Royal assent was given to the Corporations Amendment (No. 1) Act 2009 (Cth) (Amendment) last week, bringing into effect new grounds on which a person may be disqualified from managing a corporation in Australia.
Under the changes to the Corporations Act 2001 (Cth) (Act), persons who have been disqualified from managing a corporation in specific foreign jurisdictions on or after 25 February 2009 will also be disqualified from managing a corporation in Australia. These amendments will effectively close a regulatory gap under which persons could previously avoid disqualification simply by moving jurisdictions.
The new provisions of the Act distinguish between disqualification by a court in a foreign jurisdiction and automatic disqualification (such as by operation of law or by a regulator) in a foreign jurisdiction.
If a court in a foreign jurisdiction makes an order disqualifying a person from being a director of a company in that jurisdiction, or being concerned in the management of such a company, that person will be automatically disqualified from managing corporations in Australia (new subsections 206B(6) and (7) of the Act).
If, on the other hand, a person is disqualified from managing corporations under the law of a foreign jurisdiction, or from activities which are substantially similar, an Australian Court can disqualify that person in Australia on application by ASIC (new section 206EAA of the Act).
In determining whether the disqualification under section 206EAA is justified, the court may have regard to:
- the person's conduct in relation to the management, business or property of a foreign company; and
- any other matters that the court considers appropriate.
The court can also determine the appropriate period of disqualification under section 206EAA and, in doing so, may have regard to the period of disqualification that was imposed in the foreign jurisdiction.
The "foreign jurisdictions" whose disqualification decisions will be recognised under the Act will be identified in the Corporations Regulations 2001 (Cth) when the next suite of amendments are released. Initially, it is expected that New Zealand will be the only prescribed foreign jurisdiction, as the changes are part of Australia's obligations under the Australian and New Zealand Governments' Memorandum of Understanding on Business Law Coordination.
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