Compliance and risk management don’t sound very attractive but they are crucial to having a sound business and are drivers to achieving business excellence – we call it Future-Proofing.
Undertaking an annual legal health check of your company is one of the best decisions you will make for it’s reputation, growth and for your sanity.
Being compliant not only protects your business, but it can enhance your reputation with your customers, suppliers and your employees – and other important stakeholders, like your bank.
It is important to remember that every company, from start-ups to ASX listed are at risk if they are not compliant in some respect.
Consequences of non-compliance with legislation
Non-compliance with legislation can result in a range of consequences, depending on the specific law and the severity of the violation. Some possible consequences of non-compliance with legislation include:
1. Fines and penalties
We can’t throw an entire company in jail, so the most common consequence for corporations who breach legislation is a fine.
Fines can range from a small slap on the wrist from ASIC for failing to lodge on time, and million dollar fines for significant breaches of legislation such as the Competition and Consumer Act.
Industry specific regulatory bodies also have the power to issue fines and penalties.
2. Legal action
Non-compliance can result in legal action, such as civil lawsuits or criminal charges. Legal action can be time-consuming, expensive, and can damage a company’s reputation.
3. Loss of license or certification
Non-compliance can result in the loss of licenses or certifications required to operate a business, which can severely impact the company’s ability to operate.
4. Removal from ASX
ASX listed companies are held to a much higher standard than privately owned corporations, because they have many more stakeholders than private companies.
ASIC also imposes heavy penalties for failure to comply with listing requirements and disclosure obligations, not the least of which is to have your listing suspended.
5. Reputational damage
Non-compliance can damage a company’s reputation, resulting in loss of customers, partners, and investors.
6. Business interruption
Non-compliance can result in business interruption, including the suspension of operations, and the need to spend time and resources to address the issue.
7. Personal liability
In some cases, individuals responsible for the violation can be held personally liable for damages or fines.
8. Insurance
Most insurance policies and even certain laws mandate a time limit within which you are required to report an insurable event. If the time limits are not complied with your insurer may be absolved from its liability under the policy leaving your company uninsured. Make sure you understand your obligations, to make sure you make the most of the premiums you’re paying.
9. Unenforceable Contracts
Changes to legislation, or incorrectly drafted contracts can result in clauses, or indeed entire contracts, to be unlawful or unenforceable. To make matters worse, this determination is often only determined by a court following a lengthy and expensive legal action, which will probably not the best use of your time or money.
Related: How much do legal services really cost?
10. Criminal Consequences
Some legislation, such as Occupational Health and Safety Laws, and environmental protection legislation impose not only significant financial penalties, but also personal criminal liability. Directors can be found criminally negligent & be put in jail – it is critical for you to know where your personal risk is when you’re running a company.
11. Tax Liability
It is also worth noting that although you engage people as contractors of the company, in certain circumstances they can be deemed to be employees, giving rise to additional insurance and superannuation obligations.
It is important for organizations to stay informed about the legislation that applies to their operations and to establish compliance programs to ensure they are meeting their legal obligations.
The good news is, these risks can all be negated or mitigated by taking some time to review the legal framework in which your organisation is operating to set you on the right path.
How are risks of legal non-compliance in Australia different from those in the US
The risks of legal non-compliance can vary between countries, as each country has its own unique legal and regulatory frameworks. Here are some key differences between Australia and the US:
- Regulatory bodies: The regulatory bodies responsible for enforcing laws and regulations can differ between the two countries. For example, in the United States, the Securities and Exchange Commission (SEC) enforces securities laws, while in Australia, the Australian Securities and Investments Commission (ASIC) performs a similar role.
- Penalties and fines: Penalties and fines for non-compliance can differ between the two countries, depending on the specific law and the severity of the violation. In the United States, fines and penalties for non-compliance can be very high, while in Australia, fines and penalties may be lower in comparison.
- Whistleblower protections: Whistleblower protections can differ between the two countries. In the United States, there are specific laws such as the Dodd-Frank Act and the False Claims Act that provide protections for whistleblowers who report violations of securities and other laws. In Australia, there are similar protections provided under the Corporations Act and other laws.
- Data protection regulations: The United States and Australia have different data protection regulations. For example, the United States has the Health Insurance Portability and Accountability Act (HIPAA) that regulates the use and disclosure of personal health information, while in Australia, the Privacy Act regulates the handling of personal information by organizations.
- Culture and attitudes: The culture and attitudes towards non-compliance can differ between the two countries. In the United States, there may be a stronger emphasis on regulatory compliance, while in Australia, there may be more of a focus on self-regulation and voluntary compliance.
Overall, the risks of legal non-compliance can vary between the United States and Australia, depending on the specific laws and regulations that apply. It is important for individuals and organizations to be aware of the legal requirements in their respective countries and to establish compliance programs to mitigate the risks of non-compliance.
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