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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2011-09-15 Daily Xml
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STATUTES AMENDMENT (DIRECTORS' LIABILITY) BILL

Second Reading

Adjourned debate on second reading.

(Continued from 13 September 2011.)

The Hon. M. PARNELL (15:53): As a general rule, the Greens support the concept of personal liability of company directors for offences that are committed by the company. We believe that such a regime provides for appropriate accountability and responsibility that ensure better governance of corporations. If a company director knows that he or she will be personally liable for offences that are committed by the company, this provides a great incentive for more scrutiny and supervision.

It is not enough for a director to say that they had no idea what their company was doing. However, this general principle has exceptions, and there are certain offences where the strict liability of directors is not appropriate and an additional level of personal culpability should need to be established before the director is held personally liable. This is the approach taken by the Council of Australian Governments in developing guidelines which they have asked to be applied in all states and territories.

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 that 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. As a consequence of the Council of Australian Governments' decision, South Australian statute law has been examined in the light of these guidelines, and this bill makes amendments to some 25 statutes to bring them into conformity with the guidelines.

I will say at this point that an important consideration in the Greens' support for this legislation is that it does not affect important environmental protection, public health or occupational health and safety laws. Quite rightly, COAG and the state government have accepted that there are a range of laws where it would be inappropriate to give company directors a shield to hide behind. For example, under the Environment Protection Act the offence of causing serious environmental harm attracts a maximum fine of $2 million for corporations and $500,000 for directors of those companies.

This is an important provision that helps ensure that company directors make sure that the companies under their control behave appropriately towards the environment and they do everything in their power to prevent pollution and avoid environmental harm. The point to note here is that this provision and others relating to the environment, to worker and public safety, will not be affected by this bill. Those directors whose companies commit these crimes will continue to be personally liable, subject, of course, to the various statutory defences that are available. In these circumstances, we find the bill unobjectionable and will be supporting the 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) (15:56): I thank honourable members for their contributions. Again, this bill is quite straightforward. I thank the Hons Stephen Wade and Mark Parnell for their contribution and support. I look forward to dealing with it expeditiously through the committee stage.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. S.G. WADE: I would like to make a comment and then I anticipate asking quite a series of questions. I refer to the government's consultation. The Australian Institute of Company Directors, which would be the peak body in relation to corporate governance in Australia and for that matter, if you like, the representative body for company directors, has provided for the opposition today a series of suggested amendments to the bill. The council would appreciate that that is unfortunate, considering that the government has made it clear some time ago that this is a priority for this week. I am not disputing that the government has the right to progress today. However, I make the point that the fact that a peak body of that stature should be approaching the opposition today suggests that perhaps the government's consultation has not been as thorough as it should have been.

In that context, acknowledging the government's right to proceed with this matter today, I suggest to the Leader of the Government in this place that it may be appropriate to give priority to other matters. That is not the intention of the government. I will therefore be asking more questions at clause 1 than I might have otherwise intended, but I accept the government's right to proceed. Could the minister advise how many states in Australia have adopted similar reforms?

The Hon. G.E. GAGO: I have been advised that all states have agreed to the principles, and all states have conducted, or are conducting, an audit of their statute books against those principles. So, where deficits occur between the audit and the principles, all states have agreed to proceed with amendments. I have been advised that both New South Wales and the ACT have proceeded with amendments, and I understand that other states have agreed to proceed with amendments if their audits do not stack up. At this point in time, only two states have done so.

The Hon. S.G. WADE: So who does the audits? I presume that is an audit against the Ministerial Council for Corporations' principles for reform of directors' liabilities provisions. Is the audit therefore done by the commonwealth or by the states themselves?

The Hon. G.E. GAGO: I have been advised that it is by the states and territories themselves.

The Hon. S.G. WADE: That being the case, there is presumably the potential for the principles to be interpreted differently in relation to very similar provisions.

The Hon. G.E. GAGO: I have been advised that is potentially possible; however, the principles have been agreed to by all states and territories.

The Hon. S.G. WADE: Could the minister remind us which jurisdictions already have legislation enacted—not just bills—similar to legislation that this committee is considering today?

The Hon. G.E. GAGO: As I have already answered, New South Wales and the ACT have proceeded with amendments. I have been advised that it is difficult for us to say whether their legislation would be exactly the same or very similar to ours.

As I have tried to explain, it would depend on the result of the audit, what state the statute books were in and where variations occurred, and those variations might be different from state to state and territory. So, it is possible that the outcomes might all look quite different but achieve the same set of principles that have been agreed to by all states and territories.

The Hon. S.G. WADE: I take it from the minister's answer that she would not be able to answer the question: to what extent does the New South Wales act and the ACT act differ from this act in the interpretation of which offences should fall into three classes, for example, vicarious, accessorial and moderately serious, for want of a better word?

The Hon. G.E. GAGO: I have been advised, no, that we have not sat down and made those comparisons.

The Hon. S.G. WADE: The minister's comments actually suggest that it was not just that you had not done the comparisons; I thought the answer to your previous question was that it would be almost impossible to do that. My concern is that if that is true, if it is almost impossible to make that correlation, how does the government expect that this whole process will achieve its purpose, which is a nationally consistent set of directors' liability provisions that actually provide some confidence to directors of Australian boards that, when a decision is made in one jurisdiction, it is likely to be treated fairly and similarly in another jurisdiction?

The Hon. G.E. GAGO: I have been advised that there is a difference between whether the legislation is identical, which was one of the questions the honourable member asked. What I endeavoured to explain is that the legislation itself might look different clause by clause from state to state and territory, however, the outcome achieved by those legislative changes will result in a consistent set of principles agreed to by each state and territory. So, the outcomes will be the same.

The Hon. S.G. WADE: If I can unpack the minister's last commitment, which was an assurance that the outcomes will be the same, can the minister assure us that, in relation to the New South Wales act, the ACT act and this bill as amending the primary act, all similar acts in those three jurisdictions would fall into the same category in terms of the way the offence types are treated, in terms of accessory to the fact, vicarious liability and the third class which I am calling moderately serious, for want of a better phrase?

The Hon. G.E. GAGO: I have been advised, no, that we are unable to give those assurances. I have been advised that the principles are not a set of model provisions but, rather, a set of concepts or rules to be applied, and there is no certainty and no requirement that the same form of provisions will be used in each jurisdiction.

The Hon. S.G. WADE: If I could make a very brief comment, I certainly do not bemoan the fact that identical provisions are not being applied in every jurisdiction because, as the minister knows, I believe in federalism. But considering the whole purpose of this is to have operational certainty for directors to know what their obligations are, I am somewhat concerned that the government does not feel that there will be at least a shared outcome. If I could move then to consultation: could the minister clarify the consultation that the government undertook in relation to this bill, particularly in relation to the business community and organisations representing company directors?

The Hon. G.E. GAGO: I have been advised that in preparing the principles MINCO involved stakeholder groups, which included the Australian Institute of Company Directors and the Business Council of Australia, to provide MINCO with views on the current law and on proposed principles. I am advised that a survey was also conducted jointly by the commonwealth Treasury and the AICD of over 600 directors of ASX 200 companies about the effect of legal liability on their decision-making.

Throughout the project, information has been publicly available on the COAG website including the implementation plans and the reports of the COAG Reform Council. The Australian Institute of Company Directors has taken a keen interest in the project throughout and has commented about it in the media and, of course, we are aware that their view is that they would like to see these provisions to go much further than they do. However, we believe that this has struck a balanced position.

The Hon. S.G. WADE: I appreciate the minister's answer but it was an answer to a question that I had not asked. The question that the minister apparently was anticipating was: what consultation occurred in relation to the MINCO principles on the reform of directors' liability provisions? It was informative nonetheless. Could I reiterate my question: what consultation did the government undertake with business and directors representative groups in relation to this bill?

The Hon. G.E. GAGO: I have been advised that in relation to South Australia, no separate consultation has taken place. It occurred comprehensively, as I have outlined, at a national level and involved all key stakeholders, including those peak organisations.

The Hon. S.G. WADE: When the minister refers to comprehensive consultation on the bill at the national level, could she explain when the bill was prepared and when was it provided to the national stakeholders to consult on the bill?

The Hon. G.E. GAGO: Yes. The bill was not consulted with: it was in fact the set of principles. I should have clarified that.

The Hon. S.G. WADE: Yes, it is unfortunate because the minister keeps answering a question I have not asked. The question is about the bill; in fact, it would be disorderly for me to ask questions about MINCO's principles, so I choose not to. What I am asking is about this bill, so can the minister confirm that the Australian Institute of Company Directors, at a national or state level, was not consulted on the content of this bill?

The Hon. G.E. GAGO: The member is correct. They were not consulted in relation to this bill but rather the principles that underpin the bill. This bill has been in the public arena since March this year; it has been out for public availability since then.

The Hon. S.G. WADE: So, in the context of the fact that the minister has assured the committee that the principles can be applied differently in different states, and the minister can give us no assurance that there will even be a consistency in application between the states, does it surprise the minister that the Australian Institute of Company Directors has provided the opposition with pages—unfortunately, it is not page numbered, but I can assure you that it is pages—of potential amendments to this legislation and yet the government is keen to persist with this legislation without consulting one of the key stakeholders in this state on this matter? By way of putting one last comment, one of the documents provided to me is an analysis of proposed amendments, and that is numbered at 33 pages.

The Hon. G.E. GAGO: In relation to the member's question, no, I am not surprised at all that the AICD may have put forward a series of amendments because it has disagreed with the principles underpinning this right from the outset. We were well aware that it disagreed virtually right from the beginning of the COAG consultative process and that the AICD does not agree with the principles. I am not surprised at all that it has a series of amendments to change this.

However, what I am surprised about is that this bill has been in the public arena for six months; it was tabled in the House of Assembly in March this year. It has gone through debate in the lower house. The Liberal opposition spoke to it in the lower house and supported it in the lower house and, what is more, supported it without amendment. That is on the public record—without amendment.

What I am surprised about is that at the eleventh hour, when due process and notice were given in the lower house, and when due notice and process were given in this house, at five minutes to the beginning of the debate the honourable member wants to close this debate down and pursue a rabbit down a burrow. I am shocked that his colleagues, his Liberal counterparts in the other house, can support it without amendment in the other house but all of a sudden, here at the eleventh hour, we have to close everything down and stop it because of a series of amendments, when the legislation has been on the public record for over six months. It is a disgrace.

The Hon. S.G. WADE: The minister has somehow lost track of proceedings. We are actually at clause 1 of the bill. She seems to be anticipating a motion to report progress, which I have no intention of moving. All I am trying to do is to lay bare—

The Hon. G.E. Gago: To waste our time. That is what you are doing—wasting our time.

The Hon. S.G. WADE: I am sorry, I have every right as a member of this house to highlight the shoddy legislative practice of this arrogant government. What this government is telling us today is that, if a national consultative body does not win the day on a set of principles, their state body has no right to comment on a bill that results from that process. I do not think it will take the South Australian community long to understand that that is a very arrogant position, hardly surprising from a lazy government who cannot even decide who it wants as premier today—it is extraordinary. In terms of my consultation—

The Hon. G.E. Gago interjecting:

The Hon. S.G. WADE: Excuse me, if you want the call—the more you talk the longer it will take for me to say what I need to say and sit down.

The Hon. G.E. Gago interjecting:

The CHAIR: You've got the call.

The Hon. S.G. WADE: Thank you, sir. As I was saying, the minister is trying to tell us that a consultation with a national body about broad principles is close enough to a consultation in relation to a bill. I find that extraordinary, and in fact I would like to ask the minister, considering her assertion that the AICD disagreed with the principles lock, stock and barrel, whether she could explain to the committee which of the principles for reform of directors' liability provisions agreed to by MINCO differ, and to what extent, from the set of principles proposed by the Australian Institute of Company Directors, so that the committee can be aware of the differences, my point being that it is a fabrication to say that the AICD opposes this lock, stock and barrel, and to say it has no right to be consulted on that basis is unreasonable.

The Hon. G.E. Gago: I didn't say that.

The Hon. S.G. WADE: You did; it's exactly what you said.

The Hon. G.E. GAGO: These are some of the statements the Australian Institute of Company Directors has put out publicly. I will not read the whole thing, but to quote from one of its releases, it states that the principles underlying this process agreed to by the commonwealth, etc., are fundamentally flawed and allow the states far too much scope to avoid genuine reform. It says it has failed by not using the financial levers it holds to ensure the states are held to account. It states that the current process is a fatally flawed set of principles and we must start again. That is what it is saying. That pretty much sums up its position. Its position is available online in a number of documents for the honourable member to look at the detail if he so chooses.

The Hon. S.G. WADE: I assure the minister that I am looking at the detail. I am looking at the principles as agreed by MINCO and the principles as proposed by AICD. I will not detain the council by going through them point by point, unless taunted by the minister. It is grossly misleading to use an AICD press release, urging the government to take the next step to go the extra mile, to misrepresent the Australian Institute of Company Directors as not being engaged in the process of reform of directors' liability.

I also do not want to allow the minister to distract us from the basic point. The basic point, I reiterate, is that the minister and government is claiming that, if a national representative body chooses to oppose the Labor state/federal government axis on principles at the national level, they lose the right—

The Hon. J.M.A. Lensink: Axis of evil.

The Hon. S.G. WADE: —an axis of evil, an honourable member suggests—to be consulted on legislation which will affect them. If this was a Liberal government and a union, we would have people swinging from the rafters in protest, but I will let the record stand for the hypocrisy this government is showing. My next question is: to what extent do these directors' liability provisions apply to directors of public sector corporations?

The Hon. G.E. GAGO: I have been advised that they apply by reference to particular acts. So, it depends on whether the company is engaged in activity that is caught by one of the acts amended in the bill.

The Hon. S.G. WADE: Can the minister explain how many company directors have been found liable under the directors' liability provisions in the acts which this bill amends in each of the last 10 years?

The Hon. G.E. GAGO: I am advised that we do not have that information.

The Hon. S.G. WADE: Does the government have an expectation as to whether the prosecutions are likely to increase or decrease as a result of this bill?

The Hon. G.E. GAGO: I have been advised that we would expect that they would decrease. However, at this point in time, we are unable to know for sure.

The Hon. S.G. WADE: Presuming that the minister thinks there has been a decrease, the minister thinks there have been some prosecutions against directors?

The Hon. G.E. GAGO: I have answered that question.

The Hon. S.G. WADE: No, the minister said that she did not have any idea, so I am presuming that at least the fact that she thinks they will decrease suggests that she thinks there have been some.

The Hon. G.E. GAGO: If there had been some—

The Hon. S.G. WADE: So, if there have been, there might be a decrease? Well, that is really helpful. In the AICD survey of directors or aspiring directors, which the minister referred to earlier, 74 per cent of those who identified themselves as aspiring directors said that the risk of personal liability had made them reconsider directorship as a career. Is the government concerned that South Australian businesses will not be able to perform to their best if directors decline to take positions on that basis?

The Hon. G.E. GAGO: I have been advised that the outcome of this bill is that it is likely to result in a decrease for the potential of liability directed at directors. Therefore, if that is so (and we believe it is likely to be so), one would expect that aspiring directors would feel more confident about applying for board directorships.

The Hon. S.G. WADE: That being the case, what steps is the government planning following the promulgation of this legislation to communicate that fact to aspiring directors? What is the communication plan?

The Hon. G.E. GAGO: I am not aware of any plan.

The Hon. S.G. WADE: Just to clarify, the government does not think that it is important enough to talk about the bill to aspiring directors on the way in and has no intention of communicating with aspiring directors on the way out. One wonders how we will actually have any benefit from this legislation if everyone is oblivious to the fact that life is getting easier under this government, allegedly.

Clause passed.

Remaining clauses (2 to 35) and title passed.

Bill reported without amendment.

Third 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) (16:31): I move:

That this bill be now read a third time.

Bill read a third time and passed.

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