It is not only directors and officers who can be exposed to personal liability in carrying out their duties. Executives and other employees, particularly in heavily regulated industries, also need to be aware of relevant civil and criminal liabilities. Businesses and individuals must remember to look beyond the Corporations Act when considering potential areas of liability and measures to mitigate liability risks.
In what circumstances can personal liability arise?
The personal liability that may attach to the conduct of a director, officer, executive or other employee is not limited to the well recognised directors' duties that are found in the Corporations Act 2001 (Cth).
Consideration must also be given to industry-specific requirements which may impose personal liability, either under the general law or under particular legislation or regulation. For example:
- NDIS service providers need to be aware of the requirements and duties found in the National Disability Insurance Scheme Act 2013 (Cth);
- aged care providers need to specifically consider the liability imposed under each of the Aged Care Act 1997 (Cth) and the Aged Care Quality and Safety Commission Act 2018 (Cth).
Personal liability can arise in relation to:
- anti-discrimination, bullying and harassment;
- work health and safety matters, including the duty of due diligence owed by "officers";
- employer obligations, including in respect of payment of statutory employee entitlements and award compliance;
- fiduciary duties owed under the general law;
- dealing with confidential information;
- maintenance of proper records and co-operating with requests made by regulators;
- taxation, GST and superannuation obligations;
- compliance with competition law, such as not engaging in false or misleading conduct, acting unconscionably or breaching consumer guarantee obligations.
Liability in these and other circumstances may be civil, criminal or both, and is typically directed towards the person who engaged in the relevant conduct. Liability can also often be indirect and extend to someone who is knowingly involved or concerned in the conduct, or to someone who aided, abetted, counselled, procured or induced the conduct.
Measures to mitigate personal liability
Addressing the potential risk of personal liability is important from a risk mitigation perspective and in ensuring that key personnel are adequately and appropriately protected for "just doing their job". Indemnifying those personnel and ensuring that adequate underlying insurance cover is in place are key aspects of this risk mitigation.
Deed of access, indemnity and insurance
Businesses can ensure that key personnel are not unnecessarily exposed to the financial consequences of personal liability by entering into a suitably drafted deed of access, indemnity and insurance with these personnel. The deed should be carefully drafted to ensure that it provides appropriate indemnity coverage and includes appropriate conditions.
At the same time businesses should review their insurance arrangements to make sure that they have insurance cover to protect key personnel and the business against exposure to all relevant liabilities.
Internal risk management systems
Businesses should also take practical risk management steps such as:
- having in place a robust and fit-for-purpose framework and system in respect of risk management, compliance, corporate governance, due diligence and internal audit;
- undertaking a review of regulatory and corporate governance policies, processes and procedures to ensure compliance by directors and others;
- taking active steps to create and maintain a positive workplace culture of compliance and governance.
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.