COAG supports reforms to legislation imposing personal liability upon directors

23 October 2012 Topics: Compliance and corporate governance

At the Council of Australian Governments (COAG) meeting on 25 July 2012, all States agreed that the Personal Liability for Corporate Fault – Guidelines for Applying the COAG Principles should apply when drafting future legislation.

Further, the members agreed to amend current legislation imposing personal liability upon directors to ensure that it was in line with the agreed COAG principles and guidelines. These developments are the result of an aim to achieve a nationally consistent approach to the imposition of personal criminal liability on directors and other corporate officers.

The Personal Liability for Corporate Fault Reform Bill 2012 (Cth) constitutes the overarching national legislative framework for the approach. The reform covers the specific form of derivative liability where a director or corporate officer is made criminally liable for the acts of the corporation that they serve. The second reading speech in the House of Representatives on 19 September 2012 confirmed the COAG’s three step approach to reforming derivative liability in Australia:

  1. COAG endorses principles and establishes guidelines to guide jurisdictions when imposing personal liability for corporate fault.
  2. Jurisdictions are to undertake an audit of their legislation as against these principles and recommend amendments to bring them in line.
  3. Jurisdictions are to commit to the implementation of the audit outcomes by introducing legislation and amending existing laws by the end of 2012. Future legislation is also to be drafted in accordance with the principles.

The Principles establish that where a corporation contravenes a statutory requirement the corporation should be held liable in the first instance. There should be no automatic assertion of liability against a director unless:

  • there are compelling public policy reasons for doing so
  • liability of the corporation alone will not promote compliance
  • it is reasonable for the director to be held liable because of their:
    – role in the company
    – capacity to influence the corporation’s conduct
    – failure to take reasonable steps to prevent the contravention.

Under the Principles, directors may be rendered personally liable only 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.

Implications for Queensland

On September 7 2012, the Queensland Attorney-General Jarrod Bleijie confirmed the significance of the reform in Queensland when he said that, regardless of the director’s knowledge:

There are currently 3,800 offences for which a director can be personally liable under the existing [Queensland] laws. These reforms will reduce the number of offences by half.

The Queensland adoption of the COAG Principles will ensure that directors are personally liable only if they encourage or assist in the commission of an offence or if they have been negligent regarding its commission.

On Tuesday 25 September, Queensland Premier Campbell Newman endorsed the introduction of the Directors’ Liability Reform Bill in Queensland by the end of the year, as a means of granting directors a presumption of innocence. The endorsement is part of the LNP’s push to foster innovation and enterprise by cutting red tape for businesses.

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