Legislative changes for insolvency and foreign bribery

Legislative changes are on the agenda for insolvency and foreign bribery, writes Louise Petschler GAICD. An AICD delegation is also visiting parliament to discuss political priorities. 

Insolvency safe harbour

In July 2023, the Parliamentary Joint Committee on Corporations and Financial Services completed its long-running inquiry into corporate insolvency settings in Australia. Solvency is a key responsibility for directors, reflected in the law and liability attached to the board’s oversight.

The committee found that Australia’s corporate insolvency system has become overly complex, difficult to access and creates unnecessary cost and confusion for both debtors and creditors. Echoing concerns raised by the AICD and others, the committee agreed that various piecemeal reforms over the past 30 years have added to overall complexity.

The AICD’s long-standing view is that an independent and well- resourced review of insolvency settings is needed, including the intersection between corporate insolvency, director liability settings and personal bankruptcy (read our submission at bit.ly/45cx0tQ). We were pleased to see the committee make the case for a comprehensive review of this complex area of law. The committee also called for the recommendations of last year’s independent review into the director insolvency safe harbour to be implemented.

The AICD was a strong advocate for the safe harbour as a sensible and balanced reform that encourages directors to actively seek to turn around companies rather than prematurely place them into administration. We believe implementing the review recommendations will help support sound use of the safe harbour by directors.

We will update members when the government responds to the committee’s recommendations.

Engaging with government

The AICD has an active policy and government relations program, engaging on issues relevant to good governance and director regulation.

This month, AICD MD and CEO Mark Rigotti MAICD will lead a delegation of senior directors meeting with political leaders across the federal parliament. This is an opportunity for the AICD to discuss our policy priorities. It also ensures that political decision-makers hear directly from highly experienced directors from different sectors of the economy on topical governance priorities and top-of-mind issues for boards.

Combatting foreign bribery

Changes to Australia’s foreign bribery laws are back on the federal parliament agenda with the Crimes Legislation Amendment (Combatting Foreign Bribery) Bill 2023 (Cth) reintroduced in June. There have been extensive consultations on previous iterations of the Bill and earlier versions received bipartisan support, but subsequently lapsed due to the 2019 and 2022 elections.

Most stakeholders view the existing law as overly prescriptive, difficult to prosecute and out of step with the evolving nature of foreign bribery risks. Most critically for directors, the Bill proposes a new strict liability offence for bodies corporate who fail to prevent foreign bribery by an “associate”. This would carry a penalty of $27.5m or higher.

The new “failure to prevent” offence is modelled on the offence in the UK Bribery Act 2010. It would hold companies directly liable for foreign bribery activities by employees, external contractors, agents and subsidiaries, unless they can prove that they had adequate procedures in place to prevent the misconduct. The offence would apply to organisations across sectors including listed and private companies, government entities and NFPs (both incorporated associations and companies limited by guarantee).

The AICD supports a “failure to prevent” offence, but we have concerns about the Bill as drafted. The most significant is the legal burden of proof proposed for the “adequate procedures” defence. This essentially reverses the burden of proof and would require a defendant corporation to prove, on the balance of probabilities, that it had implemented adequate procedures to prevent foreign bribery by its associates. Ordinarily, when a defence is provided, the standard of proof under the Criminal Code is an evidentiary burden.

The AICD also previously supported proposals for a Deferred Prosecution Agreement (DPA) scheme, which has been removed from the current iteration of the Bill. We believe a DPA scheme would incentivise self-reporting of foreign bribery misconduct by corporations. Other jurisdictions such as the UK, US, Canada, France and Singapore have introduced DPA schemes.

Finally, the AICD recommends removing subsidiaries from the definition of “associate”. We will encourage the parliament to consider these issues through the legislative process.

Biodiversity governance guide

As part of the Climate Governance Initiative, the AICD and MinterEllison recently released a new director resource — Biodiversity as a material financial risk: What board directors need to know. Biodiversity as a governance issue is gaining regulatory and investor focus globally. It is an acute challenge for Australia. We are one of 17 megadiverse nations significantly impacted by biodiversity and nature loss — and have one of the highest rates of species decline.

Our new biodiversity guide is an introductory resource for Australian directors, touching on definitions, regulatory focus and risk governance. It includes suggested questions for directors to ask of management and tips on factoring biodiversity into board risk management and oversight.

Staying current on biodiversity risks and regulation is consistent with the duty of directors to act with care and diligence in the best interests of their organisation.

While currently the focus is on introducing mandatory climate reporting in Australia, the government is engaging closely with international standards being developed by the Taskforce on Nature-related Financial Disclosures and the International Sustainability Standards Board. We anticipate further regulatory focus on biodiversity disclosures globally and in Australia.

This article first appeared under the headline 'Changing the Tune’ in the September 2023 issue of Company Director magazine.