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The Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act came into effect on 13 March 2019.  It is a response to the Banking Royal Commission which called for increased penalties for corporate wrongdoing.

The new Act amends the Corporations Act, the National Consumer Credit Protection Act, the Australian Securities and Investments Commission Act and the Insurance Contracts Act 1984.  Below we focus on the changes to the Corporations Act.

What are the new maximum penalties for individuals?

The new maximum pecuniary penalty for individuals is the greater of:

  • $945,000; or
  • 3 times the benefit gained/detriment avoided.

The new maximum prison penalties for serious criminal offences (including breaches of director’s duties) have been increased to 15 years.

The new maximum civil penalty for individuals is the greater of:

  • $1.05 million; or
  • 3 times the benefit gained/detriment avoided.

What are the new maximum penalties for companies?

The new maximum pecuniary penalty for companies is the greater of:

  • $9.45 million; or
  • 3 times the benefit gained/detriment avoided; or
  • 10% of annual turnover.

The new maximum civil penalty for companies is the greater of:

  • $10.5 million; or
  • 3 times the benefit gained/detriment avoided; or
  • 10% of annual turnover (capped at $525 million).

As the financial amounts quoted above are determined by reference to the value of a “penalty unit”, as those values rise over time so will these amounts.

Other Key Changes

Other significant changes in the legislation include:

  • civil penalties now apply to a wider range of breaches under the Corporations Act
  • the inclusion of section 1317QA onto the Corporations Act, which provides that where a civil penalty provision requires something to be done within a particular period or by a certain date, a separate contravention is committed in respect of each day of the contravention
  • a new remedy of relinquishment (also known as “disgorgement of profits”) is available in civil penalty provision proceedings – this remedy is available in addition to pecuniary penalties
  • a new definition of “dishonesty” has been introduced into the Corporations Act which provides that dishonestly is now assessed according to the “standards of ordinary people” – this means that a person is no longer required to have subjective knowledge of their dishonesty, and hence the offence is expected to be easier to prosecute

ASIC’s New Enforcement Attitude

ASIC has declared in a press release that it will “now be in a stronger position to pursue harsh civil penalties and criminal sanctions against those who have breached the corporate laws of Australia”.

This statement must be read in the context of ASIC’s newly adopted enforcement stance of “why not litigate?”, formulated in response to accusations aired in the Banking Royal Commission that the corporate regulator had not been proactive enough in pursuing civil and criminal proceedings against corporate wrongdoers.

We expect ASIC to more forcefully pursue claims against companies and individual directors through the courts.

Takeaways

In summary:

  • businesses and individuals should be mindful of the increased penalties that now apply to breaches of the Corporations Act
  • businesses (including SME’s) should expect ASIC to more aggressively pursue enforcement through the courts
  • it is timely for companies to review their business practices and ensure their compliance with relevant laws
  • it is also a timely reminder that ignorance of the law or delegation of responsibilities does not alleviate a person from liability, thus it is vital that all relevant directors and managers are fully informed of what the law requires of them and that any areas of concern are promptly addressed

More Information

Please contact our commercial law team at Matthews Folbigg Lawyers on 9635 7966 if you require legal advice on the Corporations Act or assistance with any other commercial matter relating to your business.