King & Wood Mallesons

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Director’s liability for corporate fault reform

The Personal Liability for Corporate Fault Reform Act 2012 (Cth) commenced on 11 December 2012. It was intended to implement the Council of Australian Governments’ Director’s Liability reform (COAG reform). The reform initiative is intended to remove regulatory burdens on directors and officers (Ds&Os) that cannot be justified on public policy grounds and to minimise inconsistencies between Australian jurisdictions on the application of personal liability for corporate fault in government laws. Whether the liability act achieves this aim, and its impact on D&O liability insurance, will be considered in this article.

The liability act is mainly concerned with derivative liability, that is where a director or officer is made criminally liable for the acts of the corporation in which they serve. This derivative form of liability arises without the need to establish that these persons either breached the law through their own misconduct or were accessories to the misconduct of their corporations.

The act amends a number of laws including the Corporations Act 2001 (Cth), the Foreign Acquisition and Takeovers Act 1974 (Cth), the Health Insurance Act 1973 (Cth) and the Insurance Contracts Act 1984 (Cth) (ICA)…

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