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Changes to liability of directors and officers


When a company or corporate organisation commits a crime, its directors and managers may be liable. The various States and Territories have had different legislation governing the liability of a director or manager.

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Hunt & Hunt           

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To streamline this process the Council of Australian Governments (COAG) has agreed for all Australian jurisdictions to apply common principles in determining the circumstances in which personal criminal liability should be imposed on directors and managers. As a result of this initiative, the Commonwealth and each State and Territory have passed or are in the process of passing legislation to implement the COAG agreement. More recently in Victoria the Statute Law Amendment (Directors' Liability) Act 2013 (Vic) was enacted and commenced operation on 14 March 2013.

Directors and managers will need to be aware of the changes made by the Act, and review their company's compliance and due diligence programs for their own benefit.

WHAT DOES THE ACT DO?

The Victorian Act amends 18 existing Acts which all contain directors' liability provisions.  These provisions generally make directors liable without regard to the nature of each specific offence or whether it is appropriate to make a director liable personally for a specific offence. The Act replaces the directors' liability provisions in these Acts with three different types of new provisions plus accessorial liability provisions under which directors and managers will be personally liable.

These provisions all apply to officers. "Officer" means a person who is an officer (as defined in section 9 of the Corporations Act 2001 (Cth)) of the organisation, or a person who is concerned in, or takes part in, the management of the organisation.  A person who does not make or participate in making decisions that affect the whole or a substantial part of the business of an organisation may nevertheless be concerned in the management of an organisation and thereby considered to be an "officer".

TYPE 1, 2 AND 3 PROVISIONS

Type 1, 2 and 3 provisions all provide that if an organisation commits a specified offence, an officer of the organisation also commits the same offence if the officer failed to exercise due diligence to prevent the commission of the offence by the organisation.

The differences among the 3 types of provisions lie in who is required to prove the failure to exercise of due diligence:

  • A Type 1 provision requires the prosecution to prove beyond reasonable doubt that the officer failed to exercise due diligence to prevent the commission of the offence by the organisation.
  • A Type 2 provision requires the officer to present or point to evidence that suggests a reasonable possibility that the officer exercised due diligence to prevent the commission of the offence by the organisation, and the contrary is not proved (beyond reasonable doubt) by the prosecution.
  • A Type 3 provision requires the officer to prove on the balance of probability that the officer exercised due diligence to prevent the commission of the offence by the organisation.

The courts have held that a requirement to exercise due diligence to prevent something being done is to take all reasonable steps to prevent it.  It is also associated with the exercise of reasonable care and skill.

ACCESSORIAL LIABILITY PROVISION

An accessorial liability provision provides that if an organisation commits an offence, an officer of the organisation also commits an offence if the officer authorised or permitted the commission of the offence by the organisation; or was knowingly concerned in any way (whether by act or mission) in the commission of the offence by the organisation. For all 4 kinds of provisions, the officer may also rely on a defence that would have been available to the organisation.

WHAT SHOULD DIRECTORS AND MANAGERS DO?

The Act brings some uniformity to the way personal liability of directors and managers for criminal offences under 18 Acts is structured. However, a lot of other State and Territory legislation in relation to personal liability provisions will continue to apply unchanged. Directors and managers should familiarise themselves with the new provisions, while not forgetting that the existing regime will continue to apply to other legislation which has not been changed.

Hunt & Hunt can assist organisations in the preparation of compliance and due diligence programs, as well as provide training to directors and managers.

CONTACT

Harold O’Brien, Sydney (North Ryde) +61 2 9804 5753 hobrien@hunthunt.com.au
Tony Raunic, Melbourne +61 3 8602 9266 traunic@hunthunt.com.au
Rick Harley, Adelaide +61 8 8414 3373 rharley@hunthunt.com.au
Darren Miller, Perth +61 8 9488 1300 darren.miller@culshawmiller.com.au
Antony Logan, Hobart +61 3 6210 6213 alogan@hunttas.com.au
Chris Osborne, Darwin +61 8 8924 2600 cosborne@huntnt.com.au

Disclaimer: The information contained in this e-alert/update is not advice and should not be relied upon as legal advice. Hunt & Hunt recommends that if you have a matter that is legal, or has legal implications, you consult with your legal adviser.

                   
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