Movement forward on national reform of company directors' liability

12 November 2009

The Ministerial Council for Corporations (MINCO) has agreed on a set of principles by which all jurisdictions will audit their legislative provisions that deal with personal liability on company directors as the next step towards achieving consistency across Australia on the laws that impose personal liability on directors.

Once the audit has been complete, all jurisdictions will move to amend any laws that do not adhere to the new national principles relating to corporate liability and the circumstances under which directors may be liable for corporate fault which have been agreed to by MINCO. The Principles are:

Where a corporation contravenes a statutory requirement, the corporation should be held liable in the first instance.
Directors should not be liable for corporate fault as a matter of course or by blanket imposition of liability across an entire Act.
A 'designated officer' approach to liability is not suitable for general application.
The imposition of personal criminal liability on a director for the misconduct of a corporation should be confined to situations where:

there are compelling public policy reasons for doing so (for example, in terms of the potential for significant public harm that might be caused by the particular corporate offending);
liability of the corporation is not likely on its own to sufficiently promote compliance; and
it is reasonable in all the circumstances for the director to be liable having regard to factors including:

the obligation on the corporation, and in turn the director, is clear;

the director has the capacity to influence the conduct of the corporation in relation to the offending; and

there are steps that a reasonable director might take to ensure a corporation's compliance with the legislative obligation.

5. Where Principle 4 is satisfied and directors' liability is appropriate, directors could be liable where they:

have encouraged or assisted in the commission of the offence; or

have been negligent or reckless in relation to the corporation's offending.

6. In addition, in some instances, it may be appropriate to put directors to proof that they have taken reasonable steps to prevent the corporation's offending if they are not to be personally liable.

For more information, please contact:

David Williams | Partner
Mullins Lawyers
t +61 7 3224 0270
f +61 7 3224 0230
dwilliams@mullinslaw.com.au