CLERP in a Nutshell

What is CLERP?  

The Corporate Law Economic Reform Program (CLERP) is part of the federal government’s ongoing program to modernise business regulation in Australia.  It was developed to improve productivity, promote business activity and economic development, based upon principles such as market freedom and investor protection, quality disclosure of relevant information to the market.

Prior to CLERP, the regulatory environment had failed to keep pace with changes occurring in financial markets and commercial practices. Liberalisation of world capital markets, in combination with technological developments in the information and telecommunication industries, had fundamentally altered the way business operates. 

CLERP 1

The key reforms of CLERP 1 were to overhaul of the institutional arrangements for accounting standard setting. 

The Australian Accounting Standards Board (AASB) was re-constituted independently of the accounting profession which previously provided its secretariat.  The Financial Reporting Council (FRC), comprising key stakeholders in the accounting standard setting process, was established to: provide broad oversight of the standard setting process; seek contributions towards the costs of the process; appoint the members of the AASB (other than the Chair who is appointed by the Treasurer); approve and monitor the AASB's priorities, business plan, budget and staffing arrangements; and determine its broad strategic direction.

 CLERP 2

Deals with fundraising, with enhanced requirements relating to disclosures in a prospectus, advertising of securities, liability for conduct and small business fundraising.

CLERP 3

CLERP 3 addresses directors' duty of care and diligence.  Directors’ duties were re-written under the Corporations Act, including duties of care and diligence, good faith, and use of position and information.

CLERP 4

Overhauled the law relating to takeovers, with changes to notification requirements and procedures.

CLERP 5

Recognised that Australian law, in some respects, had failed to take account of the impact of technological innovation on modern commercial practices.  Accordingly,

a range of reforms relating to electronic commerce were implemented in the Payments Systems and Netting Act 1998 and the Company Law Review Act 1998.

CLERP 6               

Introduced major reforms to the financial services markets through the Financial Services Reform Act 2001 which commenced on 11 March 2002. This established a new regulatory regime for financial markets and investment products.

 CLERP 7                

Was relatively modest in comparison and dealt with the issues of streamlining document lodgement, corporate reporting and disclosure by businesses.

CLERP 8               

Deals with Cross-border insolvency which refers to the situation where an insolvent debtor has assets and/or creditors in more than one country - a situation that is becoming more and more common in a globalised economy.

CLERP 9

Designed to strengthen the regulatory framework in the key areas of corporate accountability, continuous disclosure, and the protection of shareholder interests.

The CLERP 9 Bill is known as the Corporate Law Economic Reform Program (Audit Reform and Disclosure) Bill which includes measures designed to:

• improve the reliability and credibility of financial statements through enhanced auditor independence;

• improve enforcement arrangements;

• enhance measures to better allocate and manage risk;

• enhance disclosure to shareholders and improve shareholder activism; and

•  allow enforcement mechanisms for continuous disclosure to be strengthened, as well as introduce a specific duty on analysts to manage conflicts of interest.

Because CLERP9 limits auditors’ liability, it may encourage plaintiffs to focus on directors. CLERP9 means Directors & Officers insurance will be crucial to directors in the future.  Director will need to provide insurers with more information including current financial statements and commitments to sound corporate governance. 

ASIC has power to fine companies up to $100,000 for failing to inform the market of price-sensitive information