Taking Shape in 2012

Taking Shape in 2012

As we dive into 2012 and try to avoid being washed away in the threat of global financial crisis, political in-fighting and natural disaster, it is important to take stock and be mindful of the significantly changing legislative landscape that calls each of us to account and take active steps to protect our own interests.

On 1 January 2012, regulations under the new Work Health and Safety Act came into force in NSW. On 27 January 2012, David Bradbury (the Parliamentary Secretary to the Treasurer) released for public consultation the first tranche of proposed amendments to harmonise personal criminal liability for corporate fault. After much preparation and anticipation, the personal properties securities regime came into operation on 30 January 2012. Each of these developments, shifts personal liability and responsibility and should cause us all to pause and take the time to be informed.

The New Work Heath and Safety Act

With the commencement of the NSW Work Health and Safety Act on 1 January 2012, as part of the national occupational health and safety harmonisation scheme, directors and officers now have a positive duty to ensure their businesses comply with their safety obligations.

Person Conducting a Business or Undertaking

Formerly, employers or principal contractors had the primary responsibility to ensure the safety of workers. Now, the responsibility is on “a person conducting a business or undertaking” (PCBU) to ensure so far as reasonably practicable, the health and safety of workers.

The definition of a PCBU is broad and includes principals, contractors, subcontractors, franchisors and franchisees. A health and safety duty is owed by a PCBU who has control or influence over the way work is performed or even those who merely contribute something towards the work being done.

Duties of Officers

Under the old OHS Act provisions a director or a person concerned in the management of the company was prima facie liable for any contravention of the Act unless due diligence was used to prevent the contravention.

A positive duty to exercise due diligence is now imposed on all officers, to ensure that a PCBU is complying with its obligations. For the purposes of the Act, due diligence is defined to include taking reasonable steps:

(a)    to acquire and keep up-to-date knowledge of work health and safety matters;

(b)   to gain an understanding of the nature of the operations of the business or undertaking of the PCBU and generally of the hazards and risks associated with those operations;

(c)    to ensure that the PCBU has available for use, and uses, appropriate resources and processes to eliminate or minimise risks to health and safety from work carried out;

(d)   to ensure that the PCBU has appropriate processes for receiving and considering information regarding incidents, hazards and risks and responding in a timely way to that information;

(e)   to ensure that the PCBU has and implements processes for complying with any duty or obligation of the person conducting the business or undertaking under this Act;

(f)     to verify the provision and use of the resources and processes of the business or undertaking.

Importantly, a failure to exercise due diligence, may result in personal liability.

Further, a consequence of this duty is that officers may be liable for failing to exercise the requisite due diligence despite the fact that the corporation itself is complying with its obligations, or without an incident or accident in the workplace even occurring.

Duties of Workers

Not only will PCBUs have a duty of care in the workplace, but each individual worker will have a duty to ensure their acts or omissions do not negatively impact upon their own, or others’, health and safety.

Under the provisions of the Act, a worker must:

(a)    take reasonable care for his or her own health and safety;

(b)   take reasonable care that his or her acts or omissions do not adversely affect the health and safety of other persons;

(c)    comply, so far as the worker is reasonably able, with any reasonable instruction that is given by the PCBU to allow the person to comply with his or her obligations under the Act; and

(d)   co-operate with any reasonable policy or procedure of the PCBU relating to health or safety at the workplace that has been notified to workers.

Changes in the offences

The WHS Act groups offences into three categories, with penalties scaled according to each category. Category 1 offences are the most serious breaches involving recklessness and exposing an individual (to whom a duty is owed) to the risk of death or serious illness or injury. Category 2 offences occur where a person is exposed to a high level of risk of death or serious illness or injury, but without recklessness. Category 3 offences are breaches without a high risk of serious harm and without recklessness.

The Act significantly increases penalties for breaches, with maximum penalties scaled according to the offences. The legislation also grants courts a wider variety of sentencing orders including, enforceable undertakings, remedial orders, adverse publicity orders, training orders, injunctions, compensation orders and community service orders, in addition to any penalty.

Jurisdiction has been removed from the NSW Industrial Relations Commission and prosecutions will now be instituted for summary offences in the Local Court (which will have the jurisdiction to order fines of up to $50,000) or the District Court.

WHS Harmonisation

Whilst committed to the principles of harmonisation and having participated in the process, Victoria, Western Australia, South Australia and Tasmania have yet to adopt the model WHS laws. Tasmania has delayed the start date of the legislation for a further 12 months whilst the remaining states continue to consult in relation to the model provisions and those that they will be adopting.

Each State has indicated its introduction of their respective draft WHS Bills will occur over the course of the next 12 months.

Reforming Personal Liability for Corporate Fault

On 27 January 2012, the Parliamentary Secretary to the Treasurer, David Bradbury, released an exposure draft of the Personal Liability for Corporate Fault Reform Bill 2012 (Liability Reform Bill).

The Liability Reform Bill is the first tranche of proposed legislation issued by the Commonwealth Government to fulfil its commitment under the Council of Australian Governments’ (COAG) directors’ liability reform project, which aims to harmonise the approach of all Australian jurisdictions with respect to personal criminal liability for corporate fault.

Directors’ liability reform project

Currently, there are a significant number of Australian laws that impose personal liability on directors and other corporate officers for contraventions of the law by their companies. Often these laws impose strict liability, making directors and other corporate officers automatically liable if their companies contravene the law, even where they may not be aware of, or have the ability to prevent, the contravention.

In many cases, the usual burden of proof is reversed, raising issues of criminal justice and equality in circumstances where directors and officers, must prove their innocence.

Accordingly, the directors’ liability reform project of COAG is designed to harmonise the imposition of personal criminal liability for corporate fault across federal, state and territory legislation by reference to an agreed set of principles.

The COAG principles

In 2009, the Ministerial Council for Corporations agreed to a set of principles aimed at ensuring that any imposition of personal liability for corporate fault is consistent with principles of criminal justice and good corporate governance.

The agreed COAG principles state that personal criminal liability should only be imposed on a director for misconduct of the corporation in situations where one of the special justifications set out in the principles is applicable.

Amendments to the Corporations Act

It appears that the most significant amendments are to Corporations Act 2001 provisions, intended to impose responsibility on company secretaries and directors for a company’s contravention of certain Corporations Act administrative and reporting requirements.

The Liability Reform Bill will amend the Corporations Act to make breach of subsections 188(1) or 188(2) which relate to the administrative and reporting requirements of the Act, civil penalty provisions rather than a criminal offence.

The Liability Reform Bill will amend section 1317G of the Corporations Act, which otherwise allows for substantial penalties to be imposed for serious breaches of the civil penalty provisions, to allow for a penalty of up to $3,000 to be paid to the Commonwealth for breach of subsection 188. The explanatory material clarifies that this is to allow for a lighter penalty to be imposed for breaches that do not meet the necessary level of seriousness.

The Bill also amends the Act so that a person does not contravene sections 188(1) or 188(2) in relation to a company’s contravention of a corporate responsibility provision if the person shows that he or she took ‘reasonable steps’ to ensure that the company complied with the provision. Currently, the Act requires a person to demonstrate that they took ‘all reasonable steps’.

A corporation’s breach of the individual sections that comprise the corporate responsibility provisions however, remains a strict liability offence. The Liability Reform Bill substantially increases the available penalties for breach. For example, breach of the requirement to lodge a notice of change of address of registered office with ASIC will attract a penalty of 60 penalty units, rather than the current penalty of 5 penalty units.

Other Commonwealth legislation

The Bill also contains some minor amendments to the Insurance Contracts Act 1984, the Foreign Acquisitions and Takeovers Act 1975, and the Pooled Development Funds Act 1992.

What’s Next for Liability Reform

Submissions on the exposure draft of the Bill close on 30 March 2012.

It is expected that a further exposure draft bill covering the second tranche of proposed amendments to Commonwealth legislation is expected to be released for public comment in the first quarter of 2012.

The Personal Property Securities Act (PPSA)

On 30 January 2012, the personal properties securities regime came into operation. More than 20 Federal and State registers have now be consolidated into one single online register known as the Personal Property Securities Register (PPSR).

This process of harmonisation is aimed at reducing compliance costs for business and to bring Australia in line with similar regimes already in operation in countries such as the United States, Canada and New Zealand. The regime however requires active steps to be taken in protecting and identifying your security interests.

The PPSA

The PPSA creates a comprehensive set of rules relating to security interests in personal property (in general, all assets other than land) significantly expanding the concept of a security interest. Under the Act, retention of title supply arrangements, hire purchase arrangements, consignments, assignments of accounts receivable and certain leases and bailments are all capable of being security interests.

The Act removes the distinction between fixed and floating charges and introduces a number of new rules in relation to priority, enforcement and extinguishment of security interests.

Scope of the PPSA

The PPSA will apply to everyone, including individuals, companies, trusts and partnerships. Anyone who takes or grants security in personal property will be covered by the PPSA applying to both security interests created after commencement of the Act on 30 January 2012 and those created before it.

Priority under the PPSA

The PPSA sets out rules to determine the priority of competing security interests in personal property. These rules can be summarised as:

(a)    perfected security interest versus unperfected security interest – the perfected security interest will have priority;

(b)   perfected security interest versus perfected security interest – the first perfected security interest will have priority; and

(c)    unperfected security interest versus unperfected security interest – the first security interest to have attached will have priority.

There are however, some exceptions to these priority rules including purchase money security interests (PMSIs).

Importantly, priority of securing interests is determined by the time of registration on the PPSR. If you do not take steps to register your security interests, other parties may gain priority rights to deal with your property, including selling the property, irrespective of your ownership.

The PPSR

Certain security interests already registered on a number of State and Federal registers (including the ASIC register of company charges) have been automatically ‘migrated’ to the PPSR (by the automatic creation of a financing statement).

However, to register a ‘security interest’ you will need:

(a)     particulars of the grantor (property owner);

(b)     description of the property. Certain types of property must have a serial number e.g. motor vehicles, boats and aircraft;

(c)     the class of property (e.g. a PMSI or Perfected);

(d)     nature of the security claimed; and

(e)     particulars of the secured party who has been granted the security interest.

 

Once your interest is registered you will be identified on the PPSR with the date and time of registration. The register can be searched by certain parties (usually for a nominal fee of $3.70). 

 

Next Steps for Personal Property Securities

The registration process will likely differ according to the needs and circumstances of the particular business. As a general guide, to perfect security interests businesses will need to:

(a)    develop processes for identifying any security interests;

(b)   search the PPSR to ensure there are no registered interests in relation to your property;

(c)    register your security interests;

(d)   Review contracts including your terms of trade, to ensure appropriate protection is provided for all property including intellectual property; and

(e)   regularly monitor the PPSR.

 

 

For further information in relation to any of the above developments, please contact us at enquiries@jvlegal.com.au

 

 

Author: Jo-Anne Chong

The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity and does not constitute specific legal advice.