The Modern Slavery Acts: what businesses need to know

After much discussion, the Australian government has followed the examples set by the NSW government and overseas countries.

On 29 November 2018, the Modern Slavery Act 2018 (Cth) (Commonwealth Act) was passed by Parliament. It will join the Modern Slavery Act 2018 (NSW) (NSW Act) and impose reporting obligations on large businesses.

Both Acts will come into effect when the respective governments announce it in their gazettes in the near future. The first reporting obligation will likely kick in on 30 June 2020.

It is hoped that such anti-slavery laws will make a dent into the staggering number of people that are subjected to modern slavery. The Global Slavery Index estimates that this is 40.3 million people globally, 25 million in the Asia-Pacific region, and 15,000 in Australia. Such exploitation is estimated to be produce $150 billion per year for the global private economy.

Who is affected by the Commonwealth Act?

Entities that:

  1. are based or carry on business in Australia, and
  2. have a revenue of over $100 million for a financial year,

are affected by the Commonwealth Act.

This includes not just individuals and companies, but also partnerships, trusts, and superannuation funds. Not-for-profits and foreign companies should be aware that the Act will apply to them if they satisfy conditions (1) and (2) above. All Australian-based principals and contractors should check their balance books. Any entity that might be affected by the Act should seek advice.

In total, there are approximately 3000 large companies and entities who will now be required to lift the lid on how their supply chains create risks of modern slavery.

In a world first, the Australian government itself will also be subject to the same reporting requirements as the private sector. This includes not just the Australian Government, but also Corporate Commonwealth entities, and Commonwealth companies. The Act does not capture state governments.

Any entity may also volunteer to submit a report on its activities.

However, even if an entity does not fall under (1) or (2) above, it may be affected by the NSW Act (see below).

What do entities have to do?

Entities must produce a signed Modern Slavery Statement. This statement must:

  • describe the structure, operations and supply chains of the reporting entity;
  • describe the risks of modern slavery practices in these operations and supply chains;
    • this includes the operations and supply chains of any entities that the reporting entity controls (e.g. a subsidiary company)
  • describe actions taken by the entity to assess and address these risks (including due diligence and remediation processes);
    • this will include policies and processes to manage the risks and training for staff about modern slavery
  • make an assessment of the effectiveness of these actions;
  • describe any process of consultation that a reporting entity has with entities that it controls, and
  • include any other relevant information.

The statement must be given to the Minister for Home Affairs within 6 months of the end of the reporting period. As mentioned, this will likely be within 6 months of 30 June 2020.

These reports will be stored by the Minister for Home Affairs, in a register that will be called the Modern Slavery Statements Register. The Register will be made accessible to anyone for free on the internet.

The Commonwealth Act imposes no obligations on businesses to actually take steps in response to the risks of slavery in supply chains. It merely requires reporting on them.

Legally trained readers will be thinking that these obligations can only apply to natural persons or corporate entities. This is why, in the case of non-persons like partnerships, the obligations will be imposed instead on a responsible member of the entity. This will fall on persons such as a trustee, or an administrator.

What if the entity doesn’t report?

In short, nothing.

In contrast to the NSW Act (below), the Commonwealth Act does not provide for any penalty if an entity does not produce a report.

However, this might change in the near future as the Commonwealth Act takes effect and entities develop processes for compliance. The federal Labor Party has indicated that it supports penalties for an entity’s failure to report. Thus, depending on the outcome of 2019 elections and other factors, this situation may change.

What about state laws?

Entities should be aware that they may be subject to separate obligations imposed on them by state governments.

For instance, in mid-2018 the NSW government passed the NSW Act which requires entities to report to it about risks to modern slavery. In fact, these obligations are in some cases much more stringent.

Like its Commonwealth counterpart, it is not yet in force.

When it does come into effect, the NSW Act will apply to organisations that:

  1. supply goods and services for profit or gain, and
  2. have employees in NSW, and
  3. have a turnover of $50 million or more for the financial year.

Certain NSW government agencies are affected, as are non-corporate entities such as partnerships. Not-for-profits however will not need to report to the NSW government.

To satisfy the NSW Act, an entity’s modern slavery statement must outline steps taken to ensure that an organisation’s goods and services are not the product of supply chains in which modern slavery is taking place.

In contrast to the Commonwealth Act, the NSW Act imposes hefty penalties for not producing a statement to the NSW government, or for providing false or misleading information in the statement. The maximum penalty is $1.1 million in either case.

The NSW Act also allows courts to make modern slavery risk orders against a person. Such orders may prohibit certain actions, such as contacting any victim of the modern slavery offence.

Conclusion

Large businesses and not-for-profits now have legal obligations to examine their goods and services supply chains. They must inform the public about their findings and what they are doing to address them. In some cases, they will be reporting to multiple governments so they should seek advice as soon as possible on the requirements that apply to them.

As the Assistant Minister for Home Affairs states, it is hoped that these Acts will drive a ‘race to the top’ in which businesses compete for the favour of market funders, investors and consumers by improving their supply chain ethics.

If you or someone you know wants more information or needs help or advice, please contact us on +61 2 9248 3450 or email info@bradburylegal.com.au

Personal Property Security Register and the construction industry

The introduction of the Personal Property Securities Act 2009 (PPSA) was a move by government to streamline the registration of securities over personal property. The Personal Property Security Register (PPSR) is a national, electronic register of security interests in personal property that was established on 30 January 2012.

How does the PPSR affect me?

If you have an interest over any personal property you need to register that interest on the PPSR in order to ensure that you have priority over any other claim.

Whilst the operation of the PPSR is by no means limited to the construction industry, there are a number of industry specific situations that can arise. Taking proactive steps to avoid any potential loss of interest is an important step in any construction project.

Construction industry-specific effects of the PPSR

If you are involved in a construction project that involves parting with possession of personal property including, for example, scaffolding, formwork, plant and other equipment, you would be wise to consider registering your interest as a matter of urgency on the PPSR.

Failing to register your interest on the PPSR could result in that interest being defeated at some later date if the party with possession, such as the owner of the site or the head contractor, manages to grant a later security interest in your goods or goes into liquidation. Your security interest might then lose out to another’s security interest over the same property, or in the case of insolvency, you will have to get in line with other creditors.

Temporary works

Temporary works such as formwork and scaffolding that are removed at the end of a project are examples of personal interests over property that should be registered on the PPSR.

Prior to the introduction of the PPSR, a contractor would simply rely on their legal ownership to protect their interest and remove these items at the end of a project. Now if you fail to register your interest in these or other temporary work items you may be in for a nasty shock at the end of a project. This is because the party in possession, such as the head contractor or site owner, sometimes passes title onto another purchaser. If that occurs and the new purchaser registers their interest on the PPSR, then you may well find that your interest in those goods is defeated by the new purchaser’s claim.

This is because registered claims take priority in many cases.

Retention of title

If a supply contract includes a clause providing that title to goods will not pass to the purchaser until full payment has been received, then because of the PPSA that clause is likely to mean that a security interest in favour of the supplier arises. Your interest will need to be registered on the PPSR if it is to be enforced against third parties.

Leasing equipment

If you own and lease goods and equipment for use on building sites you may be surprised to learn that legal ownership of the equipment may not be sufficient to protect your interest.

Under the operation of the PPSA, the lease may be considered to be a PPS Lease. Your interest in any goods or equipment covered by the lease will be deemed to be a security interest. A failure to register your interest on the PPSR could result in you losing ownership if another party uses those goods or equipment as security for another loan.

Principal’s rights on take out

It is not uncommon in construction contracts for the principal to be given the right to take over a contractor’s construction plant and works in the event that the contractor defaults on their portion of the construction contract.

The principal’s right to act in this way is likely to be considered a security interest under the PPSA. If you are a principal you must register your interest on the PPSR in order to ensure that you have priority over any other possible competing interests.

How can the PPSR help me on my construction projects?

The PPSR provides a national central register where you can record any interests you have in goods including plant or equipment, or in the case of principals, any rights to take out.

Very importantly, the PPSR also provides a useful resource for checking whether goods you may be thinking about purchasing or accepting as collateral are already encumbered with a debt or charge. This is particularly relevant if you are thinking of purchasing construction specific goods such as plant equipment including formwork or scaffolding that are currently located on a construction site. Check the PPSR to ensure that there is no prior interest registered in these goods prior to purchase.

The PPSR is also an excellent risk protection tool. If you find yourself on the other side of the table and are trying to raise funds for your business using your interest in plant equipment, including scaffolding and formwork as collateral for any loan, you may find that you are able to raise finance more easily because potential purchasers are able to check on the PPSR to confirm that the goods you are offering as collateral are not subject to a pre-existing loan arrangement.

A properly registered interest on the PPSR can mean that you are the first party in line to get your goods back if a party in possession attempts to raise funds using your plant equipment as collateral. This is a much more preferable position to be in at the end of what may be a very long queue of an insolvency process if your customer goes belly up, owing you and many others money.

Ensuring that registrations on the PPSR are correct and complete is also important. Our experienced lawyers can advise and assist you on all aspects of the operation of the PPSR and particularly how it can assist those working in the construction industry. If you or someone you know wants more information or needs help or advice, please contact us on +61 2 9248 3450 or email info@bradburylegal.com.au.