The Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 was passed by Parliament on 18 February 2019.

The Bill amends the Corporations Act, ASIC Act, NCCPA and Insurance Contracts Act to strengthen civil and criminal penalties for corporate and financial sector misconduct.

The Bill follows recent increases to penalties under the Australian Consumer Law (see our previous alert here).

What does this mean for you?

The majority of amendments take effect on the day after the Act receives Royal Assent. It is therefore critical that entities promptly take any necessary steps to ensure compliance or risk being liable for hefty financial penalties.

Key amendments to the Corporations Act

  • New civil penalty provisions: The civil penalty regime is extended to a number of other obligations under the Corporations Act, meaning that contraventions of these obligations can now be addressed through financial penalties imposed by Courts using civil procedure;
  • Increased civil penalties: Penalties under the Corporations Act and the ASIC Act are increased for both individuals and corporations. For a corporation, the maximum pecuniary penalty is increased to the greater of 50,000 penalty units ($10,500,000), or the benefit derived (or detriment avoided) because of the contravention multiplied by three, or 10 per cent of the annual turnover of the body corporate, but to a maximum monetary value of 2.5 million penalty units ($525 million);
  • Expanded infringement notice regime: The existing penalty notice regime is replaced with a new infringement notice regime that applies to all strict and absolute liability offences , and certain civil penalty provisions;
  • New criminal offences: A range of new ordinary criminal offences now sit alongside existing strict and absolute liability offences; and
  • Increased terms of imprisonment: Terms of imprisonment are increased to 15 years for certain serious criminal offences.

New civil penalty provisions

The table below sets out the new civil penalty provisions under s 1317E of the Corporations Act. Attempted contravention or involvement in the contravention of a Corporations Act and ASIC Act civil penalty provision are taken to be a contravention of the provision under those Acts and are treated the same way as an actual contravention.

Provision

Brief Description

1

601ED(8)

obligation to be registered if operating certain managed investment schemes

2

670A(4)

misstatements in, or omissions from, takeover and compulsory acquisition and buy-out documents

3

727(6)

offering securities without a current disclosure document

4

728(4)

misstatement in, or omission from, disclosure document

5

791A(3)

need for an Australian market licence

12

904A(2)

general obligations of derivative trade repository licensees

 

Expanded infringement notice regime

 

The Bill replaces the existing penalty notice regime with a new infringement notice regime. ASIC may issue infringement notices, requiring a payment of a penalty, as an alternative to civil or criminal proceedings. If an infringement notice is complied with and the penalty paid within 12 months, ASIC will take no further action against the entity. Importantly, payment of the infringement notice is not considered an admission of guilt. However, if the infringement notice is not complied with and the penalty not paid, ASIC may pursue criminal or civil penalties.

All strict and absolute liability offences and certain civil penalty provisions are subject to the infringement notice regime. An infringement notice may be issued by ASIC if ASIC reasonably believes a person has contravened a provision subject to an infringement notice.

For strict and absolute liability offences, the penalty amounts are 50 per cent of the maximum pecuniary penalty for the relevant offence. For civil penalty provisions, the maximum penalty amount is 12 penalty units ($2,520) for individuals and 60 units ($12,600) for corporations.

The following table sets out the provisions subject to infringement notices under the Bill:

Brief Description

1

188(1) and (2)

Responsibilities of a secretary and how they cannot contravene certain provisions.

16 964E(1)

Authorised representative must not charge asset-based fees on borrowed amounts.

New criminal offences

New ordinary criminal offences are introduced alongside existing strict and absolute liability offences. This amendment recognises that where a fault element can be established for certain strict / absolute liability offences, these offences should be treated as ordinary criminal offences warranting imposition of a higher penalty (including imprisonment for individuals).

The affected provisions are:

  • 205G - Listed company director to notify market operator of shareholdings etc.
  • 286 - Obligation to keep financial records
  • 307A - Audit to be conducted in accordance with auditing standards
  • 606 - Prohibition on certain acquisitions of relevant interests in voting shares
  • 671B - Information about substantial holdings must be given to company, responsible entity, fund operator and relevant market operator
  • 922M - Failing to comply with obligation to notify ASIC
  • 952E - Giving a defective disclosure document or statement (whether or not known to be defective)
  • 952H - Financial services licensee failing to ensure authorised representative gives disclosure documents or statements as required
  • 989CA - Audit to be conducted in accordance with auditing standards
  • 993D - Failing to pay loan money into an account as required
  • 1020A - Offers etc. relating to certain managed investment schemes not to be made in certain circumstances
  • 1021E - Preparer of defective disclosure document or statement giving the document or statement (whether or not known to be defective)
  • 1021G - Financial services licensee failing to ensure authorised representative gives etc. disclosure documents or statements as required
  • 1309 – False information etc.

Increased terms of imprisonment

The serious offences now attracting a maximum imprisonment of 15 years are as follows:

Brief Description

1

184

Obligation of officers not to act recklessly or be intentionally dishonest, and to act in good faith in the best interests of the corporation and for a proper purpose.