Treasury has released an exposure draft of the Personal Liability for Corporate Fault Reform Bill 2012, which constitutes the first tranche of proposed amendments to Commonwealth directors’ liability legislation.
The amendments are intended to harmonise nationally the imposition of personal criminal liability of company officers when their company breaches a statutory requirement.
The Bill makes amendments to the Corporations Act 2001, Insurance Contracts Act 1984, Foreign Acquisitions and Takeovers Act 1975 and the Pooled Development Finds Act 1992.
The Corporations Act changes include redrafting Section 188 dealing with company secretary liability and making breaches of certain sections subject to a civil penalty, rather than constituting an offence.
A second draft bill, encompassing all proposed amendments to Commonwealth legislation will be exposed in February/March 2012.
The amendments are based on the following COAG Principles:
1. Where a corporation contravenes a statutory requirement, the corporation should be held liable in the first instance.
2. Directors should not be liable for corporate fault as a matter of course or by blanket imposition of liability across an entire Act.
3. A ‘designated officer’ approach to liability is not suitable for general application.
4. The imposition of personal criminal liability on a director for the misconduct of a corporation should be confined to situations where:
• there are compelling public policy reasons for doing so (e.g. in terms of the potential for significant public harm that might be caused by the particular corporate offending);
• liability of the corporation is not likely on its own to sufficiently promote compliance; and
• it is reasonable in all the circumstances for the director to be liable having regard to factors including:
– the obligation on the corporation, and in turn the director, is clear;
– the director has the capacity to influence the conduct of the corporation in relation to the offending; and
– there are steps that a reasonable director might take to ensure a corporation’s compliance with the legislative obligation.
5. Where principle 4 is satisfied and directors’ liability is appropriate, directors could be liable 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.
6. In addition, in some instances, it may be appropriate to put directors to proof that they have taken reasonable steps to prevent the corporation’s offending if they are not to be personally liable.
