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A changing landscape for directors and officers liability

13/02/2012

Several hundred state and commonwealth statutes impose personal liability on directors and officers to ensure corporate compliance. That derivative liability is often imposed simply as a matter of course and not in a consistent, fair or principled way. In 2009, the Ministerial Council for Corporations agreed to a set of guideliness aimed at ensuring that directors and officers are not  personally responsible for corporate default in a way that is inconsistent with criminal justice principles and good corporate governance. Supplementary arrangements for an audit of legislation were developed by the Business Regulation and Competition Working Group in 2010 .

The Council of Australian Governments was concerned with derivative – rather than accessorial – liability. It considered that a director should not be responsible unless he or she encouraged or assisted or facilitated a contravention in an intentional, negligent or reckless way. Personal criminal liability should only be imposed on in a limited range of special situations (for example, in light of compelling public policy reasons or where penalties on the corporation do not deter illicit behaviour).

On 27 January 2012, the Commonwealth Government published an exposure draft of the Personal Liability for Corporate Fault Reform Bill 2012. This starts the reform of directors’ and officers’ personal liability for corporate offences. The Bill amends some federal Treasury portfolio legislation to ensure that it imposes. For example, it affects the responsibility of company secretaries and directors to ensure compliance with myriad administrative and reporting requirements of the Corporations Act 2001 provisions. It also amends the Foreign Acquisitions and Takeovers Act 1975, Insurance Contracts Act 1984 and the Pooled Development Funds Act 1992. It does not address any tax legislation.

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