Australia: Directors & Officers: Personal liability of directors to creditors overturned

Insurance update

In our March 2012 Insurance Update we considered the potential widening of the scope for creditors to claim damages against a director personally for contravention of the Corporations Act 2001 (Act). The Supreme Court of Queensland awarded Phoenix Constructions over $1.2 million in damages against Mr McCracken for contravention of s 182 of the Act. This decision, a first of its kind, was appealed by Mr McCracken.

In a highly anticipated judgment, the Queensland Court of Appeal in McCracken v Phoenix Constructions (Qld) Pty Ltd [2012] QCA 129, overturned the trial judge's decision. The Court reaffirmed the orthodox position that creditors, or other persons whose interests are affected, are not entitled to claim damages against a director personally for contravention of the Act. The Court of Appeal unanimously held that s 1324(10) of the Act did not empower the trial judge to award damages to Phoenix Constructions and to do so was contrary to the intent of the statutory provisions.

The claim against Mr McCracken was dismissed with costs.


Mr McCracken, the sole director of Coastline Constructions, entered into a joint venture agreement with his wife to develop property units. Phoenix Constructions claimed damages from Coastline Constructions for breach of a construction management contract. Subsequently, both Coastline Constructions and Mrs McCracken became insolvent and proceedings were commenced against Mr McCracken personally.

At trial, Justice Cullinane held that Mr McCracken had contravened s 182 of the Act by using his position as director to enter into an amended Deed of Agreement to gain an advantage for his wife. In effect, the amended deed deprived Coastline Construction of the beneficial interest of six units thereby depriving Phoenix Constructions recourse against those assets.

Phoenix Constructions applied for injunctive relief, and in the alternative or in addition to, damages for the loss suffered as a result of Mr McCracken's contravention of the Act.

Decision at trial

The Supreme Court held that because it had jurisdiction to grant an injunction under s 1324, Phoenix Constructions, as a creditor, was entitled to claim for damages pursuant to s 1324(10). Phoenix Constructions was awarded damages for the value of its contractual claim against the company that equated to the company's loss from Mr McCracken's contravention of s 182.

Section 1324 provides that where a person engages in conduct in contravention of the Act, any person affected by the conduct may apply to the Court for an injunction restraining the person from contravening the Act. Section 1324(10) empowers the Court to order a person in contravention to pay damages to any other person, in addition to, or in substitution of, an injunction.

Court of Appeal

The key issue on appeal was whether s 1324(10) empowered the Court to award damages to a creditor, or any other person, for loss suffered as a result of Mr McCracken's contravention of s 182. The appeal also raised questions regarding the admissibility of evidence concerning Mr McCracken's alleged contravention of s 182 and whether Phoenix Constructions proved that it had suffered the loss claimed in damages.

Mr McCracken argued that s 1324(10) should not be construed as conferring a right to damages upon a creditor's loss suffered as a result of a contravention of s 182 of the Act.

The Court followed the reasoning of Perry J in Executor Trustee Australia Ltd v Deloitte Haskins & Sells1 and held s 1324(10) should not be construed as contended by Phoenix Constructions because the focus of s 1324 as a whole is to confer Courts with powers to grant injunctions rather than to create a new right to damages. Despite the generality of s 1324(1) in terms of the persons with standing to apply for injunctions, it does not follow that a Court may award damages to "any other person" whose interests are affected by a contravention of a statutory duty.

The Court reasoned that the Act specifically provides remedies for contraventions of s 182 in Part 9.4B, namely, powers for the Court to declare a contravention, order a person to pay a pecuniary penalty, or order a person to pay compensation to a company. Under s 1317J, only ASIC or the corporation may apply for those remedies. Therefore, a construction of s 1324(10) that allowed any person adversely affected by a contravention to claim damages cannot be reconciled with these specific remedy provisions. The Court was not persuaded by the submission that the relevant section and the remedy provisions regarding compensation could co-exist because there was no material distinction between "damages" and "compensation".

Moreover, the Court held that the construction of s 1324(10) contended for by Phoenix Constructions could produce the unintended consequence of double recovery against Mr McCracken. This is because s 1317H provides that a Court may order a director who has contravened a civil penalty provision to compensate the company for any damage suffered as a result of the contravention. It could also mean the creditor might recover damages at the expense of the corporation. That latter result would effectively amount to a preference payment to Phoenix Constructions as a creditor as compared with other unsecured creditors of the company by depleting the company's capital.

Taking into account the statutory context of s 1324(10) and the expression "either in addition to or in substitution for the grant of the injunction", an award of damages in favour of Phoenix Constructions was not a substitute or supplementary remedy for the claimed injunction. The claimed injunction would require Mr McCracken to cause a transfer of the six units diverted to Mrs McCracken back to the company, although the Court noted in passing there was no allegation Mr McCracken possessed any relevant power to cause his wife to effect the transfer. In any event, if the injunction was not possible, a substitute remedy would be to award damages in favour of the company for the irretrievably lost property, not damages in favour of the creditor also affected by the contravention.

The other substantive issue in the appeal was whether Phoenix had proved that it suffered any loss. This is because Phoenix could only have suffered loss by reason of the contravention if, taking into account the other liabilities of the company, it retained sufficient assets to meet the claim immediately before the transfer of the units. As no evidence was adduced about the extent to which Mr McCracken's contravention diminished the company's ability to pay the debt owed to Phoenix or the state of the company's accounts with other creditors, the Court held that Phoenix had failed to prove any loss.


It is now clear that the correct construction of s 1324(10) is that a Court is empowered to award damages, for which a legal basis exists, only as a substitute, or supplementary remedy, for an injunction to address the adverse effect of a contravention on interests protected by the Act. The scope of personal liability for directors for relevant contraventions of the Act does not extend to creditors of the corporation or others affected by contraventions.

The Court's decision provides welcome clarity to the construction of s 1324(10), and accords with other provisions in the Act which allow only ASIC and the company, to the exclusion of others affected by a contravention, to claim compensation from a director for relevant contraventions of the Act.


1(1996) 22 ACSR 270.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.