to remove the burden of proof on defendants to establish a defence to a charge; to replace personal criminal liability for corporate fault with civil liability where a non-criminal penalty is more appropriate; and, where personal criminal liability is justified, to make clear the circumstances where such liability would apply.

While this bill is an improvement on the status quo, it has not removed all provisions that impose a reversed onus of proof. At this month's hearing into the bill by the Parliamentary Joint Committee on Corporations and Financial Services, the Law Council identified that section 8Y in the Taxation Administration Act had not been removed despite that provision imposing a reversal of the onus of proof. Another recent example of this approach to directors' liability is found in the area of executive remuneration legislation. In his evidence to the committee, the distinguished and respected expert on corporate law Professor Baxt identified a recent taxation provision that he described as totally unacceptable because it is a provision of strict liability that reverses the onus of proof and imposes liability on a director who has not been appointed at the time of the relevant act or omission. Professor Baxt was referring to a provision that imposes liability for a superannuation levy not on the directors who were directors of the company at the time the levy was collected but on any new director who comes onto the board after the levy.

Professor Baxt believes that a provision of this kind has not been copied into any other democracy that adopts an English common law system of legislation.

Given that the changes have been agreed through the COAG process and are supported by stakeholders as an improvement to the status quo, the coalition does not oppose the bill but urges the government to re-examine its decision not to remove provisions that reverse the onus of proof and provisions that not only reverse the onus of proof but also impose strict liability. On behalf of the shadow Treasurer the coalition will not be opposing this legislation.