DIRECTORS' LIABILITY

Directors’ Liability: Increased individual liability for directors due to legislation such as CLERP 9

The AICD believes the increasing trend towards holding directors personally liable for actions where the director has no direct control over the events is not healthy for the business environment, for the following reasons:

Risk is part of business

Risk is an essential part of business. If companies are to achieve more than utility rates of return it is necessary for them to take appropriate risks. The result of how markets naturally work is that some will succeed and some will fail. Not all business failures are a matter for personal blame – some are simply the result of a competitive commercial environment.

Those with increased personal liability must have access to an adequate defence

A director shouldn’t be held liable for something they do not control. However, directors are becoming increasingly liable for matters they have little control over and currently in many cases no defence is available to them. Due diligence is a legitimate defence and AICD successfully lobbied for this defence to be included in one area of the CLERP 9 act relating to continuos disclosure. But the defences need to be uniform across legislation and more broadly based.

Not in the long term interest of business and economy

Mistakes are a part of the education process and if you hold people accountable for every error then eventually there is a cost to society. It is in the best interests of the working and investing population as a whole for companies to continue to take appropriate risks–indeed this is essential for entrepreneurial behaviour to continue. Overall, there is a need for the legislative environment to have a balance between compliance conformance and business performance. Errors without intent but despite diligence should not be punished.

The need to attract competent, quality directors

Defining the limits of director liability, so that those who do not intentionally wrong can be protected, is critical in order to continue to attract people of the right quality and expertise into the role. Australia ’s business and economic performance, our international competitiveness and our ability to create jobs may suffer if this is not addressed.