Relief from Liability for Company Directors: Recent Developments and Their Implications

By Harris, Jason | University of Western Sydney Law Review, Annual 2008 | Go to article overview

Relief from Liability for Company Directors: Recent Developments and Their Implications


Harris, Jason, University of Western Sydney Law Review


 
Contents 
 
I. Introduction 
II. The scope of director and officer liability 
III. Relief from liability 
IV. Expanding the scope for relief? 
V. Conclusion 

I. Introduction

One feature of the recent turbulent economic times has been an ongoing debate about standards of corporate governance and what role regulation can, and should, have in the economy. some have called for greater regulation of corporate directors and managers, whist others have complained of over-regulation. Although much of the discussion has centred on the structuring of executive and board remuneration, related party transactions, and the structure and composition of corporate boards, a broader issue relates to the appropriateness of current levels of liability that directors and company officers face. Finding the optimal level of liability to be imposed on company directors and officers has been flagged as a major issue by all stakeholders, including politicians, enforcement officers, law reform agencies and business lobbyists. (1) Much of this concern is directed towards the complex, overlapping state and federal laws that operate to impose personal liability on company directors and managers for a wide variety of statutory contraventions. (2) However, the question of when, and how, directors and officers should bear responsibility for contraventions of the law during the course of their stewardship remains pertinent. Indeed, a recent review by the Commonwealth Treasury has been investigating this very question. That review has raised the possibility of extending existing defences for directors and officers, or of introducing new general defences.

This short note has a much more limited focus, which is to examine recent decisions regarding the scope of the court's power to relieve directors and officers from liability arising out of a breach of their statutory and general law duties. The purpose of this discussion is to consider how the court's statutory relief power may be used to address some of the concerns of over-regulation that have been raised by the business community. In the author's view, it may be that the court's power to grant relief from liability can provide sufficient flexibility to reduce the need (if any) to increase defences for directors and officers under the Corporations Act 2001 (Cth).

The scope of the relief power has been almost totally ignored in the debate about corporate governance and directors' liability. This note seeks to critically assess the role of the court's relief powers by discussing two recent important judicial decisions that may point to a broader role for the court's relief powers. The judicial reasoning in these recent decisions will be critically assessed and the implications of these decisions for the future role of the court's relief powers will be discussed.

The structure of this note is as follows: Part II provides an overview of the current scope of director and officer liability under both state and federal statutes, and the general law. Part III examines the scope of the court's power to relieve directors from liability. Part IV discusses recent decisions that have the potential to expand the scope of the court to grant relief for a broader range of liabilities faced by company directors and managers. Part V concludes the note and considers proposals for law reform.

II. The Scope of the Director and Officer Liability

Before considering the nature of the court's power to relieve directors and officers from liability it is important to appreciate how liability may be imposed on those individuals. Liabilities may be imposed on company directors and officers from three different sources:

1. the Corporations Act 2001 (Cth) ('the Act')

2. other statutory provisions; or

3. general law obligations

Each of these sources of liability will be outlined below. …

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