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Law Council of Australia

Law Council of Australia

By Stuart Clark

Advocacy Corporate Social Responsibility  

Call for Corporations Act overhaul Snapshot The LCA calls on the newly elected federal government to order a formal review of the Corporations Act. The Corporations Act is 25 years old, meaning it does not take into consideration the myriad opportunities and challenges created by digital and online technology, while other jurisdictions have leapt ahead in terms of updating their legislation. The LCA is also calling for the introduction of a stronger and clearer regulatory regime to apply to litigation funders to both protect consumers and ensure the ongoing viability of third party litigation funding. The foundation of Australian corporate law was drafted pre-internet and pre-email. Regardless of who is elected to govern Australia on 2 July, a priority should be a thorough formal review of the Corporations Act. Given that the Act of 2001 is essentially the same as its predecessor, the Corporations Law of 1991, it means we are operating under legislation that is now effectively 25 years old. The foundation of Australian corporate law, therefore, was drafted pre-internet, pre-email and pre-Google. It even predates the mass use of mobile phones. In these circumstances, a thorough formal review of the Corporations Act and a range of related matters would be a good place for a government of either stripe to make an urgent priority. Australia has been left behind to a degree by international initiatives in the regulation of companies and financial markets, especially in the context of innovation and the reduction of red tape. Other nations have, for example, been able to harness inventive new forms of financing and capital raising, like crowd-sourced equity funding. The federal government should pay particular attention to the examination of directors’ duties. Today there is a considerable level of debate in the business community as to how well the Corporations Act balances the goal of ensuring public confidence in corporate performance and the goal of attracting the best people. While the regulatory regime must ensure the proper conduct and accountability of directors, it should not discourage well qualified people from accepting appointments nor inhibit their commercial decision making. As the complexity of regulation has increased, the risks borne by directors have risen commensurately. A careful rebalancing of risk is surely required. A newly elected government should also not waste time in heeding the LCA’s call for a clarified regulatory regime for the litigation funding industry. The LCA has noted that litigation funding promotes access to justice, spreads the risk of complex litigation, and improves the efficiency of litigation by introducing commercial considerations that help to reduce costs. A formal regulatory framework for litigation funders would both protect consumers and ensure the ongoing viability of third party litigation funding. It seems axiomatic that companies offering a financial service – funding for litigation – should be subject to financial services or similar regulation as a matter of course. Rather than being seen as a means of cracking down on the growing field of litigation funding, a clarified regulatory regime should be seen in the context of inoculating the industry against the buffeting winds of uncertainty. Stuart Clark is president of the LCA.

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