Australia: Directors and Officers Liability Insurance - Recent Australian reforms

Insurance Update (Australia)
Last Updated: 15 April 2013
Article by Jacques Jacobs

Last year in this publication we speculated that the agenda for directors and officers and their insurers in 2012 was likely to be dominated by the fallout from the sovereign debt crisis in Europe and the impact that could have on the availability of capital worldwide. At the time of publication, European governments are still working hard to manage this issue and the direct impact on directors and officers (D&O) insurance and director liability and exposure in Australia, beyond a general slowdown in the economy and business confidence, has been limited. There remains healthy capacity to write D&O insurance in Australia and rates remain competitive.

From a claims perspective, the environment remains active but stable.

Looking back, 2012 will be remembered for a number of key decisions on director liabilities, Australia's biggest class action settlement and further legislative reform. We touch on some of those highlights below.


James Hardie

In November 2012, the New South Wales Court of Appeal handed down its penalty decision against former non-executive directors, the former company secretary and general counsel of James Hardie Industries (James Hardie) for their breach of duties by approving James Hardie's release of a misleading statement to the Australian Securities Exchange. That followed the High Court's decision earlier in 2012 imposing liability on the seven former James Hardie Directors. The Court of Appeal rejected appeals from seven former James Hardie Directors (James Hardie's former Chief Executive, Peter MacDonald was not part of the appeal) to scrap any penalties and disqualifications that were originally recommended by the judge in the first instance decision. The Court of Appeal ordered:

  • An increase to the fine imposed on Peter Shafron (former company secretary and general counsel) from AU$50,000 to AU$75,000 and the retention of his seven-year ban as a company director
  • A reduction of disqualification to act as company directors from five years to three years and fines cut from AU$30,000 to AU$25,000 for the other Australian-based directors, namely Meredith Hellicar, Michael Brown, Geoffrey O'Brien, Greg Terry and Peter Wilcox
  • A shorter disqualification to act as company directors for the US-based directors, namely Martin Koffell and Michael Gillfillan, of about one year and 11 months. These directors were fined AU$20,000 each.

Australian Wheat Board (AWB)

Another case that has given some guidance as to the range of penalties courts will impose on directors was the penalty cases against former directors of AWB.

In December 2007, the Australian Securities and Investment Commission (ASIC) commenced several penalty proceedings in the Supreme Court of Victoria against six former directors and officers of AWB. The proceedings arose from investigations conducted by ASIC following the completion of the inquiry into certain Australian companies in relation to the United Nation's (UN's) Oil-For-Food Programme that had been established by the Australian Government.

Earlier this year, the Supreme Court of Victoria ordered that AWB's former Managing Director, Andrew Lindberg pay a pecuniary penalty of AU$100,000 and be disqualified from managing corporations until 14 September 2014 after finding that he had breached his duties as a director of AWB. In May 2012, Mr Lindberg had admitted to four contraventions of section 180(1) of the Corporations Act 2001 (Cth) (Corporations Act) arising from the AWB's supply of wheat to Iraq under the UN's Oil-For-Food Programme and subsequent inquiries conducted by AWB in relation to that supply. The penalties imposed by the court reflected the joint submission made by ASIC and Mr Lindberg as to the appropriate penalty for the admitted contraventions. Justice Robson said that the contraventions did not involve deliberate wrongful acts, dishonesty or moral turpitude but that Mr Lindberg had nonetheless "failed to perform his duties as a reasonable director or officer would in this situation".

Later in 2012, ASIC's civil penalty action against AWB's former Chief Financial Officer, Paul Ingleby also proceeded. Mr Ingleby acknowledged that he had contravened section 180(1) of the Corporations Act. The court heard a joint submission made by ASIC and Mr Ingleby that the appropriate penalty for the admitted contravention ought to be a pecuniary penalty of AU$40,000 and that Mr Ingleby be disqualified from managing corporations for a period of 15 months.

In August 2012, Justice Robson found that Mr Ingleby had contravened section 180(1) of the Corporations Act and ordered that he be disqualified from managing corporations until 31 December 2012 and pay a pecuniary penalty of AU$10,000. ASIC has now appealed that decision.

Forrest v ASIC; Fortescue Metals Group Limited v ASIC

Also in 2012, the High Court handed down the long-awaited (and unanimous) decision in Forrest v ASIC; Fortescue Metals Group Limited v ASIC [2012] HCA 39. It found that announcements that Fortescue had signed "binding contracts" with Chinese entities to build and finance an iron ore mine, railway and port in the Pilbara were not misleading or deceptive.

Consequently, it held that Fortescue had not contravened its continuous disclosure obligations, and that its Chairman, Andrew Forrest had not contravened his duties as a director. It ordered that the appeal by Fortescue and Mr Forrest be allowed with costs.

Significantly, in considering whether the announcements were misleading, the High Court determined that it is appropriate to consider how investors would have interpreted the announcement, rather than to ask the lawyer's question of whether the agreements were enforceable in an Australian court. The High Court indicated that an accurate summary of a contract is sufficient disclosure for the purposes of making an investment decision.


Class actions have become big business in Australia. The rise in shareholder activism, fuelled by more aggressive superannuation funds, proxy advisers and possibly (as some have suggested) anti-business media, suggest that more investor class actions are to be expected in coming years.

Increasingly, institutional investors are participating in class actions.

This year, the Centro class action settled for what was described as Australia's largest settlement of a shareholder class action (reportedly AU$200 million). That class action involved two Centro entities, their former officers and auditors. The claims related to statements made by the Centro entities in their 2007 accounts that they had no interest-bearing current liabilities. Some months after those accounts were released, the Centro entities made announcements indicating that they had misclassified in their accounts and that they were having difficulties refinancing AU$7 billion worth of debt that was becoming payable. Following these announcements, the price of Centro securities fell sharply. The action involved allegations that the relevant listed entities had breached their continuous disclosure obligations and engaged in misleading and deceptive conduct. The matter involved six class actions concerning three separate groups of class members. The matter settled 10 weeks into trial.

Another notable settlement was the National Australia Bank class action for AU$115 million. That settlement is still subject to court approval. The class action involved allegations that the bank was too slow to reveal its AU$1.2 billion exposure to complex financial securities backed by US mortgages during the 2007 and 2008 subprime collapse.

There is a pipeline of ongoing class actions, including the bushfire class actions, the ABC Learning class action, the bank fees class actions, class actions in relation to immigration detention claims and a possible class action against the Church of Scientology in Australia for the recovery of unpaid or underpaid wages. There also appear to be plans for a class action relating to the Queensland floods at some stage.

Although the class action industry is growing in Australia, some say its foundations are tenuous. Of the 30 or so shareholder class actions filed in Australia, not one has run all the way to judgment. As a result, no Australian judge has ever ruled on critical elements, such as how damages are calculated. In the absence of any judgment on that issue, class actions are being settled commercially, given the uncertainties and costs, reputational and other risks involved. Some say this works to the advantage of plaintiff lawyers and litigation funders. Otherwise, the market participants watch with interest to see whether any of the upcoming class actions will run to final judgment.


Two key pieces of legislative reform that impact directors and are part of the Council of Australian Government's (COAG's) Schedule of Reforms have progressed this year. They are the harmonisation of occupational health and safety laws, and reforms around personal criminal liability on directors for corporate fault.

COAG has reported that both these reforms are at risk because either not all Australian governments have passed required reforms on schedule, or reforms are not being passed in a uniform manner.

In relation to personal liability on directors for corporate fault, a number of states have now passed laws to give effect to COAG's agreed reforms to harmonise statutory offence provisions applying to directors and officers.

COAG has agreed a number of principles for director liabilities, which aim to create a system whereby directors and officers are no longer strictly and criminally held liable for offences by a corporation unless they acted as an accessory, for example by aiding and abetting in that particular offence.

This is a positive development for directors and their insurers, but any benefits of COAG's reforms will be diluted by an inconsistent application of the agreed principles across Australia.


The perception that the peak of the mining boom has passed and the general global economic uncertainty has negatively impacted business confidence in Australia. This year will no doubt be a challenging year for directors.

Some issues we consider may receive attention in 2013 will include:

  • The ongoing investigation into the directors' role in the collapse of the non-bank lender Banksia, as well as a review of guidelines applicable to non-bank lenders
  • Boardroom gender equality, in light of comments from Equal Opportunity for Women in the Workplace Agency Director, Helen Conway's suggestion of the introduction of quotas on boards and in executive positions within four years if voluntary targets do not succeed
  • Executive remuneration. Reforms in 2011 gave shareholders a stronger say over executive pay through the "two strikes" rule. During the annual general meeting season that year, 108 "first strikes" were reportedly recorded against companies. The Government has now released new proposed amendments to the Corporations Act that would require, amongst other things, companies to report whether, in certain circumstances, they have clawed back remuneration and if not, explain why not. These changes, if passed, will be controversial
  • Cyber risks. Businesses are recognising the importance of adequate infrastructure and risk-management initiatives to protect themselves from cyber risks. There are a number of insurers that have introduced tailor-made insurance products for these liabilities. Shareholders will expect directors and their boards to take these risks seriously and to take steps to ensure companies adequately manage these risks.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

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