Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
corporations amendment (no.1) bill 2008
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Minister for Superannuation and Corporate Law, Senator the Hon Nick Sherry)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 Mutual recognition of director disqualification 5
Index 11
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|Corporations Act |Corporations Act 2001 |
|MoU |Memorandum of Understanding |
|Corporations |Corporations Regulations 2001|
|Regulations | |
General outline and financial impact
Amendments relating to the disqualification of directors etc
The Corporations Amendment (No.1) Bill 2008 will provide a
mechanism in the Corporations Act 2001 (Corporations Act) for
recognising, in Australia, the disqualifications from managing
corporations that occur in foreign jurisdictions. Initially, it is
envisaged that this mutual recognition will extend only to New
Zealand, but the Bill provides a mechanism to enable other
jurisdictions to be added at a later date.
The Bill embodies a further incremental step towards achieving the
policy goal of a single trans-Tasman economic market based on
common regulatory frameworks. The achievement of this policy goal
is being progressed under the Australian and New Zealand
Governments' Memorandum of Understanding (MoU) on Business Law
Coordination.
Date of effect: Upon Royal Assent.
Proposal announced: This measure was announced in the Minister for
Superannuation and Corporate Law's Press Release No. 9 of
26 February 2008
Financial impact: Nil.
Compliance cost impact: There will be very low compliance costs
imposed on business which will result only from the need to keep
abreast of new regulatory requirements.
Chapter 1
Mutual recognition of director disqualification
Outline of chapter
1. The Bill amends the Corporations Act to provide a mechanism for
recognising, in Australia, the disqualification of a person from
managing a corporation that occurs in a foreign jurisdiction. This
will effectively 'close a regulatory gap' whereby persons can
currently avoid disqualification simply by moving jurisdictions.
Context of amendments
2. The provisions in this Bill fulfil a requirement of the work
program formulated under the Australian and New Zealand
Governments' MoU on Business Law Coordination that aims to achieve
a single trans-Tasman economic market based on common regulatory
frameworks. The work program includes implementing a mechanism to
allow for the disqualification of persons from managing companies
in one jurisdiction to apply in the other jurisdiction.
3. There is already a high degree of commonality in this area of
corporate law between Australia and New Zealand. Additionally, a
degree of 'mutual disqualification' already exists in Australia in
relation to the serious criminality of directors. However,
circumstances still exist where a director who is banned in New
Zealand can escape disqualification in Australia. For example, a
person who is disqualified in New Zealand because they are bankrupt
can still manage a company in Australia.
4. New Zealand has already closed this regulatory gap by enacting the
New Zealand Companies Amendment (No. 2) Act 2006. This Act
inserted provisions into the New Zealand Companies Act 1993 that
facilitate prohibition in New Zealand of directors who are
disqualified under Australian law. These amendments have been in
effect since 18 June 2007. In the interests of cross-border
consistency, this Bill has been modelled on the New Zealand
provisions and will facilitate disqualification in Australia of
directors who are prohibited in New Zealand.
Summary of new law
5. Under the new provisions, a person will be automatically
disqualified from managing corporations in Australia if they are
disqualified from being a director, or being concerned in the
management, of a foreign company by a court in a prescribed
country.
6. Additionally, the Australian Courts' power to disqualify people
from managing corporations will be extended. These provisions will
enable Courts to disqualify a person from managing corporations if
that person has been disqualified under the law of a foreign
jurisdiction from being a director, or taking part in the
management, of a foreign company, provided that the Court considers
disqualification to be appropriate and justified.
7. Prescribed countries will be identified in the Corporations
Regulations 2001 (Corporations Regulations). Initially, New
Zealand will be the only prescribed country; however, this
mechanism will allow for other countries to be added at a later
date.
8. The amendments will operate prospectively.
Comparison of key features of new law and current law
|New law |Current law |
|The new law adds an |The Corporations Act, in |
|additional circumstance |general, does not |
|to the current list of |currently provide for |
|circumstances in which a |automatic recognition |
|person can be |under Australian law of |
|automatically |disqualification from |
|disqualified from |managing corporations |
|managing corporations. |under the law of a |
|The new provision means |foreign jurisdiction. |
|that a person will be |The sole circumstance in |
|automatically |which current law results|
|disqualified from |in a person being |
|managing corporations in |automatically |
|Australia where they have|disqualified from |
|been disqualified by a |managing corporations in |
|court in a prescribed |Australia is where that |
|country. |person has been convicted|
| |of serious criminal |
| |activity. Specifically, |
| |where that person has |
| |been convicted of an |
| |indictable offence |
| |concerning the management|
| |or financial standing of |
| |a company; an offence |
| |involving dishonesty that|
| |is punishable by |
| |imprisonment of at least |
| |three months; or an |
| |offence against the law |
| |of a foreign country that|
| |is punishable by |
| |imprisonment of a period |
| |greater then 12 months. |
Comparison of key features of new law and current law (continued)
|New law |Current law |
|The new law adds to the |The current law does not |
|powers of an Australian |provide a mechanism by |
|Court to disqualify a |which a Court in |
|person from managing |Australia can recognise |
|corporations. A Court |the disqualification of a|
|will be given the power |person from managing |
|to disqualify a person |corporations in Australia|
|where that person has |that occurs under the law|
|been automatically |of a foreign |
|disqualified by operation|jurisdiction. |
|of the law of a | |
|prescribed country, or by| |
|a body other than a court| |
|in a prescribed country | |
|(for example a | |
|regulator). | |
Detailed explanation of new law
9. This Bill provides a mechanism in the Corporations Act for
recognising, in Australia, the disqualification of a person from
managing corporations that take place in a foreign jurisdiction.
The Bill will effectively 'close a regulatory gap' whereby persons
can avoid disqualification simply by moving jurisdictions.
10. These provisions are a requirement under the MoU on Business Law
Coordination between the Australian and New Zealand Governments.
New Zealand's mutual disqualification provisions that recognise
director disqualifications that occur under Australian law, became
operational in 2007.
11. The provisions in the Bill differentiate between disqualification
by a court in a foreign jurisdiction, and automatic
disqualification (such as by operation of law or by a regulator) in
a foreign jurisdiction.
12. If a court in a foreign jurisdiction makes an order disqualifying a
person from being a director of a company in that jurisdiction, or
being concerned in the management of a foreign company, that person
will be automatically disqualified from managing corporations in
Australia. [Schedule 1, item 2, subsections 206B(6) and (7)]
13. Where a person is disqualified from managing corporations under the
law of a foreign jurisdiction, or from activities which are
substantially similar to managing corporations, an Australian Court
can disqualify that person from managing corporations in Australia
on application by ASIC. In deciding whether to disqualify a person
in Australia, the Court must be satisfied that the disqualification
in the foreign jurisdiction was justified. A Court's decision in
this regard can include consideration of that person's conduct in
relation to the company. The Court can also determine the
appropriate period of disqualification under this provision and, in
doing so, may have regard to the period of disqualification that
was imposed in the foreign jurisdiction. [Schedule 1, item 3,
section 206EAA]
14. For example, ASIC could make use of this provision where a person
was disqualified from managing corporations by a regulator in a
foreign jurisdiction, as opposed to the order of a court. This
will ensure that all disqualifications of people from managing
corporations that are effective under Australian law have been the
subject of deliberation by a court, either within Australia or in
the foreign jurisdiction.
15. In these provisions, a 'foreign jurisdiction' means a foreign
country, or part of a foreign country, that is prescribed by the
Corporations Regulations as a foreign jurisdiction for the purposes
of these provisions. [Schedule 1, items 2 and 3, subsections
206B(6) and (7) and section 206EAA]
Application and transitional provisions
16. The provisions contained in this Bill commence operation upon Royal
Assent.
17. The provisions relating to automatic disqualification and Court
ordered disqualification, apply to orders by a court of a foreign
jurisdiction, and disqualifications under the law of a foreign
jurisdiction, that are made, or arise, on or after commencement of
these provisions. [Schedule 1, item 4, section 206H]
Consequential amendments
18. Currently, section 206H of the Corporations Act means that,
generally, the disqualification provisions in Part 2D.6 of the
Corporations Act do not apply to acts or omissions of a person
while managing a foreign company.
19. The Bill contains a provision that ensures that the provisions
allowing for a disqualification in a foreign jurisdiction to apply
in Australia are exempted from the application of section 206H of
the Corporations Act. [Schedule 1, item 7, sections 1485 and 1486]
1.20 Currently, paragraph 199A(3)(c) of the Corporations Act
provides that a company must not indemnify a person against legal
costs incurred in defending an action for liability incurred as an
officer of the company if the costs are incurred defending or
resisting proceedings brought by ASIC for a court order if the
grounds for making the order are found by the court to be
established. Note 1 to this paragraph states that this includes
proceedings brought by ASIC for an order under sections 206C, 206D
or 206E of the Corporations Act, which are disqualification
provisions.
1.21 The Bill contains a provision that will ensure that the
new section 206EAA of the will also fall under the provision
contained in paragraph 199A(3)(c). [Schedule 1, item 1, section
199A(3) Note 1]
1.22 Currently, subsection 1274AA(1) provides that ASIC must
keep a register of persons disqualified from managing corporations
under sections 206C, 206D, 206E, 206EA and 206F of the Corporations
Act. Subsection 1274AA(2) also provides that the register must
contain a copy of court orders made under those sections of the
Corporations Act.
1.23 The Bill contains provisions that will ensure that ASIC
keeps a register of persons disqualified under the new section
206EAA and that the register contains a copy of the court order
made under that section.
Index
Schedule 1:
|Bill reference |Paragraph |
| |number |
|Item 1, section 199A(3) Note 1 |1.21 |
|Items 2 and 3, subsections 206B(6) and (7) |1.15 |
|and section 206EAA | |
|Item 2, subsections 206B(6) and (7) |1.12 |
|Item 3, section 206EAA |1.13 |
|Item 4, section 206H |1.17 |
|Item 7, sections 1485 and 1486 |1.19 |
Do not remove section break.