STATUTES AMENDMENT (DIRECTORS' LIABILITY) BILL

Introduction and First Reading

Received from the House of Assembly and read a first time.

Second Reading

The Hon. G.E. GAGO (Minister for Regional Development, Minister for Public Sector Management, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister for Gambling) (20:41): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

This Bill carries out the requirements set by the Council of Australian Governments as to the criminal liability of company directors for offending by the company. The Council, concerned not to impose unjustifiable burdens on business or to discourage competent persons from becoming directors, has issued guidelines to be applied by all states and territories in statutory provisions creating such liability.

Broadly speaking, the effect of the guidelines is that statutes should not routinely create criminal liability of directors for the offending of the company. Instead, it is necessary to consider the policy justification for that liability, for example, the potential for significant public harm, such that it is reasonably necessary to hold directors liable so as to deter offending. Where liability is justified, the guidelines specify that directors could properly be held liable either where they are a party to the offence or where they have been negligent or reckless in relation to the offending. In some circumstances, the guidelines provide, it may be appropriate to put directors to proof that they have taken reasonable steps to prevent the corporation's offending if they are not to be personally liable.

South Australian statute law has been examined in the light of these guidelines. At present, in our statute book, where an Act creates criminal liability of a director for an offence by the company, a standard form of provision is commonly used which holds the director criminally liable on proof of the company's offending, subject to a defence of due diligence which the director must prove. In accordance with the Council's guidelines, those provisions have been reconsidered. This Bill makes amendments to some 25 statutes to bring them into conformity with the guidelines.

As agreed by the Council of Australian Governments, not all Acts containing such provisions are amended by this Bill. A decision was taken by the Council to exclude laws pertaining to environmental protection and to occupational health and safety. Also, amendments are not made in this Bill to Acts that are separately subject to other reviews. In some cases, the present high standard of liability has been judged to be appropriate and those Acts are not amended.

The Bill adjusts the liability of directors in some 25 Acts in light of the Council's guidelines. In some cases, it has been decided that directors should not be held criminally responsible for the company's offending, even if the director failed in due diligence, but should only be liable if the director was an accessory to the offence. In that case, the liability provision is removed from the Act or is disapplied to the relevant offence and the general law of accessorial liability applies. In other cases, it has been determined that because the offence is one that the directors should be vigilant to prevent, the law should hold directors criminally liable subject to a defence of due diligence which the director must prove, as is the case now. That is, the present law can be justified for the most serious offences. This is because to hold directors liable helps to deter offending by the company. In a number of cases, however, a middle ground has been taken because the offence is moderately serious. In those cases, the director will only be criminally liable if the prosecution can prove specified matters.

For this group of offences, the new form of provision requires the prosecution to prove, first, that the director knew or ought reasonably to have known that there was a significant risk that an offence of this type or kind might occur; second, that the director was in a position to influence the company's action in relation to this type of behaviour; and third, that the director failed to exercise due diligence to stop the company from offending. This form of provision is considered to be fair to directors in that they cannot be held responsible if they could not reasonably have known what was going on, or if they could not reasonably have done anything about it, but they are held responsible if they know or should know, they could do something, but they fail to act as they should. All of these are matters to be proved by the prosecution.

Thus, the overall effect of the Bill is to reduce the number of offences by a company for which directors will be criminally liable and also, where criminal liability is retained, to distinguish between those that are so serious that it should be left to the director to prove a defence of due diligence, and those that are not as serious, so that the required elements should be proved by the prosecution.

The Bill seeks, in conformity with the guidelines, to reduce the burden on company directors but without unacceptably increasing the risk that companies will commit offences. If these provisions are acceptable to the Parliament, it is intended in future legislation creating directors' liability to use the same type of provisions.

I commend the Bill to Members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

2—Commencement

3—Amendment provisions

These clauses are formal.

Part 2—Amendment of Aboriginal Heritage Act 1988

4—Amendment of section 41—Vicarious liability

This clause amends the vicarious liability provision relating to members of the governing body of a body corporate so that it only applies to certain prescribed offences under the Act.

Part 3—Amendment of Air Transport (Route Licensing—Passenger Services) Act 2002

5—Repeal of section 23

This clause repeals the provision on liability of directors.

Part 4—Amendment of Animal Welfare Act 1985

6—Substitution of section 38

This clause substitutes new provisions on the liability of members of the governing body of a body corporate where the body corporate has committed an offence against the Act. The new provisions provide for three tiers of liability. Firstly, a member will be liable in relation to certain prescribed offences committed by the body corporate unless the member proves that he or she could not by the exercise of due diligence have prevented the commission of the offence. Secondly, in relation to most other offences the member will only be guilty if the prosecution proves that the member knew, or ought reasonably to have known, that there was a significant risk that such an offence would be committed, was in a position to influence the conduct of the body corporate in relation to the commission of such an offence and failed to exercise due diligence to prevent the commission of the offence. Finally, in relation to some specified offences there will be no derivative liability for members of the governing body at all.

Part 5—Amendment of ANZAC Day Commemoration Act 2005

7—Amendment of section 18—Restriction on public sports and entertainment before 12 noon on ANZAC Day

This clause repeals the provision on liability of members of the governing body of a body corporate and managers that currently applies to offences against section 18.

Part 6—Amendment of Architectural Practice Act 2009

8—Repeal of section 64

This clause repeals the provision on liability of members of the governing body of a body corporate.

Part 7—Amendment of Authorised Betting Operations Act 2000

9—Substitution of section 84

This clause substitutes new provisions on the liability of members of the governing body of a body corporate, and managers, where the body corporate has committed an offence against the Act. The new provisions provide for three tiers of liability. Firstly, a member or manager will be liable in relation to certain prescribed offences committed by the body corporate unless he or she proves that he or she could not by the exercise of due diligence have prevented the commission of the offence. Secondly, in relation to most other offences the member or manager will only be guilty if the prosecution proves that he or she knew, or ought reasonably to have known, that there was a significant risk that such an offence would be committed, was in a position to influence the conduct of the body corporate in relation to the commission of such an offence and failed to exercise due diligence to prevent the commission of the offence. Finally, in relation to some specified offences there will be no derivative liability for members of the governing body at all.

Part 8—Amendment of Controlled Substances Act 1984

10—Repeal of section 45

This clause repeals the provision on liability of members of the governing body of a body corporate.

Part 9—Amendment of Employment Agents Registration Act 1993

11—Repeal of section 27

This clause repeals the provision on liability of members of the governing body of a body corporate.

Part 10—Amendment of Gaming Machines Act 1992

12—Amendment of section 85—Vicarious liability

This clause substitutes new provisions on the liability of persons occupying a position of authority in the body corporate where the body corporate has committed an offence against the Act. The new provisions provide for three tiers of liability. Firstly, such a person will be liable in relation to certain prescribed offences committed by the body corporate unless he or she proves that he or she could not by the exercise of due diligence have prevented the commission of the offence. Secondly, in relation to most other offences the person will only be guilty if the prosecution proves that he or she knew, or ought reasonably to have known, that there was a significant risk that such an offence would be committed, was in a position to influence the conduct of the body corporate in relation to the commission of such an offence and failed to exercise due diligence to prevent the commission of the offence. Finally, in relation to some specified offences there will be no derivative liability for such persons at all.

Part 11—Amendment of Health Care Act 2008

13—Repeal of section 94

This clause repeals the provision on liability of members of the governing body of a body corporate.

Part 12—Amendment of Misrepresentation Act 1972

14—Amendment of section 4—Misrepresentation made in the course of trade or business

This clause repeals the provision on liability of members of the governing body of a body corporate.

Part 13—Amendment of Opal Mining Act 1995

15—Amendment of section 82—Offences

This clause repeals the provision on liability of directors and managers of corporations.

Part 14—Amendment of Petroleum Products Regulation Act 1995

16—Amendment of section 34—Controls during periods of restriction

This clause introduces a differential penalty for natural persons and bodies corporate.

17—Amendment of section 35—Controls during rationing periods

This clause introduces a differential penalty for natural persons and bodies corporate.

18—Amendment of section 36—Permits

This clause introduces a differential penalty for natural persons and bodies corporate.

19—Repeal of section 59—Offences by bodies corporate

This clause repeals the provision on liability of directors of a body corporate.

Part 15—Amendment of Prohibition of Human Cloning for Reproduction Act 2003

20—Repeal of section 29

This clause repeals the provision on liability of directors of a corporation.

Part 16—Amendment of Racing (Proprietary Business Licensing) Act 2000

21—Repeal of section 46

This clause repeals the provision on liability of members of the governing body of a body corporate and managers.

Part 17—Amendment of Research Involving Human Embryos Act 2003

22—Repeal of section 34

This clause repeals the provision on liability of directors of a corporation.

Part 18—Amendment of Retirement Villages Act 1987

23—Amendment of section 42—Offences

This clause repeals the provision on liability of directors and managers of a corporation.

Part 19—Amendment of Second-hand Vehicle Dealers Act 1995

24—Amendment of section 45—General defence

This clause ensures that the general defence is not available for a director of a body corporate charged with an offence under section 47.

25—Substitution of section 47

This clause substitutes new provisions on the liability of directors of a body corporate where the body corporate has committed an offence against the Act. The new provisions provide for three tiers of liability. Firstly, a director will be liable in relation to certain prescribed offences committed by the body corporate unless he or she proves that he or she could not by the exercise of due diligence have prevented the commission of the offence. Secondly, in relation to most other offences the director will only be guilty if the prosecution proves that he or she knew, or ought reasonably to have known, that there was a significant risk that such an offence would be committed, was in a position to influence the conduct of the body corporate in relation to the commission of such an offence and failed to exercise due diligence to prevent the commission of the offence. Finally, in relation to some specified offences there will be no derivative liability for directors at all.

Part 20—Amendment of Security and Investigation Agents Act 1995

26—Amendment of section 40—General defence

This clause ensures that the general defence is not available for a director of a body corporate charged with an offence under section 42.

27—Substitution of section 42

This clause substitutes new provisions on the liability of directors of a body corporate where the body corporate has committed an offence against the Act. The new provisions provide for three tiers of liability. Firstly, a director will be liable in relation to certain prescribed offences committed by the body corporate unless he or she proves that he or she could not by the exercise of due diligence have prevented the commission of the offence. Secondly, in relation to most other offences the director will only be guilty if the prosecution proves that he or she knew, or ought reasonably to have known, that there was a significant risk that such an offence would be committed, was in a position to influence the conduct of the body corporate in relation to the commission of such an offence and failed to exercise due diligence to prevent the commission of the offence. Finally, in relation to some specified offences there will be no derivative liability for directors at all.

Part 21—Amendment of Supported Residential Facilities Act 1992

28—Amendment of section 52—Prosecutions

This clause repeals the provision on liability of directors and managers of a corporation.

Part 22—Amendment of Survey Act 1992

29—Repeal of section 55B

This clause repeals the provision on liability of persons occupying a position of authority in a trust or corporate entity.

Part 23—Amendment of Taxation Administration Act 1996

30—Amendment of section 109—General criminal defence

This clause ensures that the general defence is not available for a person who is concerned in, or takes part in the management of, a corporation charged with an offence under section 110.

31—Amendment of section 110—Offences by persons involved in management of corporations

This clause substitutes new provisions on the liability of persons who are concerned in, or take part in the management of, a corporation where the corporation has committed an offence against the Act. The new provisions provide for three tiers of liability. Firstly, such a person will be liable in relation to certain prescribed offences committed by the corporation unless he or she proves that he or she could not by the exercise of due diligence have prevented the commission of the offence. Secondly, in relation to most other offences the person will only be guilty if the prosecution proves that he or she knew, or ought reasonably to have known, that there was a significant risk that such an offence would be committed, was in a position to influence the conduct of the corporation in relation to the commission of such an offence and failed to exercise due diligence to prevent the commission of the offence. Finally, in relation to some specified offences there will be no derivative liability for such persons at all.

Part 24—Amendment of Tobacco Products Regulation Act 1997

32—Amendment of section 81—Vicarious liability

This clause repeals the provision on liability of directors of a body corporate.

Part 25—Amendment of Travel Agents Act 1986

33—Amendment of section 38—General defence

This clause ensures that the general defence is not available for a director of a body corporate charged with an offence under section 40.

34—Substitution of section 40

This clause substitutes new provisions on the liability of directors of a body corporate where the body corporate has committed an offence against the Act. The new provisions provide for three tiers of liability. Firstly, a director will be liable in relation to certain prescribed offences committed by the body corporate unless he or she proves that he or she could not by the exercise of due diligence have prevented the commission of the offence. Secondly, in relation to most other offences the director will only be guilty if the prosecution proves that he or she knew, or ought reasonably to have known, that there was a significant risk that such an offence would be committed, was in a position to influence the conduct of the body corporate in relation to the commission of such an offence and failed to exercise due diligence to prevent the commission of the offence. Finally, in relation to some specified offences there will be no derivative liability for directors at all.

Part 26—Amendment of Veterinary Practice Act 2003

35—Repeal of section 73

This clause repeals the provision on liability of persons occupying a position of authority in a trust or corporate entity.

Debate adjourned on motion of Hon. S.G. Wade.