Friday, 25 October 2013

Queensland complies with COAG on criminal liability of directors

The final draft of the Directors’ Liability Reform Amendment Bill 2012 (Qld) (Bill) has eased concerns the State had been recalcitrant in its corporate law reform obligations, agreed as part of the National Partnership Agreement to Deliver a Seamless National Economy.  The agreement, consented to by the Commonwealth and all State and Territories on 7 December 2010, intended to achieve a nationally consistent approach to the imposition of personal criminal liability for directors and other corporate officers for corporate fault.

At the time, the Council of Australian Governments (COAG), agreed that personal criminal liability for officers was generally inappropriate, except in certain circumstances.  According to agreed principles, a directors’ personal criminal liability for the misconduct of a corporation should be confined to situations where:
  • there are compelling public policy reasons for doing so (such as the potential for significant public harm caused by the corporate offence)
  • 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 considering:
    • clarity of corporate obligations
    • the director’s capacity to influence the conduct of the corporation, and
    • the steps that a reasonable director might take to assure corporate compliance.

The guidelines to the agreed principles also specified that reversing the onus of proof should only occur if supported by rigorous and transparent analysis.

Queensland Developments

While New South Wales in particular was quick to implement the COAG recommendations, the Queensland Bill was initially far less effective in achieving compliance with the COAG principles and guidelines.  The Australian Institute of Company Directors (AICD) estimated that if the legislation passed as originally formulated, there would still be in excess of 100 instances where directors or officers remain criminally liable for a corporation’s fault unless their lack of involvement in the contravention was established.

After further consultation with the AICD, the Queensland Attorney-General made numerous modifications to the Bill which was passed on 17 October 2013 (for implementation on 1 November 2013).  The modifications are based upon the Government’s decision that:
  • director’s liability provisions should generally not be included in state legislation
  • any case for an exemption to allow a director’s liability provision would need to be appropriately justified, and 
  • any exception made would not reverse the onus of proof.

The 103 pages of amendments to the original Bill mean that from 1 November, executive officers will only be liable for corporate offences if the prosecution proves that they:
  • did not take all reasonable steps to ensure the corporation not engage in conduct constituting on offence, or
  • authorised or permitted the corporation’s conduct constituting the offence, or
  • were, directly or indirectly, knowingly concerned in the corporation’s conduct.

While the liability provision applicable in any piece of legislation should be reviewed carefully, the changes implemented by this the new approach should be welcome.

A widely published corporate and commercial lawyer, Paul is a Consultant to McCullough Robertson on Corporate Advisory issues.

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