Opinion: Company law “like a Russian doll”

This article originally appeared on The Australian Financial Review.

Australia’s corporate law regime can be compared to a Russian doll, with one or more top dolls concealing other dolls.

Australian Law Reform Commission chairperson Judge Sarah Derrington said there is a “great body of secret laws” made by ASIC and other regulators and this contributes to legislative complexity. She’s right.

Our corporate law regime is like a Russian doll, with one or more top-level dolls concealing other dolls.

One would think that the logical place to find the law would be to go to the relevant section of the Corporations Act. You would be wrong.

We start with the Act, move on to regulations, then to the schedule of regulations. You then check the ASIC class controls, the linkage hardware in the regulatory guides, and finally, the smallest but in many ways the most powerful headstock, the ASIC modifications.

But the presence of modifications is not bad; it is in fact the symptom of evil.

Consider an example of the financial services provisions of Chapter 7 of the Corporations Act, which is the focus of the ALRC’s current review of laws that regulate financial services in Australia.

Section 1017B deals with certain disclosure obligations. The regulation should be reviewed as it clarifies various relevant details. But the appendix to the regulations changes the law and a class decree changes the schedule!

“Manna from heaven”

In my experience, changes can be like manna from the sky, solving problems caused by verbose provisions in circumstances where the prospects for a legislative solution are either slim or purely spooky due to the need for a bipartisan political support.

So what is the solution?

The principled regulatory framework that Justice Derrington referred to in her address to insolvency lawyers – the one in which she commented on “secret law” – is a good start.

His Honor refers to sound guiding principles, including clarity, consistency, efficiency and accessibility, flexibility to deal with unforeseen or unforeseen issues, and identification of standards of behavior.

But is it enough? Do we need a more radical paradigm shift? Can we be fooled that such a regime can be born easily, like Athena from the head of Zeus? Should we at least consider an alternative model?

In this regard, I am a follower of the scheme of the Life Insurance Act and, to a lesser extent, of the Pensions Industry (Supervision) Act.

The first is a very meager legislative framework that uses subordinate legislation not only as an “emergency glass breaker” tool, but as an integral part of the legislative scheme.

This objective is achieved through the use of prudential standards that the ALRC calls in an earlier document “thematically consolidated legislative instruments”. These standards can be developed quickly and can certainly help address loopholes – for example in the context of pensions where performance standards can fill loopholes in the law with regulations – but prudential standards developed by the APRA represent a much faster and more efficient solution.


The key factor, however, is that the regime is principled, with only a few basic principles incorporated into law.

What about the problem of the secret law and the Russian doll?

Well, this is avoided because you are deliberately establishing a regime of laws and regulations. They can be supplemented by subordinate legislation in the form of standards developed by the regulator which can be re-enacted as regulations where appropriate.

This is a more structured use of subordinate legislation compared to amendments.

Anyone who uses the Life Insurance Act seems to be able to locate the relevant standards, as this is an established, well-publicized, and integrated feature of this legal regime.

It also solves the problem of discrepancies and to some extent the problems of complexity.

Think of it this way: you would know exactly where the lot is if all the dolls were laid out on the table.

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