MINCO Agrees On Principles for Reform of Directors' Liability Provisions

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, today welcomed the agreement reached at the Ministerial Council for Corporations (MINCO) meeting in Sydney on the next step in reform of directors' liability provisions.

MINCO agreed on a set of principles by which all jurisdictions will audit their legislative provisions that deal with personal liability on company directors [see attachment].

This is the next step towards achieving consistency across Australia on the laws that impose personal liability on directors.

"It is pleasing that MINCO has reached a sensible agreement on the next step of reform on directors' liability," Minister Bowen said.

"This result demonstrates good progress on this issue since the last MINCO meeting in August.

"There is no question that reform in this area is overdue, so it is particularly pleasing that all jurisdictions have agreed to take the next step.

"Today's agreement will see the Commonwealth, States and Territories begin to audit their legislative provisions on directors' liability against these agreed principles."

Upon completion of the audit, the next step for all jurisdictions will be to move to amend any laws that do not adhere to the agreed principles.

The Council of Australian Governments (COAG) referred to MINCO, for its advice, a reform proposal to implement a consistent and principled approach to imposing personal liability on company directors for corporate misconduct across Australian law.

6 November 2009

Attachment

Principles Recommended by MINCO

1. Ministers recommend the following principles for adoption on a national basis in relation to corporate liability and the circumstances in which directors may also be liable for corporate fault:
   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:
      1. 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);
      2. liability of the corporation is not likely on its own to sufficiently promote compliance; and
      3. it is reasonable in all the circumstances for the director to be liable having regard to factors including:
         1. the obligation on the corporation, and in turn the director, is clear;
         2. the director has the capacity to influence the conduct of the corporation in relation to the offending; and
         3. 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:
      1.  have encouraged or assisted in the commission of the offence; or
      2. 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. 
2. Ministers recommend the following action with a view ensuring that legislation imposing liability on directors for corporate fault operates fairly and can be clearly justified:
   1. A legislative review by each jurisdiction to identify those existing offences for which directors' liability, or removal of that liability, is appropriate in accordance with above principles.
   2. Harmonisation following cross-jurisdictional comparison in key policy areas.
   3. A harmonised legislative approach to provisions imposing directors' liability around key concepts and definitions, including the clarification of the term "director" and matters raised by the panel.
   4. Greater clarity about the offences for which directors may be liable through a specific listing or schedule approach.