MINCO Liability Reform Principles a Disappointment

The principles recommended by the Ministerial Council for Corporations (MINCO) in relation to director liability for corporate fault are a disappointment and fall well short of the principles originally agreed to by the Council of Australian Governments (COAG), the Australian Institute of Company Directors (AICD) said today.

AICD Chief Executive, John Colvin, said that while some aspects of the principles were an improvement on the treatment of directors under current laws, they left open the imposition of criminal liability on directors in a potentially wide range of circumstances, retained a reverse onus of proof in some cases and lacked a clear business judgement rule.

“This appears to be the result of a negotiated compromise between the Commonwealth and the states, but when it comes to principles of fundamental human rights and the rule of law, a compromise is not appropriate,” Mr Colvin said.

Mr Colvin said that MINCO’s recognition that, where a corporation contravenes a statutory requirement, the corporation should be held liable in the first instance, was a step forward.

So too was the principle that directors should not be liable for corporate fault as a matter of course or by the blanket imposition of liability across an entire Act.

Mr Colvin also welcomed MINCO’s decision to reject a “designated officer” approach to liability and its recognition of the need for clarification of who is a director under the law.

However, the principles setting out the exceptional situations where these broad principles did not apply were poorly defined and left directors open to liability in a wide range of circumstances, with limited and poorly defined defences.

“MINCO’s Principle [A] 4 is a woolly approach to defining what should be very exceptional circumstances and leaves open a potentially very wide range of situations where directors could be personally liable for the misconduct of a corporation,” Mr Colvin said.

“Under this approach, the exceptional could become the norm.”

Mr Colvin also criticised the retention of a reverse onus of proof in some cases, where directors would have to prove their innocence rather than the prosecution prove its case.

“This undermines a basic right and the rule of law, he said.

“There is no clear direction in these principles that someone is innocent until proven guilty.”

“The principles also lack a clear business judgement rule, where a director is not liable if they make informed business decisions in good faith for a proper purpose and believe it is the best interests of the company.”

“AICD believes this safe harbour defence should be broad-based and consistent across all jurisdictions.”

AICD said greater clarity was needed about the offences for which directors may be liable, as governments around Australia undertook legislative reviews to reform and harmonise laws on director liability.

Media Contacts:
Steve Burrell, General Manager Communications and Public Affairs
(02) 8248 6627 or 0407 708 485
Juliet Chandler, Communications Advisor
(02) 8248 6624 or 0412 580 402

Australian Institute of Company Directors (AICD) provides education, information and advocacy for company directors Australia wide, with offices in each state to cater for 25,000 members. AICD members work in diverse corporations such as small-to-medium enterprises, the ASX Top 200 corporations, public sector organisations, not-for-profit companies, large private companies and smaller private family concerns.