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Recently, I wrote an article (What duties do you have as a director of a company) detailing each of the duties that directors have under the Corporations Act 2001 (Cth). Since then, I have had a number of clients ask, particularly clients looking to start a new business, can a director personally become liable for breaches by the company. The answer is yes in certain circumstances.
A term that you would be familiar with is “vicarious liability” which is the liability that a director of a company may be subject to if a company breaches certain laws. The following is a sample of some of the instances where directors of Australian companies may personally become liable if the company they are a director of breaches certain laws.
Workplace health and safety ('WHS') imposes obligations on companies to ensure the health, safety and welfare at work of their employees, contractors and other persons. Breaches of the relevant WHS obligations can attract large fines.
Directors have a duty of due diligence to ensure that the person conducting the business complies with WHS obligations. Where there are serious breaches, then a director can be imprisoned.
Directors can protect themselves by:
In recent years, companies have faced tremendous scrutiny in how they deal with sexual harassment. It has been well documented that companies have failed to use adequate systems and processes to assure victims that their claims are being taking seriously and to address sexual harassment in the work place generally.
That said, recent court cases have identified that laws may be available against directors in relation to failing to adequately address sexual harassment in the workplace. Specifically, if a Director / Employer has not provided a safe work place and tolerated sexual harassment, it may well be argued that that company’s workplace policies and statements are misleading or deceptive.
An employer will be liable to pay a superannuation guarantee charge, if they fail to provide the minimum amount of superannuation.
Directors of companies that employ staff may be personally liable for an amount equal to the superannuation guarantee charge that the company owes.
Conduct prohibited under the Competition and Consumer Act 2010 (Cth) (‘CCA’) includes exclusive dealing and anti-competitive arrangements and misuse of market power.
Depending on the circumstances, where a company has contravened a provision of the CCA, directors of that company may be found to be personally liable. Most directors should be aware that penalties for breaches of the CCA may be millions of dollars and/or jail, depending on the circumstances.
Where a corporation commits a taxation offence, a person who takes part in the management of the corporation may be deemed to have committed the taxation offence (i.e. directors may be prosecuted personally for tax offences committed by the company). A potential defence to liability is if the director can prove that he or she did not aid, abet, counsel or procure the act or omission of the company and was not in any way knowingly involved in or a party to that act or omission.
When an amount remains outstanding, the Australian Taxation Office may issue a director penalty notice. When a penalty notice is issued, directors have the following option to avoid personal liability. Directors can:
Each director of the company will automatically incur a penalty equal to the company’s outstanding tax liability if none of the above steps are taken within the 14 day notice period.
In many State and Territories of Australia, environmental laws make directors personally liable for breaches by their companies.
You can limit your potential liability by undertaking the following steps:
A director may also want to consider the following:
If you are thinking of starting a company or have recently done so and would like to discuss your liabilities as a director, then feel free to contact the Legal team to discuss.
General Advice Disclaimer
Information provided on this website is general in nature and does not constitute financial or legal advice. Every effort has been made to ensure that the information provided is accurate, but information may become outdated as legislation and new government announcements are made. Individuals must not rely on this information to make a financial, investment or legal decision as it does not take into account their personal circumstance. Before making any decision, we recommend you consult a licensed adviser or legal practitioner to take into account your particular objectives, circumstances and individual needs.