Law Council urges caution on changes to fundamental principles of criminal responsibility for all corporations

  • Legal

THE LAW COUNCIL of Australia has welcomed the Federal Government's tabling of the Australian Law Reform Commission's (ALRC) review of the nation's corporate criminal responsibility regime, but is urging the Parliament to take a cautious approach when considering fundamental principles of criminal law.

Contained in the ALRC review are recommendations that would make a corporate accused guilty if any officer, employee, or agent of the corporation committed an offence, while acting within the actual or apparent scope of their authority. The Law Council said under the recommendations, the person need not hold office as a director or a ‘high managerial agent’, whose responsibilities may be fairly assumed to represent the body corporate’s policy, as is presently required. 

Unless the corporation could prove that it took reasonable precautions to prevent the individual officer from committing the crime, it would be guilty.

Law Council of Australia president Pauline Wright said policymakers should approach this recommendation with caution.

"Criminal convictions carry serious consequences, both for bodies corporate and the people who work within them," Ms Wright said.

"The ALRC’s recommendations in this area are not consistent with the general criminal law principles applicable to the most serious offences, including that an intention to commit the crime must be proven. The Law Council urges caution in fundamental changes to general principles of criminal responsibility governing corporate attribution.

"If these recommendations were accepted by Parliament it could lead to corporations attracting criminal convictions for the misdeeds of relatively junior employees, which could have severe, unintended, and unnecessary consequences for many innocent parties.

"It is important to note these recommended amendments would not only touch the large corporations at the top end of town. They may place a disproportionate burden on small businesses and charities, many of which operate as corporations," Ms Wright said.

"A guiding principle of the Australian Criminal Code was that corporations should be treated no more or less favourably than natural persons, and that principles of corporate criminal responsibility should be as close as possible to the general principles that underpin the criminal law as it applies to natural persons. The Law Council continues to support that principle."


The JobKeeper re-test is a call to action for employers

THE CHANGE to the JobKeeper reference date from March 1 to July 1, 2020, effective from August 3, will require all enrolled employers for JobKeeper to retest employee eligibility, warns the Institute of Public Accountants (IPA).

“Some employees did not meet the previous criteria but may now be eligible,” IPA chief executive officer, Andrew Conway said.

“The ‘one-in, all-in’ rule, compels employers to include any new employees, engaged after March 1, but before July 1, 2020, that meet the other eligibility conditions as part of the JobKeeper scheme. 

“The IPA is urging employers to very quickly assess potential new eligible employees, send nomination forms, and importantly, top-up employees’ wages where necessary to meet the established wage condition of $1,500 per fortnight.  This means employers must have the cash to pay. 

"Failure to do so will leave those employers exposed to significant penalties under the Fair Work Act because of the ‘one-in, all-in’ rule.

Potential candidate employees who may now be eligible include:

  • Non-casuals (full-time or part-time employees) who are on the books before July 1, 2020;
  • Casuals who did not meet the definition of a long-term casual employee by March 1, but have since become long-term casual employees by July 1;
  • Employees who did not qualify on March 1, due to their age or visa status but have since become 16 to 18 years of age and meet the independence criteria and study or have obtained the necessary visa.

“Employees that became eligible from July 1, 2020, require an employer on the JobKeeper scheme to provide notice to those new employees (per the existing notice requirements within seven days of the commencement of the legislative instrument which commenced on August 15, 2020). This effectively means giving employers until this coming Friday, with no time to waste.

“The good news, however, is that for the fortnights commencing on 3 and 17 August 2020, employers have until August 31, 2020, to meet the wage condition for new eligible employees under the July 1, eligibility test.

“The clock is already ticking, so impacted employers must act now; doing nothing is definitely not an option,” Mr Conway said.


IPA backs Ombudsman's Insolvency Inquiry Report

THE INSTITUTE of Public Accountants (IPA) has welcomed the Insolvency Inquiry Report released by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) and hopes the Federal Government will accept the 10 key recommendations and moves quickly in its implementation.

“We know that small business is doing it tough and faces huge challenges, particularly in this current COVID-19 environment,” IPA chief executive officer, Andrew Conway said.

“It is therefore critical for the survival of small business that a new regime is implemented which encourages small businesses to assess their position and execute a turnaround with specialist advice from their chosen trusted advisers.

“One of the most pertinent recommendations in the report is that of a Small Business Viability Review, where a voucher worth up to $3,000 is provided to obtain tailored advice to improve their business operations. If the business is assessed as unviable then another $2,000 would be provided to aid in the winding-up process, making the support a total of up to $5,000," Mr Conway said.

“In the latter circumstances, the ASBFEO report recognises that a restructure of business affairs managed by the small business owner, and with approval from a registered liquidator, may have more positive outcomes beyond what is the current norm, including greater returns to creditors.

“To help facilitate this, it has been recommended that a Directors Insolvency Agreement be established where the small business owner can provide a proposal to a registered liquidator on the best way to manage the business.  The proposal may seek a restructure or the winding up of the business, with the retention of the existing company and a sale of the business and/or its assets to an unrelated party. 

“Another key aspect of the report relates to the accessibility of information, including for the small business owner and for creditors.  The report recommends that a modernised approach be taken to information, including simplification, use of plain language, using fact sheets, limiting the volume to relevant information and greater use of electronic means.   The IPA agrees that we need to demystify the process to enable more informed choices and better outcomes.

“The IPA is fully supportive of the recommendations and urges the government to implement them as soon as possible,” Mr Conway said.

About the Institute of Public Accountants

The IPA, formed in 1923, is one of Australia’s three legally recognised professional accounting bodies.  In late 2014, the IPA acquired the Institute of Financial Accountants in the UK and formed the IPA Group, with more than 38,000 members and students in over 80 countries.  The IPA Group is the largest SME focused accountancy organisation in the world. The IPA is a member of the International Federation of Accountants, the Accounting Professional and Ethical Standards Board and the Confederation of Asian and Pacific Accountants.



Fix broken system before ‘insolvency tsunami’ hits: Ombudsman

AUSTRALIAN Small Business and Family Enterprise Ombudsman Kate Carnell said the just-released Insolvency Practices Inquiry final report exposes the many systemic failures that have harmed small and family businesses, ahead of a predicted ‘tsunami’ of insolvencies to come.

The report, released by the Ombudsman yesterday, details a suite of recommended changes to current insolvency practices that aim to achieve the best possible outcomes for small businesses in financial trouble. 

Ms Carnell said the report comes at a critical time, given the COVID-19 pandemic – which has come on the back of devastating natural disasters – "will likely trigger a wave of insolvencies in the coming months".

“Sadly, many small businesses have been driven to the brink by factors outside of their control, such as the COVID crisis,” Ms Carnell said.

“The reality is that Australia is now in the grip of a recession. Trading conditions are the worst we’ve seen since the Great Depression and many small businesses won’t survive.

“Our inquiry has found that the system as it stands does not work for small businesses," she said.

“Small businesses that have been through the liquidation process have told us their experience was so traumatic they will never fully recover, let alone try to start a new business down the track. 

“Instead of getting the support they need to turn it around, small businesses too often find themselves on an express train to winding up with no control over the process," Ms Carnell said.

“The system needs to change dramatically so that small business owners are given the chance to make important decisions about the future of their business, without being pushed into outcomes they don’t want – like losing their family home.”

The report recommends establishing a Small Business Viability Review program where small business owners experiencing significant financial stress can obtain a voucher of up to $5,000 to access a tailored plan from their trusted, accredited financial adviser.

“We know the sooner a small business seeks help, the more likely it is they can achieve a restructure or turnaround,” Ms Carnell said.

“But cash flow issues, compounded by falling revenue, may mean those small business can’t afford the professional financial advice they need. The ramifications of this could be devastating, both for the business and its owner and family, down the line.”

Another key recommendation is the establishment of a small business debt hibernation instrument when a state, territory or federal government declares a systemic shock such as a pandemic or significant economic downturn.

“COVID-19 has shown that businesses need a mechanism where they can take stock of their situation and prepare for the re-opening of trade,” Ms Carnell said.

“The minimum hibernation period would be 90 days, during which payments on loans, rent, tax and other outgoings could be deferred.”

The Ombudsman’s report recommends establishing a Directors’ Insolvency Agreement where a small business owner can provide a registered liquidator with a proposal on the best way to manage the business.

“External administrations are focused on maximising the benefit to creditors, while the small business owner’s expertise and knowledge is often brushed aside, Ms Carnell said.

“Small businesses have spoken of stock being sold at a low point in the market, assets being put up for sale in publications that aren’t relevant to their industry and thousands being spent by registered liquidators to chase down payments worth far less than the amount spent.

“If the small business owner, with the approval of a registered liquidator, could restructure their affairs, it would likely lead to more positive outcomes, including a greater return to creditors.”

Ms Carnell said the cost of insolvency should be capped for small businesses, particularly given the majority of small businesses entering liquidation have assets of less than $10,000.

“Throughout the course of this Inquiry, we have spoken with a range of registered liquidators who have indicated the minimum cost of a straightforward voluntary administration is about $12,000, while the average is closer to $50,000,” Ms Carnell said.

“For businesses that need to wind up, it is critical that the process be cost effective, quick and dignified.

“Ultimately if implemented, our Insolvency Practices Inquiry recommendations will go a long way to ensuring the Australian small business community retains its fighting spirit.”


Business Ombudsman calls for major changes to SME tax regime compliance

THE Australian Small Business and Family Enterprise Ombudsman Kate Carnell has called for major changes to Australia’s taxation framework, saying small businesses were "unnecessarily overburdened by compliance requirements".

The Ombudsman has made a series of recommendations in relation to taxation as part of her COVID-19 Recovery Plan.

These include optional single payment to the ATO to cover PAYG(W) superannuation guarantee and GST; a period of review for small business tax returns to be one year following lodgement; abolishment of Fringe Benefits Tax for small business; and permanent small business instant asset tax write-off of $150,000. 

“The coming months will be critical for Australian small businesses as they try to get back on their feet in this post-COVID recovery phase,” Ms Carnell said.

“There has never been a tougher time to be in business. The last thing small businesses need is the stress of complying with overly complicated processes while trying to balance their cash flow.

“The current system effectively forces small businesses to act as the ATO's unpaid tax collectors. Over recent decades, small business owners have been burdened with the requirement to withhold tax from employees’ wages (PAYGW), the additional superannuation guarantee and the GST. This has shifted administration responsibilities from the government to small businesses, which face significant penalties and interest if an honest mistake is made.

“Our plan recommends the ATO should develop a solution that enables the employer to meet these obligations with a single payment to the ATO on each payroll run or monthly. It would need to be phased in to give small businesses the chance to manage their cash flow accordingly," Ms Carnell said.

“While most small businesses pay their dues, ATO audits can be conducted as much as five years in arrears, which is incredibly disruptive and distressing.

"Our plan notes the ATO has enough timely data to identify non-compliance within a year of lodgement. When an unintentional error is found, the small business should be given the opportunity to rectify it.

“Our plan recommends the Fringe Benefits Tax (FBT) be abolished for small business. As it stands, small businesses are required to pay FBT on items that large businesses provide in-house to retain staff such as meals, gyms and childcare centres and don’t have to pay FBT.

“Equally small businesses need certainty to be able to plan to buy major equipment. The Government’s recent instant asset write-off threshold increase to $150k is welcome, but most small businesses are currently focused on their survival. Our plan recommends this temporary policy be made permanent. This would significantly reduce the need for depreciation and cut red tape.

“We know the government is serious about a business-led recovery from this pandemic but success is only possible if it is balanced with the support small businesses need to get the economy firing on all cylinders again," Ms Carnell said.

“Ultimately, small businesses need to be released from the burden of unnecessary regulation and onerous compliance requirements, along with the fear of ATO recovery action and severe penalties.”


Ombudsman: Small Business Award the simple solution to a complex problem

THE Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell has welcomed Prime Minister Scott Morrison’s commitment to 'go back to the drawing board on industrial relations' and is calling for the introduction of a Small Business Award.

The recommendation is part of a suite of reforms to support small businesses in the post-coronavirus recovery phase, as outlined in the Ombudsman’s COVID-19 Recovery Plan.

“The Prime Minister was right in his Press Club address, in saying the current industrial relations system is not fit for purpose,” Ms Carnell said.

“In this new world we live in, with business confidence at a historical low, the system needs to make it easy for small business employers to be able to hire and manage staff, so they can get on with the job of running their business. 

“The Fair Work Act has 960 sections and over a quarter of a million words. On top of this, Australia has more than 100 industry awards, with hundreds more classifications within those awards," Ms Carnell said.

“If big businesses with large HR and payroll departments struggle to comply, it’s nearly impossible for small businesses who really want to do the right thing. If nothing changes, those small businesses that were planning to grow their business or start a new venture, simply will not.

“COVID-19 has had a devastating impact on Australian jobs and that needs to be countered with positive changes that make it simpler for businesses to grow and employ – particularly at a time when small businesses are trying to get back on their feet,” Ms Carnell said.

If adopted by the government, the Small Business Award would be simpler than existing awards and available to all small businesses on an ‘opt in’ basis. It would cover all staff, irrespective of their different duties and would include a ‘permaflexi’ classification.

The Award should have minimum standard pay rates, which can include penalty rates but not overtime ie: loaded rates, the Ombudsman said.

“Permaflexi gives the employee a permanent and secure position with standard forms of leave, but it also gives the employer the flexibility to ensure all duties are carried out, without the onerous need to move a staff member to a different award classification,” Ms Carnell said.

“If a small business decides to stay within the current award structure, they need access to comprehensive advice regarding their obligations. A reg-tech solution should be created – accredited by the FWO – that provides a technology-driven method for small business to comply.

“Small businesses will be facing enormous challenges and uncertainty as they emerge from hibernation. If they don’t have flexibility and confidence in the system, they won’t employ," Ms Carnell said.

“The overly complex current system effectively forces small businesses to seek expensive legal advice to avoid the threat of significant penalties if they make a mistake.

“Another logical move would be to clarify the Small Business Fair Dismissal Code, to give small and family businesses the confidence they need to employ more Australians.

“We’ve provided the government with our Review of the Small Business Fair Dismissal Code, which recommends a number of changes to help small business employers meet their obligations," she said.

“Without a system overhaul, business confidence will continue to be undermined and that hurts both small businesses and workers.

“We look forward to taking an active role in the government’s industrial relations discussions, as announced by the Prime Minister, over the coming months, so the small business community is heard on these issues that affect them directly. This has the potential to be a game-changer for Australia’s small business and family enterprise sectors," Ms Carnell said.

“We are committed to working to achieve the best possible outcomes for small businesses.”


Parliamentary inquiry into litigation funding in Australia

THE Parliamentary Joint Committee on Corporations and Financial Services will begin a new inquiry into litigation funding, following a referral from the House of Representatives today.

The committee has been asked to examine whether current regulations surrounding Australia’s growing class action industry is impacting fair and equitable outcomes for plaintiffs. 

The committee will also scrutinise proposals to allow lawyers to enter into contingency fee arrangements, currently being considered by the Victorian Parliament, and the flow on consequences for the Australian economy of these trends.

“I welcome this referral from the Parliament," Parliamentary Joint Committee on Corporations and Financial Services Chair, Senator James Paterson said.

"It’s vitally important that our legal system delivers justice to those who deserve it. It does not exist to benefit lawyers or others seeking to profit from it.

“Any recommendations made by the committee will be guided by evidence. This inquiry is an opportunity to provide greater public transparency into how the litigation funding business model works and to assess whether regulatory change is necessary,” Senator Paterson said..

The committee will soon open submissions and wwill take evidence from all stakeholders.

Public hearings will be scheduled and the committee will report by December 7, 2020.



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