Individual Liability for Corporate Misconduct

An update on the Australian Law Reform Commission Discussion Paper on Corporate Criminal Responsibility

Corporate Alert

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The Australian Law Reform Commission (ALRC) has decided not to make any recommendations for specific law reform on how individuals in Australian companies should be held accountable for corporate misconduct. While there was an expectation that ALRC would recommend extensive reform in this area, it has instead recommended an overall review of the effectiveness of individual accountability mechanisms for corporate misconduct by December 2025.

Background

In November 2019, the ALRC published a discussion paper on corporate criminal responsibility in Australia (Discussion Paper), which we previously reported on here. In particular, the Discussion Paper made certain observations and proposals in respect of the individual liability regime for corporate misconduct which, the ALRC maintains, falls short of holding senior personnel of the largest corporations accountable for such misconduct.

Now, the ALRC has published an update to the Discussion Paper on this issue. It has foregone its previous proposals[1] and has instead highlighted the four following key areas for future review or reform and made a general recommendation to the Australian Government.

  1. Sector-specific accountability regimes: the ALRC’s update discusses the Banking Executive Accountability Regime (BEAR) and the recently proposed Financial Accountability Regime (FAR), which are both schemes designed to enhance the responsibility and accountability of directors and senior executives in the banking and financial sectors, respectively. The ALRC considers that the FAR in particular can help address the issue of diffused responsibility in the largest corporations, which “if proven effective, could be extended to certain other sectors in the Australian economy.
  2. Legislative definition of ‘officer’: the ALRC has suggested that individual liability could be strengthened by amending the definition of ‘officer’ in section 9 of the Corporations Act 2001 (Cth) to capture individuals below the managers under the very top tier of management as well as executives of parent companies. However, whether an amendment is required will turn in part on a current High Court case.[2]
  3. Extended management liability: the ALRC has concluded that the liability of management for corporate criminal offences or contraventions should be determined on a case by case basis, and that when considering the extension of liability to appropriate individuals, the type of liability imposed (criminal or civil penalty) should generally be the same as the underlying offence or contravention.
  4. Evidentiary, procedural and practical challenges: the ALRC has called for further examination into enforcement action and the significant evidentiary, procedural and practical hurdles that hinder investigations and the ability to bring cases to trial, which are most patent in respect of the largest corporations and liability of individuals.

Recommendation

Ultimately, the ALRC has recommended that the Australian Government consider undertaking a “wide-ranging review of the effectiveness of individual accountability mechanisms for corporate misconduct by December 2025” with specific attention to the areas discussed above, among others.

While no formal changes to the individual liability regime have been made yet, it is almost inevitable that the individual liability regime in Australia will be strengthened in the future and therefore all directors, executives and senior personnel need to be wary of this evolving landscape.

If you or your business would like to be involved in this ongoing conversation, please get in touch to discuss how our experts can assist. We will continue to bring updates as the ALRC inquiry continues.



[1] The ALRC is no longer intending to recommend the scheme it had previously put forward in the Discussion Paper at Proposals 9 and 10 (see [4] and Appendix 1 of the Update).

[2] Case B29/2019, on appeal from King v ASIC [2018] QCA 352, where the scope and functional nature of the definition is the central issue of the case of ASIC v King, and it is likely that the High Court’s judgment will provide further clarity.