Corporate and prudential regulation

14.21   Strict liability offences are a common feature of regulatory frameworks underpinning corporate and prudential regulation.[25] Examples include the composition of corporate entities and licensing,[26] the provision of information, both to the general public and the regulator,[27] compliance with regulator and court/tribunal directions,[28] directors’ duties and remuneration,[29] corporate governance including audit requirements,[30] and the holding of monies on behalf of others.[31]

Insolvent trading

14.22   The Australian Institute of Company Directors (AICD) submitted that many provisions imposing criminal liability on company directors do so on a strict or absolute liability basis. The AICD was of the view that criminal liability on any basis other than because the director ‘knowingly authorised or recklessly permitted a contravention fosters an approach to business which is overly risk averse and which stifles economic growth and innovation’.[32]

14.23   In particular, the AICD identified s 588G of the Corporations Act 2001 (Cth) (Corporations Act) as the ‘most notable example’ of the imposition of strict liability on directors’ duties. It said that ‘where directors must make complex judgments or where the penalties applied as a result of a breach are significant,’ strict or absolute liability should not be imposed.

14.24   Section 588G makes it an offence for a director to incur a debt if the company is insolvent at the time of incurring the debt, or if incurring the debt would result in the company becoming insolvent. Strict liability is imposed in relation to whether the person is a director, and the company is insolvent at the time the debt is incurred, or would become insolvent as a result of incurring the debt. Section 588G(3)(c) and (d) require that the director must reasonably suspect that the company is or would become insolvent at the time of incurring the debt, and that the failure to prevent the company incurring the debt is dishonest.

14.25   On the question of the imposition of strict liability, the ALRC, in its 2003 report, ‘Principled Regulation: Federal Civil and Administrative Penalties’, stated that dispensing the need to prove fault would risk unfairness to those who are subject to deemed liability provisions. It considered that ‘the potential for unfairness of deeming provisions necessitates the inclusion of the protection of a fault element in provisions that deem an individual liable for a civil penalty’.[33] The ALRC recommended that

in the absence of any clear, express statutory statement to the contrary, any legislation that deems an individual to be personally liable for the contravening conduct of a corporation should include a fault element that the individual knew that, or was reckless or negligent as to whether, the contravening conduct would occur.[34]

Prudential regulation

14.26   Strict liability offences relating to prudential regulation are primarily found in the Superannuation Industry (Supervision) Act 1993 (Cth), Insurance Act 1973 (Cth), and Life Insurance Act 1995 (Cth).[35] Strict liability in prudential regulation is targeted at ensuring the fidelity of the regulatory framework. As a regulatory agency, the Australian Prudential Regulatory Authority (APRA) relies strongly on the deterrence effect of regulatory mechanisms, and incentives to enter into administrative arrangements to prevent contravening conduct. Where prosecutions prove difficult, or provisions are virtually unenforceable, the overall efficacy of the regulatory regime is jeopardised. APRA has contended that, where it becomes known that the regulatory regime is difficult to enforce, it could encourage disreputable practices in the industry, putting the pool of superannuation savings in Australia at risk.[36]

14.27   Based on this reasoning, non-compliance provisions relating to APRA directions,[37] superannuation payments and related commissions and brokerages,[38] false, misleading or defective statements and representations are designated strict liability offences. Additionally, as APRA relies on information from industry participants in fulfilling its regulatory responsibilities, a failure to provide APRA with information, documents or assistance is also designated a strict liability offence.

14.28   While this general approach to prudential regulation has been accepted,[39] the Senate Standing Committee for the Scrutiny of Bills (Scrutiny of Bills Committee) drew attention to amendments inserted by the General Insurance Reform Act 2001 (Cth). This inserted the following new strict liability offences:

  • breaching a condition of an APRA determination that certain requirements do not apply (authorisation to carry on an insurance business, audit and actuarial investigations, compliance with prudential standards, keeping of accounting records, requirements relating to presence and service in Australia)—s 7A

  • carrying on an insurance business in Australia, unless otherwise authorised—ss 9, 10

  • breaching an authorisation condition—s 14

  • breaching an authorisation condition given to a non-operating holding company—s 20.

14.29   While the Scrutiny of Bills Committee accepted that strict liability sought to ‘ensure the effectiveness of using the prospect of prosecutions as a deterrent to imprudent behaviour or an incentive to negotiate a rectification plan’, it noted that the provisions were modelled on ss 7 and 8 of the Banking Act 1959 (Cth), which are fault-based provisions. The committee left the question for the Senate as a whole to consider.[40]