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CORPORATE FAULT AND RESPONSIBILITY

CORPORATE MISCONDUCT IN MELBOURNE

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Corporate Fault & Responsibility

The Corporations and Markets Advisory Committee (CAMAC) assessed:

DIRECTORS' DUTIES AND LIABILITIES

"Personal Liability for Corporate Fault", focusing on when directors and managers may incur personal (particularly criminal) liability for corporate misconduct arising solely from their formal positions or functions rather than from their own misconduct; and  

MANAGEMENT

"Corporate Duties below Board Level", focusing on the duties and liabilities set out by the Corporations Act for corporate managers (i.e., corporate officers, employees and other individuals below board level).  

PERSONAL LIABILITY FOR CORPORATE FAULT

Companies face substantial federal and regional legislation that imposes penalties on individuals involved in corporate breaches. Liability can arise directly from the individual's own misconduct (e.g., aiding or abetting a breach by the company) or simply in consequence of the position held or the function performed by the individual - a derivative liability.

CAMAC shows the lack of uniformity across Australian jurisdictions as to derivative liability and puts forward options for a model template, which promotes compliance and reduces compliance costs by removing the need for corporations to respond to different standards and tests. The paper formulates different types of liability templates.

It sets out a ‘responsible officer derivative liability template’, which would require a corporation to appoint a responsible officer who would have to prove, on the balance of probabilities, that he took all reasonable steps to ensure compliance by the corporation with its statutory obligations. The paper proposes three forms of a general derivative liability template:

a)   The Australian Law Reform Commission model, which approaches derivative liability as a series of physical and fault elements, each of which the prosecution must prove beyond reasonable doubt;

b)   The state and territory representative template, which imposes on the director or manager the burden of establishing, on the balance of probabilities, that he was either not in a position to influence the relevant corporate conduct or exercised all due diligence or took all reasonable steps to prevent it; or

c)   The alternative state template, in which the prosecution must prove beyond reasonable doubt that the defendant is an officer of the body corporate and failed to take reasonable care in the circumstances to avoid the corporate offence.  

CORPORATE DUTIES BELOW BOARD LEVEL

The definition of 'officer' in the act extends beyond directors (itself defined to include  de facto  and shadow directors), it does not necessarily encompass those involved in management unless they are involved in making "decisions that affect the whole, or a substantial part, of the business of the corporation" or have the "capacity to affect significantly the corporation's financial standing".

CAMAC discusses whether the Corporations Act covers the range of individuals below board level who may be involved in running modern companies. In particular, it considers:

a)   Whether to expand the duties and liabilities in the Corporations Act to include broader categories of persons;

b)   Whether to introduce a general dishonesty prohibition;

c)   Mechanisms for taking into account the role of persons other than officers and employees, such as consultants and independent contractors, in corporate decision making; and

d)   Whether other changes are necessary to, accommodate the decision-making process within corporate entities.

CAMAC proposes that the principal corporate duties set out in Sections 180 to 184 Corporations Act, as well as certain incidental duties, go beyond directors and officers to any other person who "takes part, or is concerned, in the management of the corporation".

While "Corporate Duties below Board Level" is concerned with the relatively narrow group of persons caught by the Corporations Act and seeks to cast the liability net more widely, the focus of "Personal Liability for Corporate Fault" is on standardizing and clarifying legislative provisions imposing derivative liability on individuals.

www.camac.gov.au

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