Modern slavery reporting, new offences and special purpose accounts need to be on your board of director's radar.
Fair Entitlements Guarantee scheme — new offences need work
Substantial new penalties are proposed for directors and officers of companies that misuse the Fair Entitlements Guarantee scheme (FEG). Under the scheme, the government covers some benefits for employees who lose their jobs due to the insolvency of their employers, where no funds for entitlements are left. The government seeks to recover costs in the liquidation process, but these costs are largely borne by taxpayers.
The costs of the FEG scheme have been increasing due in part to alleged “sharp corporate practices” (including illegal phoenixing). Following stakeholder consultations last year, the government recently released an exposure draft of amendments to the Corporations Act 2001 (Cth) proposing:
- New powers for ASIC or the courts to disqualify company directors where they have been involved in two or more cases of relying on FEG, with little recovery, in a 10-year period
- A new criminal offence (redrafting current s596AB of the Act) with up to 10 years’ imprisonment, where a person enters into arrangements that avoid or significantly reduce the amount of employee entitlements, where the person is “reckless” as to those possible outcomes
- A new civil penalty (up to $200,000) to apply where a reasonable person should have known or expected that the outcomes of an agreement or transaction would result in such loss
- Expanded civil recovery options for employees, liquidators and regulators
- A new “employee entitlements contribution order”, which would allow a liquidator or regulator to seek an order from the court for an entity within a corporate group to pay a contribution towards the unpaid employee entitlements of an insolvent entity in the group.
While the AICD strongly supports targeted reform to combat FEG abuses, we are concerned that the Exposure Draft wording risks unintentionally capturing legitimate business transactions and does not provide appropriate defences for directors acting responsibly and in good faith. The disqualification proposals should also be subject to better criteria. Submissions on the draft closed in July, with new laws expected later this year. Contact policy advisor Matthew McGirr for details.
Modern slavery reporting
Legislation to introduce a new modern slavery reporting regime has been introduced to the federal parliament and is expected to pass this year. The new laws aim to combat modern slavery — including human trafficking, forced labour, sexual slavery and child labour — through a reporting regime that extends to supply chains.
The Modern Slavery Bill 2018 (Cth) would require all entities with annual consolidated revenue of $100 million or more to report on potential modern slavery risks in their structure, operations and supply chains, the actions taken to address these risks and an assessment of the effectiveness of their actions. These reports will be available to the public via a government register.
Entities with operations in New South Wales should also pay attention to new state laws passed in June, setting up a similar regime with a lower threshold of $50m. Unlike the commonwealth legislation, which has no penalties, the NSW law has substantial penalties for non-compliance.
Directors should consider if the new modern slavery reporting obligations will apply and ensure that your entity is prepared, for example, with more due diligence or audits of supply chains, updating internal policies and reviewing contracts, as well as visibility of the full supply chain for reporting.
Contact senior policy advisor Kerry Hicks for details.
Charities win relief from new ASIC fees
Under ASIC’s new industry funding model, entities regulated by ASIC are facing increases in charges to cover the costs of the regulator, to be invoiced from January 2019.
For some entities the new costs under this user-pays model will be substantial. ASIC Commissioner John Price set out some of the changes in last month’s Company Director, or see the ASIC website for key dates.
Until recently, these new charges were intended to apply to charities on the same basis as unlisted private companies.
The AICD and other groups have argued that charities which are companies limited by guarantee are primarily regulated by the Australian Charities and Not-for-profits Commission (ACNC) and should be exempt from the new fees.
On 2 July, the Hon Kelly O’Dwyer, Minister for Revenue and Financial Services, announced that the government would absorb the cost of ASIC regulatory oversight. The AICD welcomes this promise, which will free charities from unnecessary regulatory burden and costs.
Contact senior policy advisor Lucas Ryan for details.
Special purpose accounts
The Australian Accounting Standards Board (AASB) has released a consultation paper that proposes removing special purpose accounting from Australia. Special purpose accounts are often lodged by private companies and NFPs. They are allowable under accounting standards when the entity is not a “reporting entity” — meaning the directors assess there are no users of the accounts and self-select the accounting standards to apply.
The AASB argues that the Australian concept of a reporting entity is inconsistent with new international accounting standards, requiring a move from special purpose accounts. It also argues that Australia is the only (comparable) country to let entities self-assess their level of financial reporting this way. Finally, the AASB considers self-assessment reduces comparability and undermines trust and transparency of financial reporting.
The AICD is not convinced, but recognises such accounts can reduce comparability and reliability of financial reporting. However, their phasing out would increase the reporting burden on many. The AASB accepts this and proposes to introduce a “specified disclosure requirements”. This would require the recognition and measurement of all accounting standards and replace the current “reduced disclosure regime”.
The AICD wants to hear from directors using special purpose accounts. Contact senior policy advisor Kerry Hicks.
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