Australia's 'seamless economy' reform in tatters

  • Date:03 Feb 2012
  • Type:Media Release

The states and territories have failed to make any real progress in delivering crucial reforms to the liability burden carried by Australia’s 2.1 million directors.

The annual progress report by the COAG Reform Council has found that there has been “poor progress made” on critical reforms to the imposition of personal criminal liability on company directors and that they are at serious risk of not being achieved.

The state, territory and Commonwealth governments’ attempts at a nationally consistent approach on director liability reform, in an effort to deliver a seamless national economy, can be judged only as a complete failure.

The Council says that these important reforms, with significant potential benefits to the Australian economy, are at risk, and that a significant effort is required to bring them back on track due to poor progress made to date.

“We agree with the Reform Council that urgent steps have to be taken by all governments to achieve these crucial reforms that could have a far reaching benefit for the economy and jobs,” said Australian Institute of Company Directors CEO and Managing Director, John Colvin.

Mr Colvin said there has been a clear lack of leadership and lack of commitment to make the necessary fundamental reforms.

“This is having a real impact on business and the economy, with sub-optimal decisions being made due to the levels of liability risk faced by directors.”

A Company Directors 2010 survey found that:

  • More than 90 per cent of the surveyed directors believed that personal liability had an impact on optimal business decision-making or outcomes; and
  • Sixty five per cent said this risk of personal liability caused them or their board to take an overly cautious approach to business decision-making, either frequently or occasionally.

There are currently around 700 state and territory laws, not including federal legislation, which impose personal liability on company directors. Directors across the country are forced to make vital decisions for the ongoing development and existence of commercial, charitable and public organisations while being exposed to unwarranted levels of derivative liability.

Corrs Chambers Westgarth, engaged by the COAG Reform Council to carry out a progress review of the reform process, also found glaring problems in the implementation across the states and territories. Some of the more significant issues include:

  • All jurisdictions, except Queensland, failed to consider all applicable liability provisions, and as a result excluded a large number of these provisions from their audits of liability legislation; and
  • Half of the COAG principles were consistently applied incorrectly; and
  • Governments have overwhelmingly relied on the escape clause of a broadly interpreted “compelling public policy reasons” to retain liability provisions.

“After four years of so-called reform, of all the derivative personal criminal liability provisions across Australia only 20 have been repealed – less than three per cent,” John Colvin said.

“It seems incredible that in the current economic climate the state and territory governments would be dragging their feet.  After years of talk and little action, the lack of achievement on these reforms is particularly disappointing, especially given that Company Directors has even provided our own set of principles that could be adopted to help address the inadequacy of the current framework.”

“Our principles have been developed in consultation with some of the nation’s leading legal minds and include a model legislative provision, which allocates an appropriate burden of personal criminal liability while continuing to impose legal responsibility in cases of compelling public importance.”

Mr Colvin said that Company Directors’ straightforward and practical reform model would ensure that where director liability provisions were appropriate, directors would be liable only where they have knowingly authorised or recklessly permitted a breach.

“Even if the states and territories somehow managed to meet the COAG milestones they would still not be achieving much, as the flawed COAG principles and their application allow the states and territories to avoid genuine reform,” he said.

“The best way to address these problems now is to end this charade and complete the re-audit process using our model. We shouldn’t be burdening Australian directors with inconsistent, unrealistic and oppressive laws and we shouldn’t be making Australia an unfriendly place to do business.”

John Colvin expressed unequivocal support for the Reform Council’s calls for more robust targets that governments have to meet in order to qualify for the hundreds of millions of dollars in reward payments.

“The current feeble milestone of ‘developing a legislative plan’ by December should be replaced with a concrete requirement to actually enact legislation that achieves real reform or else have the payments to states and territories withheld,” he said.

“The purpose of these reforms is to achieve real economic reform, not undertake another box-ticking exercise, and the failure to make genuine progress should not be rewarded under any circumstances. Governments must agree on the new set of principles to deliver real reform, as the current liability laws are an economic disincentive that has a damaging impact on investment and jobs.”

For further details please contact: Ian Zakon, Media and Government Relations Advisor, (02) 8248 2786, izakon@companydirectors.com.au.

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