Company directors should be aware that there is only less than a
week left to make a submission to Treasury in regards to the
Federal Government's first tranche of proposed amendments to
directors' liability legislation. Submissions are due on 30
Most directors are probably all too familiar with the term
"derivative liability" – it is the term given
to define what has come to resemble an increasing number of pieces
of legislation that impose criminal liability upon directors for
the commission of an offence by the company.
After sustained criticism for many years, the Business
Regulation and Competition Working Group of the Council of
Australia Governments (COAG) resolved to commence a series of
reforms limiting and sometimes removing derivative liability.
The principles behind the reform agenda, agreed by COAG, are
that, where a corporation breaches a statutory obligation, the
corporation as an entity rather than its directors, should be held
responsible first, at least to a certain extent.
Rather than allowing legislation to connect corporate
contravention with personal liability by default, COAG now believes
personal criminal liability should be restricted to instances
there is a high risk of public harm that may be caused by the
company committing the breach;
the liability of the company alone will be unlikely to compel
the director should be liable considering that the director has
capacity to influence the conduct of the company in relation to the
offending and where there are steps a reasonable director would
ordinarily take to ensure the corporation's compliance.
In these instances, COAG has agreed that a director should only
be held criminally responsible if they encourage or assist in the
commission of the offence, or are reckless or negligent in relation
to the corporation's conduct.
Of course, such principles are yet to be incorporated into much
of the relevant legislation, but they are a positive step forward
in the area of derivative liability which has often been critiqued
for its stifling effect on corporate risk taking, director
diversity and innovation.
The exposure draft of the first tranche of changes outlines
amendments to non-taxation related Commonwealth legislation (i.e.
the Corporations Act 2001, the Foreign
Acquisitions and Takeovers Act 1975, the
Insurance Contracts Act 1984 and the Pooled
Development Funds Act 1992).
Taking the Corporations Act as an example, the Federal
Government proposes to amend Section 188 (which most Company
Secretaries will be quite familiar with). A breach of section 188
results in a strict liability offence of the company secretary, and
by each director if the company does not have a secretary. It is
proposed that section 188 instead be deemed a civil penalty
provision, removing criminal culpability.
However, the proposed exposure draft also increases the civil
penalties for some contraventions, including those for breach of
the provisions relating to registered office jurisdiction
requirements, opening hours of registered offices of public
companies, notifying ASIC of a change in the principal place of
business, and a range of other provisions.
The exposure draft can be accessed
here, and Treasury's rationale can be accessed
We will keep abreast of the decisions Treasury takes in regards
to these reforms, and bring you updates if necessary.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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