Making the application of law practicable
ASIC faced technical problems that are undermining its ability to be an effective regulator. Inconsistencies in ASIC’s regulatory laws is one of the problem. ASIC can choose not to exercise its discretion power, even when the prerequisites for the statutory schemes to operate has been met. There appear to be a high threshold for the law to operate. To illustrate the point, s 596AB of the Corporations Act has been criticised because of the 'subjective intention' requirement. According to the act, a person must not enter into a relevant agreement or a transaction with the intention of significantly reducing the amount of the entitlements of employees of a company that can be recovered, or preventing the recovery of the entitlements of employees of a company.
In practice, the section is rarely used as the plaintiff bear the onus to prove the intention of the directors. Employees are exceptionally vulnerable, unlike creditors, employees generally have much higher cash flow constraints and unable to diversify their risk. The parliament should consider amending the provision to make it an objective test, making the application of law practicable to protect employee entitlements. 4.2. Conditions on directors and disqualification …show more content…
Perhaps a better approach is by amending the Corporations Act 2001 (Cth), in circumstances where it was not reasonable that the subsidiary could meet expected liabilities, the parent company in a group will be required to make compensation to the creditors upon insolvency. The onus should be placed on the directors to show why they should not be required to do so. This could potentially curb phoenix activity by targeting conduct where group companies were incorporated merely to avoid liabilities under the cloak of corporate
ASIC faced technical problems that are undermining its ability to be an effective regulator. Inconsistencies in ASIC’s regulatory laws is one of the problem. ASIC can choose not to exercise its discretion power, even when the prerequisites for the statutory schemes to operate has been met. There appear to be a high threshold for the law to operate. To illustrate the point, s 596AB of the Corporations Act has been criticised because of the 'subjective intention' requirement. According to the act, a person must not enter into a relevant agreement or a transaction with the intention of significantly reducing the amount of the entitlements of employees of a company that can be recovered, or preventing the recovery of the entitlements of employees of a company.
In practice, the section is rarely used as the plaintiff bear the onus to prove the intention of the directors. Employees are exceptionally vulnerable, unlike creditors, employees generally have much higher cash flow constraints and unable to diversify their risk. The parliament should consider amending the provision to make it an objective test, making the application of law practicable to protect employee entitlements. 4.2. Conditions on directors and disqualification …show more content…
Perhaps a better approach is by amending the Corporations Act 2001 (Cth), in circumstances where it was not reasonable that the subsidiary could meet expected liabilities, the parent company in a group will be required to make compensation to the creditors upon insolvency. The onus should be placed on the directors to show why they should not be required to do so. This could potentially curb phoenix activity by targeting conduct where group companies were incorporated merely to avoid liabilities under the cloak of corporate