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AICD releases survey "Impact of Legislation on Directors"

by Hilary Kincaid 3. November 2010 12:51

The Australian Institute of Company Directors has released the results of a survey: Impact of legislation on directors.

The survey, conducted earlier this year, had a response rate of approximately 10% of the AICD membership.

The scope of the survey was not limited to liability under the Corporations Act, but also addressed derivative liability under environmental, taxation and occupational health and safety legislation. 82% of respondents were aware of some form of derivative liability (personal liability imposed on a director for corporate breach).

More than 73% of respondents believed that there is a "medium to high" risk of their being found personally liable for decisions made in good faith. Reasons provided for this perception included: 

  • lack of available defences;
  • the judgement of directors with the benefit of hindsight;
  • the lack of influence directors have in the day-to-day running of organisations (compared to management);
  • unrealistic expectations of risk minimisation; and that
  • directors can be joint and severally liable (directors can be bound by board decisions even if they oppose them individually).

However, some respondents noted that they considered the current degree of personal accountability acceptable (the qualitative statements in the survey generally make interesting reading):

“Directors have a responsibility to understand / influence the risk profile of companies they sit on the Board of. If they aren't comfortable with that risk profile, they should resign. If they are comfortable, then the risk should be low.”

More than half of the survey respondents stated that they did not think reasonable defences were currently available to directors, viz: 

“I am particularly concerned about insolvency liability. I believe the pendulum has clearly swung too far to protection of creditors such that, even if I strongly and defensibly believed a company could trade out of insolvency, I would nonetheless be obliged to recommend that a company be wound up as soon as I believed it was technically (but temporarily) insolvent. The fact is that I simply could not personally carry the company's liability. I am well aware that this breaches a fiduciary duty to shareholders since, in my hypothetical, this company could trade out of insolvency."

The survey should be read in full to appreciate these results in context. More information is available on the AICD site.

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