Director Liability Laws In Spotlight

The Age

Tuesday May 20, 2008

Jacob Saulwick, With Ari Sharp

THE question of company directors' personal liability is back on the agenda because of the Government's drive to harmonise a range of federal and state laws and make national markets more efficient.

But it remains to be seen whether the review will weaken the strictures on company boards.

When professor of corporate law Jean du Plessis sat down with other experts to talk about corporate governance with senior Treasury officials last year, he found little enthusiasm for weakening personal liability laws on company directors.

One way it could happen, Professor du Plessis said, was through an extension of the "business judgement rule".

This rule provides some protection for directors if they make decisions in good faith and free of vested interests.

But the rule only applies to a director's obligation to act with care and diligence. It does not protect directors across a range of other issues, such as trading while insolvent.

Deakin University's Professor du Plessis welcomed the idea of a review, but said the "general mood" at the discussion he attended last year was that there were no big issues with personal liability law in Australia.

But the Australian Institute of Company Directors said yesterday, a good starting point for working towards a national framework on liability would be to extend the business judgement rule.

This "recognises the role of directors acting reasonably in the interests of shareholders, but provides no protection for those who fail to do so", said AICD chairman John Story.

Mr Story said myriad different laws across the country should be rationalised.

A 2006 report by the Corporations and Markets Advisory Committee outlines the problems caused by state frameworks.

The report says smoothing the laws could reduce compliance costs, cut insurance premiums and make the country more attractive to foreign investors.

Australian Shareholders Association chairman Ian Curry said directors were well compensated for personal liability risks.

"I would have thought that the existing arrangements are appropriate," Mr Curry said.

The ASA estimates directors of top 200 companies are paid about $120,000 a year. Chairmen can expect double that.

Although 600 company directors are being surveyed, Corporate Governance Minister Nick Sherry said that would represent only "part" of the evidence gathering.

"We'll make a call when we've gone through that process," he said.

"We've only just started." -- With ARI SHARP

© 2008 The Age

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