The Corporations Amendment (No.1) Act 2009 represents a
significant step towards the implementation of a single
trans-Tasman economic market based on common regulatory frameworks
with the introduction of a mechanism for the mutual recognition of
These new provisions, which will apply to foreign
disqualifications occurring on or after 25 February 2009, further
increase the scrutiny placed on directors of Australian
corporations by regulators and the courts.
In New Zealand, provisions allowing for the recognition of
disqualification of directors under Australian law have already
been in force since 18 June 2007.
However, prior to the amendments, in Australia a degree of
'mutual disqualification' only existed in respect of
convictions for serious criminal activity. The new provisions have
a very broad reach. As an example, the disqualification of
directors in New Zealand as a result of becoming bankrupt will now
be recognised in Australia.
Provisions prior to the amendment
Prior to the amendments coming into effect, directors could only
be disqualified from managing corporations for breaches of
Australian laws. Disqualification was either automatic (on the
happening of certain events), by a court order or at the direction
A person was automatically disqualified from being a
upon conviction for certain types of offences involving the
management of a corporation, contraventions of the Corporations Act
upon becoming bankrupt or subject to an arrangement under Part
X of the Bankruptcy Act 1966; or
if a court order disqualifying the person from managing a
corporation was in force under the Trade Practices Act 1974.
An Australian court had the power to disqualify a person
contravention of civil penalty provisions;
being wholly or partly responsible as an officer, within a 7
year period, for the failure of 2 or more corporations; or
repeated contraventions of the Corporations Act.
In addition, ASIC had the power to disqualify a person from
being a director if within a 7 year period, the person was an
officer of 2 or more corporations and while he was an officer, (or
within 12 months after ceasing to be an officer) each corporation
was wound up and a report was lodged by a liquidator about the
These provisions were not amended by the Act and remain in
Summary of the new provisions
The new provisions introduced into the Corporations Act have the
They allow for the automatic disqualification of directors from
managing corporations in Australia if they are disqualified from
being a director, or from being concerned in the management of a
foreign company by a court in a foreign country.
They extend the power of Australian courts to disqualify people
from managing corporations if they have been disqualified under the
law of a foreign country (either by operation of the law or by a
regulator) from being a director, or taking part in the management
of a corporation, provided that the court considers
disqualification to be appropriate and justified. In determining
the period of disqualification, the court may consider the period
of disqualification imposed in the foreign country.
The significant difference between these new provisions is that
while the first one results in automatic disqualification, the
second one may result in disqualification if an Australian court
considers it appropriate.
Currently New Zealand is the only foreign country to which the
amendments apply, however, it is intended that the reach of the new
provisions will be extended to other countries in the future.
The Act also makes a number of consequential amendments to the
Corporations Act to ensure consistency and reflect the effect of
the new provisions.
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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