COAG agrees to directors’ liability reform

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30 July 2012

Reform of the various state and territory laws on directors’ liability is back on the agenda after the Council of Australian Governments (COAG) agreed to a set of principles and guidelines around reform.

Last week’s COAG meeting agreed to ensure the operation of directors’ liability is applied in a nationally consistent and principle-based manner in future legislation.

But Australian Institute of Company Directors CEO John Colvin says little has changed.

“It is a positive sign that director liability is on the agenda but there seems to be little progress here,” he told insuranceNEWS.com.au.

“The last COAG reform council report identified directors’ liability as a reform ‘at risk’ and we are hopeful that by the end of 2012 all states will have put through consistent legislation effectively dealing with this issue.”

The move to reform directors’ liability laws began in 2009 but stalled as the states failed to audit their statute books and review their laws.

COAG says the guidelines will be used to review existing directors’ liability provisions and identify those that need repeal or amendment.

It says no new provisions should be introduced except in accordance with the principles.

The guidelines say a corporation should be held responsible in the first instance of any breach of the law, and its directors should not be liable for corporate fault “as a matter of course”.

The principles define when a “designated officer” has been named and how that person should not be used to shield others who have as much influence or culpability.

They also outline situations where a director may be held criminally liable.

Although COAG agreed to the set of principles and guidelines, it noted the Queensland Government is still considering the reforms.