The Sarbanes-Oxley Act – sometimes referred to as SOX – has come under heavy fire from business groups for adding to the cost of annual corporate audits. Another problem with the law is its encroachment on the U.S. Bankruptcy Code, according to an article in the University of Illinois Law Review.
Zack Christensen, an editor at the journal, faults the Fair Funds for Investors provision, contained in section 308(a) of SOX, for allowing the Securities and Exchange Commission to place civil penalties on a company that commits fraud on behalf of shareholders.
Passed in 2002 following huge shareholder losses at Enron Inc. and WorldCom, SOX set tough new standards for financial reporting and imposed greater accountability on corporate boardrooms and top executives.
While its aims are laudable, SOX still needs some fine-tuning, according to Christensen. For example, for companies under bankruptcy protection, the 308(a) provision conflicts with the rights of other creditors, including suppliers and former employees, to secure assets remaining in the company’s estate.
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