Background
Since its commencement, the Corporations Act 2001 (Cth) (‘the Act’) has delivered on achieving national uniformity on corporate governance. Despite establishing a uniform framework, the Australian Law Reform Commission (‘ALRC’) has scrutinised the Act for its complexity, tabling its report ‘Confronting Complexity: Reforming Corporations and Financial Services Legislation’ (‘The Report’) late this January.
To date, the Act is equipped with approximately 168 civil penalty and 978 offence provisions. These figures represent a respective 62% and 500% growth in over 20 years.[1] Notwithstanding extensive regulatory expansion, such provisions are only as effective as their capacity for enforcement and efficient administration.
Current Challenges
- Limited Capacity for Enforcement
The Financial Services Royal Commission observed the failings of the Australian Securities and Investment Commission (‘ASIC’) to adequately fulfill its ever-expanding legal mandate. ASIC’s preference for negotiation over prosecution, even in cases of blatant misconduct, is reflective of this issue.[2]
Although ASIC’s staffing has increased by over 18%, it is about time that we look to the architecture of the Act, rather than exhausting inefficient expenditure on ASIC’s resourcing. Afterall, an 18% increase in staffing is unmatched to the 62% and 500% regulatory growth, not to mention the increase in the regulated population.[3]
- Navigability
It is not just the enforceability of the Act that has the ALRC calling for reform but its navigability. Many terms within the Act have multiple meanings; for example, ‘securities’ is defined five times.[4] The legislative hierarchy is also problematic, with the ALRC identifying over 1,200 notational amendments.[5] As these amendments are prescribed by delegated legislation and not explicitly stated in the Act, they are virtually ‘invisible’ to users.[6] It is perhaps not surprising that our judges have described corporations law as a ‘confusing maze’ and as ‘treacherous’ in nature.[7]
In the absence of a comprehendible legislative pathway, we are left with the question of who must bear the resulting costs of administrative inefficiencies?
Recommendations of the ALRC
Complexity will always be an inherent characteristic of corporations law. The Report has however made the following recommendations to improve enforceability and efficiency.
- Recommendation 28: to the extent practicable, key terms should have a consistent meaning across corporations and financial services legislation.
- Recommendations 25-26: Delegated power should be clear and enable users to identify when and how the power may be exercised.Delegated power is not to undermine navigability.
- Recommendation 56 : Offence and penalty provisions should be consolidated into a smaller number of provisions applicable to the same conduct.[8]
What next?
Should these recommendations be implemented, we can expect far more certainty and confidence for stakeholders engaging with corporations and financial services. We can also be assured that the Act will be administered in a cost-effective way.
Written by Maria Vergados
[1] Australian Law Reform Commission, Corporations Act Offence and Penalty Architecture (Interim Report B, September 2022) 5.
[2] Phillip Hawkins, ‘Financial Services Royal Commission’ (Research Publication, Parliament of Australia).
[3] Zehra G Kavame Eroglu and KE Powell, ‘Role and Effectiveness of ASIC Compared with the SEC: Shedding Light on Regulation and Enforcement in the United States and Australia’ (2020) 31(1) Journal of Banking and Finance Law and Practice 71, 83.
[4] Australian Law Reform Commission, ‘Undue complexity in Australia’s corporations and financial services legislation’ (Media Release, 30 November 2021).
[5] Australian Law Reform Commission, Recommendation18 – Notational Amendments Note (Interim Report B, September 2022) 1.
[6] Australian Law Reform Commission, Confronting Complexity: Reforming Corporations and Financial Services Legislation (Report No 141, November 2023) 7 (‘Confronting Complexity’).
[7] Australian Law Reform Commission, ‘ALRC recommends confronting complexity in corporations and financial services legislation’ (Media Release, 18 January 2024).
[8] Confronting Complexity (n 6) 53 – 59.