Modern Slavery – Should your entity be reporting?

Modern slavery is used to describe situations where coercion, threats or deception are used to exploit victims and undermine or deprive them of their freedom. It is a pertinent issue that has recently gained traction in Australia with the introduction of the Modern Slavery Act 2018 (Cth) (“Act”). Under that Act reporting is now mandatory for entities who fulfil a specific criteria.

Does your entity need to report?

Under section 5 of the Act, there are two limbs to determine if an entity is required to report.

First Limb

The first limb is an Australian entity or an entity that is carrying on business in Australia. While it may seem clear whether or not an entity is an “Australian entity” (i.e. registered in Australia), thought needs to be given as to whether entities which operate in other countries could be considered to be carrying on business in Australia. This is due to the fact there may be circumstances where an Australia entity is not required to report, but their parent entity which carries on business in Australia is required.

The general test to determine whether an entity carries on business in Australia is contained in section 20 and 21 of the Corporations Act 2001 (Cth) which outlines that an entity will be considered to be carrying on business in Australia, if that body corporate:

1. has a place of business in Australia; and
2. carries on business in Australia.

Carrying on business includes:

• Establishing or using a share transfer office or share registration office in Australia; and/ or
• Administering, managing or otherwise dealing with property situated in Australia .

Second Limb

The second limb is that the entity has a consolidated revenue of at least $100 million AUD for the reporting period in question.

Consolidated revenue is defined in section 4 of the Act as being the total revenue of the entity in question for the entity’s reporting period (this could be financial year or annual accounting period) or if the entity is in control of other entities – the total revenue of the entity plus all of the controlled entities considered as a group.

Determining whether an entity controls other entities, for the purposes of this Act, can be tricky given the Act makes reference to the accounting standards. As a result, making a determination regarding whether you are required to report may require both legal and accounting advice.

The reporting period is defined by section 4 of the Act as being the financial year or any other annual accounting period applicable to the entity after the commencement of that section of the Act. For instance, the Act commenced on 1 January 2019. As a result, an entity’s reporting period will be the first full accounting period after 1 January 2019. If an entity operates under a calendar year reporting period (January to December), the first reporting period would be January 2020 to December 2020 (assuming they fulfil the other criterion above).

Under section 13(2)(e) and 14(2)(f)(i) of the Act, a modern slavery statement must be provided to the Minister within 6 months after the end of the reporting period for the entity. Utilising the example above, a modern slavery statement would be due on 30 June 2021.

What are the consequences if you fail to report?

We should note, if an entity who is required to report fails to report within 6 months after the end of the reporting period, the Minister may give written request to that entity to do either or both of the following:

1. Provide an explanation for failure to comply within a specified period of 28 day or longer after the request is given (“Specified Period”);
2. Undertake specified remedial action in relation to that requirement in accordance with the request within a Specified Period.

Can you report even if you do not meet the eligibility criteria?

There is provision in the Act for voluntary reporting, however note that if you do so, you are subject to the same regulatory requirements as an entity that is required to report as well as consequences if you do not comply.

Takeaway

Modern slavery is an issue that the Australian government is not taking lightly. With further legislation in the works presently, it is important that both Australian entities and entities that carry on business in Australia consider whether they should be reporting under the Act.

How we can help

At JHK Legal we have assisted various entities in determining whether they are required to report under the Act, have conducted reviews of any existing international statements to determine if they are appropriate for the purposes of the Act and have prepared statements. If you think your entity might be required to report (now or in the future), please do not hesitate to reach out.

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Written by, Georgia-Rae Swain, Lawyer