Company directors and officers are familiar with the concept of directors’ duties which the common law and the Corporations Act 2001 (Cth) (“the Act”) impose on them, such as the duty to act in good faith in the best interests of the corporation and for a proper purpose (and see sections 180 to 183 inclusive of the Act). Over the course of several years further amendments have been made including the Directors Liability Reform Amendment Act 2013 (Qld).
Progressively, legislation has made directors and officers personally liable (and created criminal offences) for failures to meet positive duties in the form of both:
- Direct liability: where the officer or director is liable because of his or her own conduct (for example, section 184 of the Act); and
- Accessorial Liability: A form of direct liability most commonly arising where an officer or director has aided or abetted the contravention, been knowingly concerned in the contravention, or has conspired with others to effect the contravention of laws by the corporation.
What is not so well known is that since the mid-1980s, the Australian states and territories (led by Queensland) began legislating so-called “derivative liability” offences under which directors and officers were automatically guilty of an offence if the corporation committed an offence. The usual onus of proof was reversed so that in order to avoid guilt, the director or officer had to prove they were not responsible or had positively fulfilled their duty or acted to prevent the offence. These laws multiplied over the last 25 years to the point where there were hundreds of such Acts and thousands of derivative liability offences in most states of Australia.
More recently, bodies such as the Australian Law Reform Commission, the Australian Institute of Company Directors, the Corporations and Markets Advisory Committee and the Council of Australian Governments (COAG) noted that these derivative liability offences were contrary to fundamental principles of justice such as the presumption of innocence, and unfairly discriminated against directors and officers compared with the way other individuals are treated by the law.
Accordingly, COAG set about a reform agenda which sought state and territory cooperation in removing or modifying the offending laws. In November 2013, the Directors’ Liability Reform Amendment Act 2013 came into force in Queensland, amending 89 Queensland Acts and removing nearly all existing provisions that contained a reversed onus of proof. It also substantially reduces the number of directors’ liability provisions. Other states and territories have enacted similar legislation with NSW being at the forefront (along with Qld) and WA and NT still to implement reform.
In Queensland, 2 new types of liability have been created to replace some old derivative liability offences where it was thought that public policy demanded it. In such cases, an executive officer commits an offence if:
- the corporation commits an offence and the officer did not take all reasonable steps to prevent the offence; or
- if the officer authorised or permitted the conduct or was (directly or indirectly) knowingly concerned in the corporations’ contravention.
There are still a large number of Acts imposing personal liability on directors (and officers) for corporate fault – civil and criminal penalties may apply. Note, in particular, the Work Health and Safety Act 2011 (Qld) and other safety laws which impose positive duties on directors and officers. However the number of derivative liability offences where the onus is on the director/officer to prove his or her innocence has been vastly reduced.
Accordingly, directors and executive officers should:
- make an assessment of which Acts apply to the activities of the companies they manage;
- understand what obligations are contained in those Acts;
- ensure there are adequate systems in place so that the company does not contravene its obligations in the first place;
- take appropriate steps to ensure that they can avail themselves of any relevant defences;
- ensure that directors’ and officers’ insurance policies and deeds of indemnity provide maximum protection.