Corporations Amendment Act (No. 1) 2005
No. 138, 2005
An Act to amend the Corporations Act 2001, and for related purposes
Contents
1 Short title
2 Commencement
3 Schedule(s)
Schedule 1—Liability of directors of corporate trustees
Corporations Act 2001
Schedule 2—Technical amendments
Corporations Act 2001
Corporations Amendment Act (No. 1) 2005
No. 138, 2005
An Act to amend the Corporations Act 2001, and for related purposes
[Assented to 18 November 2005]
The Parliament of Australia enacts:
1 Short title
This Act may be cited as the Corporations Amendment Act (No. 1) 2005.
2 Commencement
(1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.
Commencement information |
Column 1 | Column 2 | Column 3 |
Provision(s) | Commencement | Date/Details |
1. Sections 1 to 3 and anything in this Act not elsewhere covered by this table | The day on which this Act receives the Royal Assent. | 18 November 2005 |
2. Schedule 1 | The day on which this Act receives the Royal Assent. | 18 November 2005 |
3. Schedule 2 | Immediately after the commencement of section 1462 of the Corporations Act 2001. | 30 June 2004 |
Note: This table relates only to the provisions of this Act as originally passed by the Parliament and assented to. It will not be expanded to deal with provisions inserted in this Act after assent.
(2) Column 3 of the table contains additional information that is not part of this Act. Information in this column may be added to or edited in any published version of this Act.
3 Schedule(s)
Each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.
Schedule 1—Liability of directors of corporate trustees
Corporations Act 2001
1 Subsection 197(1)
Repeal the subsection, substitute:
(1) A person who is a director of a corporation when it incurs a liability while acting, or purporting to act, as trustee, is liable to discharge the whole or a part of the liability if the corporation:
(a) has not discharged, and cannot discharge, the liability or that part of it; and
(b) is not entitled to be fully indemnified against the liability out of trust assets solely because of one or more of the following:
(i) a breach of trust by the corporation;
(ii) the corporation’s acting outside the scope of its powers as trustee;
(iii) a term of the trust denying, or limiting, the corporation’s right to be indemnified against the liability.
The person is liable both individually and jointly with the corporation and anyone else who is liable under this subsection.
Note: The person will not be liable under this subsection merely because there are insufficient trust assets out of which the corporation can be indemnified.
Schedule 2—Technical amendments
Corporations Act 2001
1 After subsection 1462(2)
Insert:
(2A) The following provisions of the old Act continue to apply to an audit of the financial report for a financial year, or an audit or review of the financial report for a half‑year in a financial year, if the financial year begins before 1 July 2004:
(a) subsections 324(1) to (6) (inclusive) (other than paragraphs 324(1)(d) and (2)(d) and (e));
(b) subsection 324(11);
(c) subsection 327(4);
(d) section 331AA (other than paragraphs 331AA(1)(d) and (2)(d) and (e)).
Subsection 331AA(4) of the old Act continues to apply as if the references in that subsection to subsections 324(7), (8), (9), (10) and (16) were omitted.
[Minister’s second reading speech made in—
House of Representatives on 2 June 2005
Senate on 5 September 2005]
Overview
The Corporations Amendment Act (No. 1) 2005 was enacted by the Parliament of Australia to amend the Corporations Act 2001 and address certain legal gaps and issues within the corporate governance framework. This Act came into effect on 18 November 2005, with specific provisions commencing on the date of Royal Assent and others following the commencement of section 1462 of the Corporations Act 2001. The primary objective of this legislation is to refine the liabilities of directors of corporate trustees and to introduce technical amendments to ensure the clarity and effectiveness of the corporate governance provisions. The Act aims to protect stakeholders by ensuring that directors are held accountable for their actions when a corporate trustee incurs a liability that cannot be discharged by the corporation due to breaches of trust or other specified reasons.
Scope and Application
The Corporations Amendment Act (No. 1) 2005 amends the Corporations Act 2001, introducing changes primarily aimed at clarifying the liability of directors of corporate trustees when a corporation incurs liabilities while acting as a trustee. The Act applies to directors of corporations acting as trustees, ensuring that they are held liable for discharging liabilities that the corporation cannot meet or is not entitled to be indemnified against, due to breaches of trust, actions outside the scope of the corporation's powers, or terms of the trust. This liability extends to situations where there are insufficient trust assets for indemnification. The Act commences on the day it receives Royal Assent, which was 18 November 2005 for sections 1 to 3, and on the same day for Schedule 1. Schedule 2, which includes technical amendments, commenced immediately after the commencement of section 1462 of the Corporations Act 2001 on 30 June 2004. The Act applies nationally across Australia, given its federal nature, and is subject to further specification or restriction through subordinate instruments, though no such instruments are specified in the text.
Key Provisions
The Corporations Amendment Act (No. 1) 2005 amends the Corporations Act 2001, primarily through two schedules. The first schedule introduces changes to the liability of directors of corporate trustees. Under the new law, a director of a corporation that acts as a trustee and incurs a liability may be held personally liable for the full or part of that liability if the corporation cannot discharge it and is not fully indemnified from trust assets. This occurs when the corporation breaches the trust, acts outside its powers, or when a trust term limits or denies the corporation's right to indemnity. The liability applies even if the corporation lacks sufficient trust assets to cover the debt, and the director is liable individually and jointly with the corporation and any other liable parties (subsection 197(1) of the Corporations Act 2001).
The second schedule includes technical amendments to the Corporations Act 2001. It ensures that certain provisions of the old Act continue to apply to audits of financial reports for financial years starting before 1 July 2004. These provisions include specific subsections and sections that relate to the audit of financial reports, ensuring consistency and continuity in the application of auditing standards and practices (after subsection 1462(2) of the Corporations Act 2001).
The Act imposes specific obligations on directors of corporations acting as trustees, requiring them to ensure that the corporation can meet its liabilities under the trust. If the corporation cannot discharge a liability or is not fully indemnified from trust assets due to breaches, scope limitations, or trust terms, directors may be held personally liable. Additionally, the technical amendments ensure that particular provisions remain applicable to audits conducted before the commencement of certain sections of the Corporations Act 2001, maintaining the integrity of the auditing process.
Breaches of these provisions can lead to personal liability for directors, where they may be required to discharge the corporation's liabilities. The Act does not explicitly state penalties for such breaches; however, directors found liable may face financial penalties commensurate with the liability incurred by the corporation. Civil or criminal consequences may also apply depending on the nature and extent of the breach, with potential penalties varying according to the specific circumstances and jurisdiction.