The Challenge of Corporate Law Enforcement: Future Directions for Corporations Law in Australia

Article excerpt

Introduction

Much progress has been achieved in modernising Australian corporations law statutes over the last half century. (1) However, despite some impressive advances, much less has been achieved in enforcing or implementing corporations laws in Australia. In seeking to speculate about the future it is always desirable to look at the past as the seeds of future growth can often be found in past practices; this is to some extent an expression of the so-called path dependency argument that is illustrated by the characteristic features of every country's legal systems. (2)

Whilst Australia clearly does have its distinctive corporate law features that distinguish its governance arrangements from the usual Anglo-American models (3), it also has a large number of common features that it shares with other developed countries. Probably the most important of these are the background business culture, ethical values and legal institutions against which corporate laws operate; these are the most important ingredients in ensuring the effectiveness and enforcement of such laws. Australian corporations laws contain most of the elements that contemporary legal theorists have seen as being desirable in a 'modern' body of company law. (4) However, with increasing globalisation and the contraction of the role of the state in economic markets, the nature of modernity and the role of law have changed significantly since the enactment of the first broadly based company laws of the mid-nineteenth century. (5)

As a result, modern company laws have, and will continue, to be modified and adjusted to suit changing economic and legal circumstances. In Australia, over the last half century, this modernisation of company law has moved from the development of more uniform and more consistent bodies of legislation across the Australian States, followed by the passage of a comprehensive national Corporations Act in 2001. (6) We have also seen moves to simplify and streamline the content of this body of company law as well as to reduce the economic burden of such laws upon small to medium sized businesses. (7)

More recently, we have seen efforts to simplify the administration of Australian company law and to reduce the use of litigation as a means of enforcing this body of law, especially in areas such as takeovers (8) and voluntary administration of insolvent companies (9). In this regard, it should be noted that whilst corporate regulation in Australia has seen the corporate regulator, the Australian Securities and Investments Commission (ASIC), taking action 'to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it', this is but one of six broad functional areas that the Commission needs to balance (with its limited resources) with other broader functions; these other areas relate to:

(i) Facilitating and improving the performance of the financial system;

(ii) Promoting the confident and informed participation of investors and consumers in this system;

(iii) Administering its laws effectively and efficiently;

(iv) Collecting and storing relevant information about companies; and

(v) Ensuring that information about companies is available to the public as soon as is practicable. (10)

In Australia we have also seen efforts to enhance the extent to which the Corporations Law is self-enforcing through the use of such mechanisms as the use of default rules in company constitutions (11), the introduction of statutory derivative action procedures, (12) and the imposition of liabilities on directors for the debts of their company in the event of insolvent trading, (13) and liabilities imposed on directors and others for misstatements in capital raising documents. (14) Duties placed on auditors have also been enhanced following a number of major corporate collapses in recent years. (15)

We have also seen an increase in the range and amount of financial and custodial punishments that may be imposed for breaches of the Corporations Act (16) and the introduction of new measures, such as infringement notices (17) and the civil penalty order procedure. …