Recent changes to the Corporations Act are to have a “substantial” impact on directors moving forward, argues one managing principal.
More than a year from the time of being proposed by the federal government, changes to the Corporations Act have finally come to pass, which create new responsibilities on directors to avoid “high” criminal and civil penalties, says McCabe Curwood managing principal Andrew Lacey.
- Director Identification Number (DIN) Scheme
Under a new version of the Registries Modernisation Bill, Mr Lacey explained, new unique numerical identifiers are proposed for registered directors.
The most significant change to the new version of this, he said, is that those that will be appointed as a director must do so before their appointment. Previously, directors could apply for their DIN 28 days after their appointment.
- Creditor-defeating provisions
The Combating Illegal Phoenixing Bill is aiming to prevent company directors from closing a debtor company and transferring its assets to a new company, Mr Lacey said.
“The Combating Illegal Phoenixing Bill has introduced novel creditor-defeating provisions, which are designed to specifically target transfers of company assets for less than market value (or the best price reasonably obtainable) which have the effect of preventing, hindering or significantly delaying the availability of a company’s assets during liquidation for creditors,” he said.
The implementation of this law also has other outcomes, he added, including that “a creditor-defeating transfer is voidable if the transfer is made when the company is insolvent or becomes insolvent as a result of the disposition within the following 12 months”.
- Director Penalty Notice (DPN) regime expansion
As required by the Taxation Administration Act, Mr Lacey continued, a DPN can be served by the commissioner on a director so that in the event that their company does not meet its superannuation charge or PAYG withholding obligations, they are personally liable.
They then have 21 days from being served the DPN, he explained, to pay the amount owed.
From 1 April 2020, the Combating Illegal Phoenixing Bill will mean a company’s unpaid GST will also be included in the amount owed by the director, he noted.
- Improper director resignations
The Combating Illegal Phoenixing Bill will also stop directors from resigning and “improperly backdating resignations to avoid personal liability,” Mr Lacey outlined.
“In short, the law will prevent a sole director from resigning in circumstances where it would leave a company without a director. The law is directed to preventing directors engaging in phoenixing by resigning and thereby intentionally transferring accountability to other directors, such as a ‘straw director’,” he said.
- New laws regarding foreign bribery
Finally, proposed changes to the Crimes Legislation Amendment Bill will mean a company that fails to prevent an associate from engaging in foreign bribery – if done so to benefit the body corporate – will be penalised with the greater of either: $21 million, the amount gained as a consequence of the bribe or 12 months from the offence, the body corporate must pay 10 percent of their annual turnover, Mr Lacey said.
“Notably, a statutory defence is incorporated into the CCC Bill, where a body corporate can show that they had adequate procedures in place to prevent the commission of a foreign bribery offence by an associate,” he said.
“The CCC Bill gives the Minister express powers to publish guidance on what steps a body corporate can take in order to engage the defence. With the CCC [Bill currently] before the Senate, directors of companies operating internationally should ensure that any published ministerial guidance is incorporated into company policies, employment contracts and/or supply agreements if the [bill] is passed.”