Company directors face excessive personal liability burden in most states: Report

A new report from the Australian Institute of Company Directors has found most Australian states have failed to reduce the personal liability burden faced by directors and has warned that businesses could start to flee poor-performing states such as Queensland and New South Wales.

The AICD’s Boardroom Burden Report Card, which is based on research by law firm Minter Ellison, seeks to rank the burden place on directors in each state and territories by personal liability laws in areas such as occupational health and safety and environmental protection.

The personal liability burden for directors is judged according to the punitive nature of laws, the number of laws and the procedural fairness of laws. States where laws have a reverse onus of proof that mean a director must prove they are innocent of a breach get marked down heavily.

The three measures are then tallied and weighted to give a score out of 100, with 50 representing a pass mark.

But only three states – the ACT, Tasmania and Victoria – were given a pass. Worst of the bunch was Queensland, which scored just 18.05, with NSW (31.08), South Australia (33.15) and Western Australia (33.85) also scoring very low marks.

In both NSW and Queensland, directors face a reverse onus of proof under OHS and environmental protection laws, which are the two most common areas for director prosecutions.

Western Australia led the way with the highest number of laws, coming it at 139, followed by NSW with 134 and Queensland with 106.

In total, Australian directors face a staggering 708 individual personal liability laws, which AICD chief John Colvin says is “intolerably high” and says the lack of reform is damaging business.

“Any business looking to establish a headquarters or locate a new project in Australia, thereby expanding investment and jobs, should take this ranking into account.”

“They should ask themselves: do we want to do business in a state that that manages a mark of just 18 or one that gets 70 out of 100?”

Colvin argues the burden on directors has been too great. As well as the 708 provisions in state and territory laws imposing personal liability on individual directors, they must also deal with Commonwealth legislation like the Corporations Act, the Trade Practices Act and the tax laws.

“These provisions mean that directors are liable simply because they are a director, even where they may not have had any personal involvement in a breach.”

Another AICD survey published in November showed 90% of directors felt personal liability laws had an impact on business decision-making, and almost 80% said they were concerned with the amount of time their board spends on compliance issues.