Directors' Liability Reform Bill 2015: New WA COAG Initiative for Corporate Liability

On 25 February 2015, the Parliament of Western Australia introduced the Directors' Liability Reform Bill 2015, which  makes amendments to limit and standardise provisions which impose personal criminal liability on directors for corporate offending. In so doing it fulfils Western Australia’s commitment to directors’ liability reform, which is a Council of Australian Governments (COAG) reform project which was included in the National Partnership Agreement to Deliver a Seamless National Economy. 

Background to the COAG Reform Project

At its meeting held on 23 July 2012, the COAG agreed to a set of principles and guidelines for the imposition of personal criminal liability on directors and other officers (directors) as a consequence of corporate offences.

COAG agreed that future legislation will comply with the principles, and also that all jurisdictions will review the existing directors' liability provisions in their legislation. If necessary, these existing provisions will be repealed or amended to make them consistent with the COAG principles.

Under the COAG principles there are three types of directors' liability provisions:

• Type 1 provisions require the prosecution to prove every element of the offence. A director will be presumed to have taken reasonable steps to prevent the commission of the offence (and, as a result, not be liable) unless the prosecution proves otherwise;
• Type 2 provisions provide that a director is presumed to be guilty of the offence, unless the director can produce at least enough evidence to suggest that there is a reasonable possibility that the director took reasonable steps to ensure the corporation did not engage in the conduct constituting the offence; and
• Type 3 provisions are similar to Type 2, in that they presume that the director is guilty, but to avoid liability, the director is required to prove, on the balance of probabilities, that they took reasonable steps.

It is important to note that the directors' liability amendments do not affect:

• Direct liability: Obviously, directors will continue to be criminally liable for offences committed by them personally. In such cases, the person is not liable because of the office they hold, but because they are the offender; and
• Liability as an accessory: Directors will continue to be criminally liable if they have acted as an accessory.

Particular Provisions of Western Australia Bill

According to the Explanatory Memorandum of the Bill, it proposes to insert a new Chapter VI into Part 1 of the Criminal Code, which includes the standard provisions reflecting three types of directors’ liability as identified by COAG (above). These new provisions also bring the bill into line with what it identifies as the main principles of COAG, articulated as:

1. Where a corporation contravenes a statutory requirement, the corporation should be held liable in the first instance;
2. Directors should not be liable for corporate fault as a matter of course or by blanket imposition of liability across an entire Act;
3. A “designated officer” approach to liability is not suitable for general application;
4. The imposition of personal criminal liability on a director for the misconduct of a corporation should be confined to situations where (a) there are compelling public policy reasons for doing so (for example, in terms of the potential for significant public harm that might be caused by the particular corporate offending);(b) liability of the corporation is not likely on its own to sufficiently promote compliance; and (c) it is reasonable in all the circumstances for the director to be liable having regard to various circumstances;
5. Where principle 4 is satisfied and directors’ liability is appropriate, directors could be liable where they (a) have encouraged or assisted in the commission of the offence; or (b) have been negligent or reckless in relation to the corporation’s offending; and
6. In addition, in some instances, it may be appropriate to put directors to proof that they have taken reasonable steps to prevent the corporation’s offending if they are not to be personally liable.

Overall, the Bill proposes to amend 60 existing Western Australian Acts to harmonise the provisions surrounding the imposition of personal liability for corporate fault. It has currently been referred to the Standing Committee on Uniform Legislation and Statutes Review for consideration and report by 21 April 2015.

Corresponding National Laws in Other Jurisdictions

As a result of the COAG principles, it has been necessary in all jurisdictions to amend the laws regarding directors' and corporate liability.

The legislation dealing with this in other jurisdictions includes:

•  ACT - Directors Liability Legislation Amendment Bill 2012, assented on 21 February 2013 as Act No 4 of 2013;
• NSW - Miscellaneous Acts Amendment (Directors' Liability) Bill 2012, assented on 26 November 2012 as Act No 97 of 2012;
• QLD - Directors’ Liability Reform Amendment Bill 2012, assented on 29 October 2013 as Act No 51 of 2013;
• SA - Statutes Amendment (Directors' Liability) Bill 2012, assented on 23 May 2013 as Act No 16 of 2013; and
• VIC - Statute Law Amendment (Directors’ Liability) Bill 2012, assented on 13 March 2013 as Act No 13 of 2013.

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