Protecting whistleblowers and pinging directors

By Alison Groves.

Key Points:
Whistleblowers gain protection and directors face longer disqualifications under CLERP 9.

CLERP 9 contains a number of important changes to the policing and enforcement of the Corporations Act.

Apart from the expected increases in maximum fines for companies, there are new protections for corporate whistleblowers and stiff increases in disqualification periods for errant directors.

Whistleblowers

Officers, employees and contractors of a company will be protected from victimisation for notifying any of the following of a suspected contravention of the Corporations Act:

• ASIC;
• the company's auditor;
• an officer or senior manager of the company; or
• a person authorised by the company to receive disclosure of that kind.

That protection is available to a person who:

• has reasonable grounds to suspect that information indicates that a company (or an officer or employee) has, or may have, contravened a provision of the Corporations Act; and
• makes the disclosure of the information in good faith.

Under CLERP 9:

• the whistleblower will not be subject to any civil or criminal liability for the disclosure;
• no contractual or other right may be enforced against the person on the basis of the disclosure;
• a contract to which the person is a party may not be terminated on the basis that the disclosure constitutes a breach of the contract (ie if disclosure to ASIC or one of the other persons listed above breaches a confidentiality obligation owed to the company, that breach will not be actionable);
• if an employer purports to terminate a contract of employment on the basis that an employee's disclosure constituted a breach of the contract, the court has the power to order that the employee be reinstated to his/her position or another comparable position;
• it is an offence to engage in (or threaten) conduct which causes detriment to the whistleblower or a third person (eg family members of the "whistleblower"). If a person suffers loss as a consequence of such conduct or threats, the offender is liable to compensate the victim for the damage;
• criminal sanctions will apply to the company, auditors, officers, employees and any person authorised to receive disclosures under the whistleblower provisions if they receive information from a whistleblower (whether directly, or second-hand knowing that the disclosure to them was unauthorised) and the information is given, without the consent of the discloser, to anyone other than ASIC, APRA or a member of the Federal Police. This confidentiality obligation applies to the information disclosed and any information that will identify, or lead to the identification of, the discloser.

This protection for whistleblowers is only available where the person gives the person to whom the disclosure is made their name before making the disclosure.

Disqualification of directors

The Corporations Act automatically disqualifies persons from managing corporations for a period of five years if they are convicted of certain offences. Under CLERP 9, ASIC will be able to apply to the Court to extend the disqualification period for up to an additional 15 years.

CLERP 9 also increases the maximum period of disqualification from 10 years to 20 years for persons who are disqualified from managing corporations due to insolvency and non-payment of debts.

Increase in civil penalties

CLERP 9 increases the maximum civil penalties for corporations in respect of "financial services civil penalty provisions" from $200,000 to $1 million. Individuals will remain subject to the current maximum of $200,000.

These increased penalties apply to:

• breaches of the continuous disclosure regime;
• market manipulation;
• false trading and market rigging; and
• insider trading.

In addition, CLERP 9 amends the Corporations Act to clarify that a compensation order can be made for breach of a civil penalty provision even if there has been no declaration that the provision has been breached. This clarification will facilitate the enforcement role of persons other than ASIC in relation to the civil penalty provisions.