15 July, 2019
In case you missed the updates earlier in the year, set out below is what you need to know about the Australian corporate law developments that occurred in the first half of the year.
With the end of the financial year closing for many entities, it is an opportune time to provide a reminder of the key Australian corporate law changes that may impact business moving forward some of which will require consideration now for satisfying your 2020 obligations.
Importantly, there are new expectations in the 4th edition of the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations and new modern slavery reporting and requirements around whistleblower policies, each of which company boards should be considering in the second half of 2019 in anticipation of their 2020 obligations.
In addition, in response to the financial system inquiry and ASIC Enforcement Review Taskforce Report, directors and companies should be aware of the significant increase in the civil penalties and criminal sanctions regime for breaches of the corporations law and changes to the director penalty notice regime for unpaid superannuation.
What you need to know
| OBLIGATION/ CHANGE IN LAW | FROM WHEN? |
|---|---|
| Disclosure against 4th edition of ASX Corporate Governance Council's Corporate Governance Principles and Recommendations | From the first full financial year commencing on or after 1 January 2020 |
| Establish a whistleblower policy | From 1 January 2020 |
| Modern slavery reporting | From 1 January 2020 |
| Increased penalties for corporate misconduct | From 13 March 2019 |
| Changes to director penalty notice regime for unpaid superannuation | From 1 April 2019 |
Revised corporate governance principles and recommendations
Listed companies must address the revised corporate governance disclosures contained in the 4th edition of the Corporate Governance Principles and Recommendations from the entity's first full financial year commencing on or after 1 January 2020.
The revised edition has an overarching focus on addressing "emerging issues around culture, values, and trust, fuelled by recent examples of conduct by some listed entities falling short of community standards and expectations".
Importantly, some of the new recommendations and commentary include:
- adopting and disclosing a whistleblower policy and anti-bribery and corruption policy;
- disclosing a company's process to verify the integrity of any periodic corporate report it releases to the market that is not audited or reviewed by an external auditor;
- disclosing in full a company's diversity policies, code of conduct and continuous disclosure policy;
- ensuring that the board receives copies of all material market announcements promptly after they are made;
- releasing copies of any substantive investor or analyst presentations ahead of the presentation;
- ensuring that all substantive resolutions at a meeting of security holders are decided by a poll rather than a show of hands;
- disclosing material exposure to climate change risks (as part of a company's disclosure on environmental exposure) related to: transition to a lower-carbon economy, including policy and legal risks, technology risks, market risks and reputational risks; and physical risks such as changes in water availability, sourcing and quality; food security; and extreme temperature changes affecting an organisation's premises, operations, supply chains, transport needs and employee safety;
- where an entity with a director who does not speak the language in which board or security holder meetings are held or key corporate documents are written, disclosing the process the entity has in place to ensure the director understands and can contribute to the discussions at those meetings and understands and can discharge their obligations in relation to those documents; and
- ensuring that meetings of security holders are held at a reasonable time and place where a listed entity is established outside Australia.
For more information on the new emphasis on climate change risk reporting, please see our 21 May 2019 It's getting hot in here: Company and director liability for climate change in Australia
For more information on the requirement to have a whistleblower policy and anti-bribery and corruption policy, please see our 7 May 2019 Quarterly update on anti-bribery and corruption in Australia
Whistleblower protection reforms
From 1 January 2020 public companies must have a compliant whistleblower policy in place. Large proprietary companies (which is defined as a company that has at least $25 million consolidated revenue per financial year, $12.5 million in assets or 50 employees) must also have a compliant whistleblower policy in place by the date that is six months after the first financial year the company is a large proprietary company. Companies that are already large public companies must comply with the whistleblower policy requirements by 1 January 2020. Failure to comply with the whistleblower policy requirement is an offence of strict liability.
The reforms substantially increase both criminal and civil penalties that apply for a breach of relevant provisions. Companies could face civil penalties of up to $10.5 million or three times the value of the benefit derived or detriment avoided or 10% of annual turnover (capped at 1 million penalty units, which is $210 million).
For more information on the whistleblower reforms, please see our 19 February 2019 Whistle while you work: Whistleblower protections reforms for the private sector have passed
Modern slavery laws mandatory reporting
The Modern Slavery Act 2018 (Cth) commenced 1 January 2019 with the first modern slavery statements due between January to December 2020 depending on the Company's annual reporting period. The Modern Slavery Act requires reporting entities to provide an annual modern slavery statement describing the risks of modern slavery in its operations and supply chains and entities owned or controlled by those entities. The mandatory reporting criteria include:
- the entity structure, operations and supply chains;
- the risks of modern slavery practices in the entity's operations and supply chains;
- actions the entity has taken to assess and address those risks, including due diligence and remediation processes;
- how the entity assesses the effectiveness of those actions;
- description of the entity's consultation process with any entities that the reporting entity owns or controls; and
- any other relevant information.
Reporting entities include (among others) companies that are Australian residents within the meaning of the Income Tax Assessment Act 1936 (Cth) and entities that carry on business in Australia at any time during the reporting period provided the relevant entity has a revenue of $100 million or more.
For more information about the modern slavery reporting requirements please see our 4 July 2018 New modern slavery reporting obligations for Australian entities
Director duties – Good faith, use of position and use of information
Amendments have been made to section 184 of the Corporations Act 2001 (Cth) ("Act") as part of the Government's legislative package on strengthening corporate and financial sector penalties. These amendments came into effect in March 2019.
Prior to the amendments, it was an offence under section 184(1) of the Act if a director or officer of a company was reckless, intentionally dishonest and failed to exercise their powers and discharge their duties in good faith in the best interests of the company or for a proper purpose. The reference to "intentionally" has been deleted in section 184(1) of the Act due to the introduction of a new definition of "dishonest". "Dishonest" under the Act is now defined to mean "dishonest according to the standards of ordinary people". The new definition confirms that an objective test applies to all dishonesty offences under the Act. This means that it will be possible to engage in "dishonest" conduct without actual awareness/intention that the conduct was dishonest.
The amendments have also clarified the operation of sections 184(2) and 184(3) of the Act which make it an offence for a director, officer or employee to use their position or information obtained due to their position dishonestly with the intention of gaining an advantage for themselves or someone else. The Act now makes it clear that a contravention can still occur even where the relevant company has gained an advantage from the contravention.
The maximum prison term that can be imposed on individuals for a breach of section 184 of the Act has tripled, from 5 years to 15 years.
Changes to director penalty notice regime – unpaid superannuation
Changes to the Director Penalty Notice ("DPN") regime for director's personal liability for unpaid superannuation came into effect from 1 April 2019.
Previously, a director could avoid personal liability for unpaid superannuation of a company if the superannuation liability was reported to the ATO within three months of the relevant due date for the superannuation statement and following the issue of a DPN by the ATO an administrator or liquidator is appointed to the company within the DPN notice period (21 days).
The three month reporting rule before director penalties are "locked down" is no longer available. Now the unpaid superannuation liability must be reported by the due date for the relevant superannuation statement (being within 1 month and 28 days after the end of each quarter). If the notification is made to the ATO by the due date, the director penalty can still be remitted by either paying the debt, appointing an administrator or beginning to wind up the company. However, if the unpaid amount is reported after the due date, the only way to remit the penalty is for the director to pay the debt.
Harsher penalties for corporate misconduct
The Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties Act) 2019 (Cth) significantly increases penalties and prison terms for financial sector and corporate misconduct.
Specifically, the civil penalty regime has been increased to cover a number of other obligations under the Act which will enable the courts to impose financial penalties. For example, civil penalty provisions have been introduced for most of the general AFSL licensee obligations under section 912A of the Act (i.e. do all things necessary to ensure the financial services covered by the licence are provided efficiently, honestly and fairly).
The maximum pecuniary penalty for individuals has been increased from $200,000 to the greater of 5,000 penalty units ($1.05 million) and three times the benefit derived or detriment avoided by the contravention. For companies the maximum pecuniary penalty has increased to the greater of 50,000 penalty units ($10.5 million), three times the value of the benefit obtained or detriment avoided by the contravention or 10% of the company's annual turnover capped at a maximum of 2.5 million penalty units ($525 million).
For further information, please contact:
Ratha Nabanidham, Partner, Ashurst
ratha.nabanidham@ashurst.com
