The Federal Bill to increase corporate fines and penalties that was introduced into Parliament on 24 October 2018 was debated in the House of Representatives on 28 November, and had its third reading on 29 November. The Bill had its second reading in the Senate on 3 December 2018 and has been adjourned for further debate to the next sittings on 12 February 2019.
Following the release of recommendations from the Government’s ASIC Enforcement Review Taskforce, draft legislation was published at the end of September 2018 and public submissions were open until 23 October 2018.
Amongst other things, the proposed legislation amends the civil penalty regime, making more provisions of the Corporations Act and ASIC Act civil penalty provisions. It increases penalties for civil penalty section breaches and for criminal penalties. It also widens the infringement notice regime. That regime will apply to companies and to individuals.
We expect that the Bill, the Treasury Laws Amendment (Strengthening Corporate & Financial Sector Penalties) Bill 2018, will be passed in February 2019.
It comes as no surprise that, some of the penalties in the Bill have been increased from those originally recommended by the Taskforce.
The proposed maximum company penalties under the ASIC Act (based on the current penalty unit value) are to be increased from $2.1 million to the greater of first, $10.5 million, or second, three times the benefit derived or detriment avoided, or third, 10% of the annual turnover. A cap of $210 million on that ten percent of turnover alternative was included in the Bill. In the Senate the Greens and then the Opposition have proposed amendments that the $210 million turnover cap be removed.
The proposed maximum penalties for each contravention are:
| Act | Individual (current) |
Individual (proposed) (based on penalty units) |
Company (current) |
Company (proposed) |
| ASIC Act | $420,000 (based on penalty units) |
|
$2.1m (based on penalty units) |
|
| Corporations Act | $200,000 |
|
$1m |
|
| Credit Act | $420,000 (based on penalty units) |
|
$2.1m (based on penalty units) |
The proposed maximum penalty for corporations of 10% of turnover is a drastic increase.
The proposed reforms also extend to the Insurance Contracts Act 1984 (Cth). It is proposed that s13, the duty of utmost good faith, and s33C, key facts sheet, each become a civil penalty breach provision. Section 33C will also be an infringement notice section.
Penalties for criminal breaches will increase, including the doubling of maximum imprisonment terms for some breaches.
Importantly, the concept of contravention of a civil penalty provision has been amended to include a person who attempts to contravene or is involved in a contravention of a civil penalty provision.
The Bill also introduces relinquishment as a remedy available in civil penalty provision proceedings to remove any financial benefit that arises from contravention. It enables the Court to make an order that a person is to pay the Commonwealth the amount of the benefit derived, or detriment avoided, from a contravention of a civil penalty provision. The order may be made in addition to a pecuniary penalty.
The Courts consider a number of factors when fixing a penalty. Those include deterrence (the primary objective), course of conduct, totality and parity. The course of conduct principle operates to ensure the penalties to be imposed, considered as a whole, are just and appropriate. The totality principle requires that the total penalty not exceed what is proper for the entire conduct involved, taking into account all factors.
No doubt the course of conduct and totality principles will become of even greater importance in future matters when looking at the extent of any aggregation for multiple contraventions, given the proposed maximum penalties for corporations.
This article was written by Jonathan Tapp, Partner, Shonagh Rasmussen, Senior Associate and Zoe Tishler, Law Graduate.
P: +61 2 9334 8850
E: jtapp@hwle.com.au