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Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests |
2.1 This chapter considers the responses of ministers to matters previously raised by the committee.
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Purpose
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This bill seeks to implement government insolvency reforms intended to
reduce the cost of external administration for small businesses
and the
compliance burden for insolvency practitioners
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Portfolio
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Treasury
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Introduced
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House of Representatives on 12 November 2020
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Bill status
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Received Royal Assent 15 December 2020
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2.2 In Scrutiny Digest 17 of 2020 the committee requested the Treasurer's advice as to:
• why it is proposed to use an offence-specific defence (which reverses the evidential burden of proof) in proposed subsection 453F(4), and whether general defences in the Criminal Code apply to an offence under proposed section 453F or regard was given to providing for a more specific defence than that of a reasonable excuse; and
• the justification for providing, in proposed subsection 453F(3), that the offence is an offence of strict liability.[2]
Treasurer's response[3]
2.3 The Treasurer advised:
Offence-specific defence
Under section 453F of the Bill, a director of a company under restructuring must help the small business restructuring practitioner by attending to them, providing information on the company's business, property, affairs and financial circumstances and giving the practitioner access to inspect and make copies of company books. Failure by a director to do so is an offence of strict liability without reasonable excuse. The penalty for the offence is 120 penalty units.
The new debt restructuring process established in new Part 5.3B of the Corporations Act draws heavily on the established voluntary administration framework, as well as the debt agreements framework in Part IX of the Bankruptcy Act. This provides consistency in the obligations of a director across the external administrative regime. In this way, the defences available under section 453F of the Bill reflect those available under the existing section 530A of the Corporations Act 2001 (Corporations Act), which requires officers to help liquidators under a winding up.
In addition to this, in accordance with the Attorney-General's Department's Guide to Framing Commonwealth Offences, Infringement Notices and-Enforcement Powers (September 2011) (the Guide), it is appropriate that the defendant bears the evidential burden for providing a reasonable excuse defence as this information would be peculiarly within the knowledge of the defendant, and would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish the matter. It is intended to rely on this justification.
This is because the defendant would be better positioned to readily adduce evidence that they had a reasonable excuse not to fulfil the practitioner's requests rather than the prosecution having to adduce evidence to the contrary. In addition to this, the defendant only has an evidential burden which is less onerous than the legal burden.
The defences in Part 5.3 of the Criminal Code do apply to the strict liability offence. While paragraph 4.3.3 of the Guide discourages the use of the reasonable excuse defence where these defences apply, in this instance, allowing for a broad range of defences is necessary to ensure that where there is a good reason that the requests were not fulfilled, that a director may rely on those reasons. Relying on the existing defences of the Criminal Code would not be enough to cover all of the unforeseen situations where the directors cannot fulfil their duties under section 453F.
Strict liability offence
As pointed out by the Committee, subsection 453F(3) of the Bill provides that where a director does not help the restructuring practitioner without reasonable excuse is an offence of strict liability.
In line with the Guide, the offence of strict liability is appropriate in this instance as non-compliance with a restructuring practitioner's request by a director would undermine the integrity of the restructuring regime. Avoiding a restructuring practitioner's request for information presents a serious detriment for creditors as the restructuring practitioner would not have the information readily available to make an accurate declaration in relation to the proposed restructuring plan. Therefore, the offence significantly enhances the effectiveness of the restructuring process regime in deterring this kind of conduct. In addition to this, in line with Guide, the offence is not punishable by imprisonment.
2.4 The committee thanks the Treasurer for this response. The committee notes the Treasurer's advice that the defences available under proposed section 453F reflect those obligations available under the existing section 530A of the Corporations Act 2001 which requires officers to help liquidators under a winding up, and that this provides consistency in the obligations of a director across the external administrative regime.
2.5 The committee also notes the Treasurer's advice that it is appropriate that the defendant bears the evidential burden for providing a reasonable excuse defence as this information would be peculiarly within the knowledge of the defendant, and would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish the matter.
2.6 In relation to proposed subsection 453F(3), which provides that an offence under proposed section 453F is an offence of strict liability, the committee notes the Treasurer's advice that the offence of strict liability is appropriate in this instance as non-compliance with a restructuring practitioner's request by a director would undermine the integrity of the restructuring regime, and further, that the offence is not punishable by imprisonment.
2.7 The committee notes that it would have been useful had this information been included in the explanatory memorandum.
2.8 In light of the fact that this bill has already passed both Houses of the Parliament the committee makes no further comment on this matter.
2.9 In Scrutiny Digest 17 of 2020 the committee requested the Treasurer's advice as to whether proposed subsections 453L(2) and (3) provide for offence-specific defences which reverse the evidential burden of proof, and if so, why this is necessary and appropriate.[5]
Treasurer's response
2.10 The Treasurer advised:
As the Committee has pointed out, section 453L of the Bill provides that a person who is a director of a company contravenes this section if the company is under restructuring and the company purports to enter into a transaction or dealing affecting the property of the company and the director approves that action is also a contravention for a director of a company under restructuring to purport to enter into a transaction or dealing affecting the property of the company on behalf of the company. Subsections 453L(2) and (3) provide for specific circumstances in which there will not be a contravention of section 453L.
In a proceeding against a director in relation to section 453L, the defendant will bear the evidential burden that these specific circumstances occurred. The reversal of the evidential burden in this instance is limited to reliance on the exceptions.
The Guide provides that a matter should only be included in an offence‑specific defence (as opposed to being specified as an element of the offence), where it is peculiarly within the knowledge of the defendant and it would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish the matter.
Obtaining information about an organisation's detailed transactional information, and whether this is covered by the exception, or information about relevant consent or court orders where obtained may require the prosecution to undertake lengthy and difficult investigative exercises that would require obtaining large amount of potentially confidential information from the company. It would also be significantly more difficult and costly for the prosecution to have to disprove that these exceptions didn't exist than it would be for the defendant to provide or point to evidence that suggests a reasonable possibility that a matter exists.
In this way, it is considered appropriate and necessary for subsection 453L(2) and (3) to be offencespecific defences.
Committee comment
2.11 The committee thanks the Treasurer for this response. The committee notes the Treasurer's advice that subsections 453L(2) and (3) provide for specific circumstances in which there will not be a contravention of section 453L; and that in a proceeding against a director in relation to section 453L, the defendant will bear the evidential burden that these specific circumstances occurred. The reversal of the evidential burden in this instance is limited to reliance on the exceptions.
2.12 The committee also notes the Treasurer's advice that this proposed offence-specific defence is in line with the Guide to Framing Commonwealth Offences, noting in particular that it would be significantly more difficult and costly for the prosecution to have to disprove that these exceptions didn't exist than it would be for the defendant to provide or point to evidence that suggests a reasonable possibility that a matter exists.
2.13 The committee notes that it would have been useful had this information been included in the explanatory memorandum.
2.14 In light of the fact that this bill has already passed both Houses of the Parliament the committee makes no further comment on this matter.
2.15 In Scrutiny Digest 17 of 2020 the committee requested the Treasurer's advice as to:
• why it is proposed to use offence-specific defences (which reverse the evidential burden of proof) in proposed section 456B; and
• how the fact that a person is a registered liquidator is peculiarly within the knowledge of the defendant in light of the fact that this information appears to be publicly available on the ASIC website.[7]
Treasurer's response
2.16 The Treasurer advised:
Use of offence-specific defences
Section 456B of the Bill provides that only a registered liquidator can consent to be appointed, and act as, a small business restructuring practitioner. It is an offence of strict liability where a person is not a registered liquidator and they consent to an appointment. In proceedings brought against the person, the person bears an evidential burden in proving that they were a registered liquidator. The penalty for the offence is 50 penalty units. This is consistent with current requirements under existing voluntary administrative provisions under Part 5.3A of the Corporations Act.
In line with the Guide, it is appropriate for the defendant to bear the evidential burden as the registered liquidator can quickly adduce evidence proving that they are a registered liquidator. This is already within the knowledge of the defendant and therefore, if requested, the defendant would have the information available to quickly provide to the regulator to show that they possess the requisite qualifications, knowledge and experience necessary to support a distressed small business through the debt restructuring process and to develop a debt restructuring plan to put to creditors.
Publicly availably knowledge peculiarly within the knowledge of the defendant
As the Committee is aware, the Bill establishes a new formal debt restructuring process. In this process, a small business restructuring practitioner supports the company to develop a debt restructuring plan and review its financial affairs, certifies the plan to 'creditors, and manages disbursements once the plan is in place. A restructuring practitioner must be a registered liquidator.
This key information would reside with the person and evidence relating to this would be readily available by the person. While, it would not be expected that the prosecution would not begin proceedings without sufficient concerns that the person was not a registered liquidator. It would not be particularly onerous for the person to produce evidence to show their registration. In addition to this, it may not always be the case that the evidence would be readily available that a restructuring practitioner is a registered liquidator. With the establishment of the new formal debt restructuring process, there is an expected increase in the number of the applications for registered liquidators. This may cause delay in uploading relevant information onto the public register, thereby the information may not be so readily available. Where this occurs, it is quicker for the defendant to quickly adduce evidence that they are a registered liquidator rather than the prosecution proving information to the contrary.
Committee comment
2.17 The committee thanks the Treasurer for this response. The committee notes the Treasurer's advice that proposed section 456B is consistent with current requirements under existing voluntary administrative provisions under Part 5.3A of the Corporations Act. Further, the committee notes the Treasurer's advice that it is appropriate for the defendant to bear the evidential burden as the defendant can quickly adduce evidence showing that they are a registered liquidator.
2.18 The committee also notes the Treasurer's explanation that there may be a delay in the Australian Securities and Investments Commission (ASIC) uploading relevant information about registered liquidators onto the public register.
2.19 The committee considers that the information above explains that, in some circumstances, the defendant may be in a position to more quickly provide information about whether they are a registered liquidator; however, the explanation does not adequately justify that this information is peculiarly within the knowledge of the defendant.
2.20 The committee remains of the view that it does not consider whether a defendant is a registered liquidator to be information that is peculiarly within the knowledge of the defendant.
2.21 In light of the fact that this bill has already passed both Houses of the Parliament the committee makes no further comment on this matter.
2.22 In Scrutiny Digest 17 of 2020 the committee requested the Treasurer's advice as to why it is necessary and appropriate to leave each of the above matters to delegated legislation.[9]
Treasurer's response
2.23 The Treasurer advised:
As the Committee has pointed out, the Bill establishes a framework for the new formal debt restructuring process with amendments to be made to associated delegated legislation (including regulations amending the Corporations Regulations 2001 and rules amending the Insolvency Practice Rules (Corporations) 2016 made under the Corporations Act). The amendments to these instruments are necessary to fully implement the regime.
The primary legislation provides power for delegated legislation to specify further details of the reforms. These powers are appropriate and necessary to deal with situations where the operation of the Bill may produce unintended or unforeseen results that are not consistent with the policy intention for the new regime. As the Committee is aware, the reforms will assist to safeguard against the impacts of the COVID-19 pandemic which is expected to see an increase in the number of companies that move into external administration. Therefore, it remains appropriate and necessary to provide specificity in regulations as it allows the process to respond quickly to developments that occur from the expected increase in the number of insolvencies. This ensures that the regime remains fit-for-purpose and is adaptable to the changing economic environment to best reflect the needs of small businesses.
Therefore, although it may be desirable to place all of the details in primary legislation, I consider that it is necessary and appropriate to place specificity in delegated legislation as, given the nature of the reforms, this retains the ability to respond to unforeseen issues that could have constrained the ability for the industry to properly use the streamlined regimes.
Committee comment
2.24 The committee thanks the Treasurer for this response. The committee notes the Treasurer's advice that the reforms contained in the bill will assist to safeguard against the impacts of the COVID-19 pandemic which is expected to see an increase in the number of companies that move into external administration. The committee also notes the Treasurer's advice that it is appropriate and necessary to provide specificity in regulations as it allows the process to respond quickly to developments that occur from the expected increase in the number of insolvencies.
2.25 However, the committee maintains that it does not consider administrative flexibility to be a sufficient justification, of itself, for leaving significant matters to delegated legislation.
2.26 The committee draws this matter to the attention of the Senate Standing Committee for the Scrutiny of Delegated Legislation.
2.27 In light of the fact that this bill has already passed both Houses of the Parliament the committee makes no further comment on this matter.
[1] Schedule 1, item 1, proposed section 453F. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(i).
[2] Senate Scrutiny of Bills Committee, Scrutiny Digest 17 of 2020, pp. 3-5.
[3] The Treasurer responded to the committee's comments in a letter dated 16 December 2020. A copy of the letter is available on the committee's website: see correspondence relating to Scrutiny Digest 2 of 2021 available at: www.aph.gov.au/senate_scrutiny_digest.
[4] Schedule 1, item 1, proposed subsections 453L(2) and (3). The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(i).
[5] Senate Scrutiny of Bills Committee, Scrutiny Digest 17 of 2020, pp. 5-6.
[6] Schedule 1 item 1 proposed section 456B. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(i).
[7] Senate Scrutiny of Bills Committee, Scrutiny Digest 17 of 2020, pp. 6-7.
[8] A range of items in schedule 1, 2 and 3. The committee draws senators’ attention to these provisions pursuant to Senate Standing Order 24(1)(a)(iv).
[9] Senate Scrutiny of Bills Committee, Scrutiny Digest 17 of 2020, pp. 7-9.
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