However, there are also a significant number of federal,
state and territory laws which make directors liable for
the actions of their companies. For example, directors can
be liable if a company does not pay its taxation or causes
environmental damage. Some of these laws may be quite
obscure and of little interest to most organisations but
many of them affect virtually every business. Directors
must be aware of company activities and the legal
environment in which they operate.
Various governments around Australia are aware of the
difficulty these laws create for directors. The Council of
Australian Governments' Directors' Liability Reform is
seeking to harmonise the imposition of personal criminal
liability for corporate fault across Australian jurisdictions.
Some progress with this has been made with the Personal
Liability for Corporate Fault Reform Act 2012 which
reforms a number of federal laws. However, it has to be
said that the overall progress has been slow and directors
must remain very wary of their personal liability for their
The discussion below focuses on some of those personal
liabilities which apply to most organisations.
Where a corporation commits a taxation offence, a person
who takes part in the management of the corporation shall
be deemed to have committed the taxation offence and is
punishable accordingly (Federal Taxation Administration
Act 1953, s 8Y). An example of such an offence is failing to
furnish a return or other information.
Company directors have an obligation to ensure that the
company meets its pay as you go ('PAYG') withholding
payment obligations. The director of a company which
fails to pay a PAYG withholding amount on or before
the due date can become personally liable for a penalty
equal to the unpaid amount. When an amount remains
outstanding, the Australian Taxation Office may issue a
director penalty notice. The director penalty notice regime
also applies to a director where a company does not meet
its superannuation guarantee obligations.
Each state and territory has a number of taxes such as
payroll tax or land tax which an organisation may have
to pay. In every state and territory, there is a Taxation
Administration Act which allows for the recovery from
directors where taxation obligations are not met by a
corporation or makes directors liable for breaches by their
Workplace Health and Safety
Workplace health and safety ('WHS') is a major
consideration for any board on a number of different levels.
There is the moral driver for boards to set the tone of
caring for employees' safety, which can be combined with
the commercial imperative to ensure that an organisation's
people are always seen as its most important asset.
Overarching those considerations is the legal environment
which means that directors can face imprisonment for WHS
breaches. Under the Model Act being applied through
most of Australia, 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.
The relevant law is the Federal Competition and Consumer
Act 2010 which is overseen by the Australian Competition
and Consumer Commission ('ACCC'). The conduct prohibited
includes anti-competitive arrangements, misuse of market
power and exclusive dealing.
The law relating to anti-competitive conduct is important
for all directors because it affects almost every business
and because of the extremely severe penalties involved in
breaches of the law. Most directors are aware that offences
in this area can carry penalties of millions of dollars against
directors because of high profile cases (for example, the
Visy case). Directors should also be aware that there can
be prison sentences of up to 10 years for a breach of some
of the anti-competitive provisions of the Competition and
Consumer Act 2010.
On a more positive note, directors should make use of these
laws to ensure that competitors do not engage in anticompetitive
behaviour against their business.
'Cartel conduct' draws particularly heavy penalties (10
years' imprisonment). It is a breach of the Competition and
Consumer Act 2010 for competitors to have a contract,
arrangement or understanding containing a cartel provision
and a further breach to put it into effect. A 'cartel provision'
is one that has the purpose or effect of fixing, controlling or
maintaining prices and/or the purpose of:
- allocating customers, suppliers or territories
- preventing, limiting or restricting output
- bid rigging (such as collusive tendering)
On 1 January 2011, the new Australian Consumer Law
(which is set out in Schedule 2 of the Competition and
Consumer Act 2010) commenced operation. It applies
throughout Australia and can lead to severe penalties
against directors who are knowingly involved in a breach
of the law. The wide coverage of the prohibition against
false or misleading representations means that it should be
the focus of all organisations in marketing and selling their
goods or services.
A court may, on application by the regulator, make an
order disqualifying a person from managing corporations
if the court considers that the disqualification is
appropriate and the court is satisfied that the person has
contravened, attempted to contravene or been involved
in a contravention of certain provisions of the Australian
Consumer Law. As an example, the Federal Court, in ACCC
v Halkalia Pty Ltd (No 2) (2012) FCA 535, imposed a
disqualification of 15 years on a director of a company
which had made an 'egrerious' series of contraventions of
Australian consumer protection laws – a disqualification
well and truly on par with those given under the
Corporations Act 2001.
Virtually every business now conducts marketing and
transactions through electronic means such as the Internet
and mobile devices. There are three particular areas of
e-business which can lead to liability for directors.
First, all organisations must ensure that their website is
kept up to date with such things as prices and the nature of
goods or services. Websites can be, and should be, updated
contemporaneously with changes in prices. Directors must
ensure that processes are in place to make sure that the
organisation's website is always current and avoid the risk
of breaching the consumer protection laws.
Second is the issue of 'spamming'. Marketing by sending
advertising and information through email and mobile
telephones is very common and useful. However, the
Federal Spam Act 2003 provides that a person must not
send, or cause to be sent, a commercial electronic message
that has an Australian link unless the person receiving it
has consented to receiving the message. There have been
a number of cases where directors have been fined very
heavily for breaches of this Act. For example, in Australian Communications and Media Authority v Clarity1 Pty Ltd
(2006) FCA 1399, the Federal Court awarded a pecuniary
penalty of $4.5 million against the company and $1
million against its managing director for contravening the
Spam Act 2003.
Third, the Do Not Call Register, set up under the Federal Do
Not Call Register Act 2006, is regulated by the Australian
Communications and Media Authority. People can list their
telephone or fax number on this Register and then it is
against the law for unsolicited telephone calls or faxes to be
made or sent to that number without consent. In Australian
Communications and Media Authority v FHT Travel Pty
Ltd (2011) FCA 550, a company and its sole director were
found to have breached the Do Not Call Register Act 2006
in relation to thousands of marketing calls which had been
made to people who had placed their names on the register.
The court ordered the company to pay a fine of $120,000. As
for the sole director, who was in bankruptcy, the court said:
"...it seems to me that as a matter of public policy, it
would be undesirable that she come out of bankruptcy
with a substantial debt. Any debt would, I infer, be a
debt incurred after the bankruptcy and so continue to
be payable. In those circumstances, I decline to impose
a penalty upon the [sole director]. However I indicate
that had I chosen to do otherwise, the range would
have been that specified by the applicant, namely
$10,000 to $20,000."
Each state and territory has an Environmental Protection
Act (or equivalent) which makes directors personally liable
for breaches by their corporations.
Every organisation which has a physical presence (office,
factory, warehouse) must comply with environmental
protection laws. There is no national law – in fact, this is
one area where every level of government (federal, state
and local) has relevant laws. In many cases, environmental
laws make directors personally liable for breaches by their
organisations. Other features common to many of these
- wide coverage (noise, air, water, land, waste, hazardous
- very heavy penalties for both organisations and directors;
- defence of due diligence.
Broadly, the laws require organisations conducting
activities in a State or Territory to:
- obtain any relevant licence or government approval;
- comply with legal requirements;
- if unlawful or serious environmental harm occurs, notify the relevant regulatory authority.
It is a common defence in all the environmental protection
laws where a director can show that he or she exercised
'due diligence' or 'took all reasonable steps to ensure the
corporation complied with' those laws. 'Due diligence' can
usually only be shown if there is some kind of environment
management system in place.
It is important to understand that some general non-specific
system of environmental management will not satisfy
the requirement for due diligence. An environmental
management system used by an organisation must first allow
for the identification of specific risks and then the mitigation
of those risks.
All directors of any organisation which may be susceptible
to breaching the environmental protection laws should
constantly remind themselves of the following comments
by Hemmings J in State Pollution Control Commission v
Kelly (1991), who said:
"due diligence...depends on the circumstances of the case,
but contemplates a mind concentrated on the likely risks.
The requirements are not satisfied by precautions merely as
a general matter in the business of the corporation, unless
also designed to prevent the contravention. Whether the
defendant took the precautions that ought to have been
taken must always be a question of fact and, in my opinion,
must be decided objectively according to the standard of
a reasonable man in the circumstances. It would be no
answer for such person to say that he did his best given his
particular abilities, resources and circumstances."
Workplace relations is one of the broad responsibilities
of a board in its role overseeing business performance
and legal compliance. Generally, a board will not be
directly involved in the day to day considerations of
work conditions and pay. However, particularly in a small
organisation where there is a sole director who is largely
managing the organisation, there can be personal liability
for failure to comply with workplace relations law.
Workplace relations are largely governed by the Federal
Fair Work Act 2009. That Act covers pay and conditions.
Fines can be imposed when an organisation contravenes
these requirements. Section 550 provides that a person
who is involved in a contravention of a provision is taken
to have contravened the provision. Directors in small
organisations may well be involved in managing working
conditions and pay. They must ensure that they do not
breach the Fair Work Act 2009 or they may be personally
liable under s 550.
The Federal Sex Discrimination Act 1984 (and State and
Territory equivalents) makes it unlawful to sexually harass
an employee and also for an employee to sexually harass
a fellow employee. This Act then goes on to provide that
a person who 'causes, instructs, induces, aids or permits'
another person to do an unlawful act shall also be taken
also to have done the act.
The legal proceedings brought by Ms Fraser-Kirk against
David Jones in 2010 were a warning that laws other than
sex discrimination laws may be available against directors in
relation to sexual harassment. That case was settled but was
interesting because Ms Fraser-Kirk brought the legal action
on the basis of representations being made which said to
be were misleading or deceptive conduct under the Trade
Practices Act (now the Australian Consumer Law 2010).
First, Ms Fraser-Kirk referred to written policies and
statements made during her job interview that David Jones
was committed to providing a safe work place and did not
tolerate sexual harassment. She then argued that the sexual
harassment she had faced meant that David Jones' policies
and statements were 'misleading or deceptive' conduct. She
also relied on the old equivalent of s 31 of the Australian
Consumer Law, which states:
'A person must not, in relation to employment that is
to be, or may be, offered by the person or by another
person, engage in conduct that is liable to mislead
persons seeking the employment as to:
(a) the availability, nature, terms or conditions of the
(b) any other matter relating to the employment'
Second, Ms Fraser-Kirk referred to alleged representations
by directors of David Jones at a press conference that the
incident had been a 'one off' and that David Jones had
never previously had any reason to question the conduct
of the employee alleged to have committed the sexual
harassment. It was argued that these representations were
misleading or deceptive and that the failure to subsequently
correct them had been misleading or deceptive.
As the case was settled, we will never know if these
arguments would have been accepted by the court.
However, the possibility that these actions exist under the
Australian Consumer Law certainly provide encouragement,
if any was needed, for directors to ensure that their
organisation has appropriate sexual harassment policies and
procedures in place.
Specific Industries or Professions
There are state and territory laws regulating many
professions and industries which make directors liable for
breaches by their corporations. These include:
- building work
- commercial fishing
- electrical work and sales
- gaming machines
- liquor sales
- lotteries and art unions
- pawnbrokers and second hand dealers
- private health facilities
- real estate agents
- retirement villages
- tow truck
- travel agents
- veterinary practice
This document is part of a Director Tools series prepared by the Australian Institute of Company Directors. This series has been designed to provide general background information and as a
starting point for undertaking a board-related activity. It is not designed to replace legal advice or a detailed review of the subject matter. The material in this document does not constitute
legal, accounting or other professional advice. While reasonable care has been taken in its preparation, the Australian Institute of Company Directors does not make any express or implied
representations or warranties as to the completeness, currency, reliability or accuracy of the material in this document. This document should not be used or relied upon as a substitute for
professional advice or as a basis for formulating business decisions. To the extent permitted by law, the Australian Institute of Company Directors excludes all liability for any loss or damage
arising out of the use of the material in this document. Any links to third-party websites are provided for convenience only and do not represent endorsement, sponsorship or approval of those
third parties, or any products and/or services offered by third parties, or any comment on the accuracy or currency of the information included in third party websites. The opinions of those
quoted do not necessarily represent the view of the Australian Institute of Company Directors.