Regulatory update – corporate and financial sector penalties Bill passed by both houses

In our regulatory update of 19 December 2018, we reported on the progress of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 to the Senate. We said that it was likely to be passed in February. The Bill finally passed both houses on 18 February 2019, after the House of Representatives agreed to some Senate amendments. It now awaits Royal Assent.

Amongst other things, the 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.

As we noted in our 19 December update, the legislation will considerably increase the maximum civil penalty for bodies corporate. Where there is a contravention, the penalty will increase 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. The Opposition amendments in the Senate increased the proposed cap of $210 million on that 10% of turnover alternative to $525 million (2.5 million penalty units)¹. This is compared to the current maximum penalties, which under the ASIC Act and Credit Act are $2.1 million and under the Corporations Act $1 million.  Individual penalties have also increased from $200,000 to the greater of $1.05 million or three times the benefit gained/loss avoided.

The new maximum penalties for each civil penalty contravention will be:

The reforms also extend to the Insurance Contracts Act 1984 (Cth). Section 13, 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.

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 Senate amendments also increase criminal penalties for corporate and financial misconduct. Significantly, the legislation now triples the current maximum term of imprisonment for some serious offences, from 5 years to 15 years (in the previous draft it was proposed the term be increased to 10 years).

The legislation 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 increased penalties are not retrospective.

As we noted in our 19 December update, 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 new maximum penalties for corporations.

This article was written by Jonathan Tapp, Consultant and Zoe Tishler, Solicitor.

¹ The Greens and then the Opposition in the Senate had originally proposed no cap.