DIRECTOR LIABILITY AND ITS IMPLICATIONS FOR DIRECTORS AND OFFICERS IN AUSTRALIA

Australia has one of the most onerous director liability regimes in the world, impacting our international competitiveness and discouraging talented people from taking up directorships of our leading companies, not-for-profits, community-based and charitable organisations.

The majority of Australia’s director liability laws impose personal criminal liability on directors for acts of the company, regardless of the directors’ culpability. In many cases, directors may be found guilty of a criminal offence in circumstances where they had no knowledge of, and were not involved in, the corporation’s misconduct. Unlike other defendants, in some cases directors are also required to prove their innocence – a reverse onus of proof – with no clear statement of duties or defences and limited rights of appeal.

Liability is adversely affecting business decision making – making boards excessively risk averse, restricting their ability to add value to the company and to pursue optimal business outcomes. Ultimately, this impacts productivity.

According to the findings of the Australian Institute of Company Directors’ latest Director Sentiment Index, more than 40 percent of directors believe that Commonwealth or state legislation on director liability has a negative impact on their business decision making and willingness to continue on a board, and more than half believe it has a negative impact on their willingness to accept new board appointments.

It is yet another factor in the Australian business environment (along with regulation more generally) that is encouraging conformance at the expense of performance.

The issue was of such economic concern that reform of these provisions was included as priority in the Commonwealth Organisation of Australian Government’s (COAG) Partnership to Deliver a Seamless National Economy in 2008.

Director liability and its impact on business outcomes has also long been a major law reform initiative for the Australian Institute of Company Directors.

Jan-Mar 2013 Issue

Australian Institute Of Company Directors