Criminal liability shifts away from company officers

The Personal Liability for Corporate Fault Reform Act 2012 (PLCFRA), assented to on 10 December 2012, was implemented in an effort to ensure that personal criminal liability for corporate fault is imposed in accordance with the principles of good corporate governance.  Prior to the PLCFRA, company secretaries and directors were made criminally liable for the acts of the corporation in which they served.

The reform seeks to ensure that personal criminal liability for corporate fault is proportionate to the individual’s direct involvement in the corporate fault, as opposed to their involvement with the corporation itself.

PLCFRA amends a number of Acts, across a range of areas, including the Corporations Act 2001, the Foreign Acquisitions and Takeovers Act 1975 and the Health Insurance Act 1973.

Brief overview of changes

The imposition of personal criminal liability for corporate fault is removed, except where:

• the director or officer knew of the offence, was involved in the offence, or failed to take reasonable steps to prevent the offence;
• the harm that the offence aims to prevent is serious; and
• corporate penalties alone would be ineffective in preventing the conduct in question.

Consequences of failure to comply

If the company secretary, sole director or director if no secretary has been appointed (Company Officer) is found to be personally liable for corporate fault, then they are now liable for a civil penalty of up to $3,000, or $200,000 if the breach materially prejudices the interests of the corporation, or materially prejudices the corporation’s ability to pay its creditors, or is ‘serious’ in accordance with section 1317G of the Corporations Act 2001.

Note that a defence is available if the Company Officer can show that they took reasonable steps to ensure that the company complied with the relevant amended section (amended section 188(3) of the Corporations Act 2001).

Who will be affected by the changes?

All Company Officers are affected by PLCFRA.  The reforms seek to reduce the regulatory burden and risk of personal criminal liability for Company Officers, however risk and compliance issues are far from non-existent.

Links and further references

Personal Liability for Corporate Fault Reform Act 2012

Personal Liability for Corporate Fault – Guidelines for apply the COAG Principles

Inquiry into the Personal Liability for Corporate Fault Reform Bill 2012

Further information

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Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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