Australian Companies Call for Stronger Defences against Lawsuits

The Australian Institute of Company Directors (AICD) is lobbying for Australian companies to have greater protection against shareholder activists.

Under the AICD’s proposals, company directors would have more defence against incurring personal liability in lawsuits when accused of breaching the Australian Corporations Act, the Australian Securities and Investments Commission (ASIC Act), and equivalent grounds in common law or equity.

The AICD has cited a 2010 survey of directors from all company types, which found more than 90% of Australian directors felt personal liability, had a negative impact on optimal business decision-making.

The Institute believes that corporate Australia is becoming too risk-averse as a result and directors have to worry too much about their personal liability when they should be focused on strategic risk-taking.

“Subsequent surveys and the Director Sentiment Index, which take in all company types, continue to show the same outcome,” said the AICD. “We need to actively create an environment where directors that act with integrity are free to pursue new opportunities and create jobs without being overly focused on personal liability concerns.”

Similar warnings that corporate regulation is holding Australian businesses back and undermining the country’s competitiveness have recently been expressed by have been by the Business Council of Australia (BCA) and mining heiress Gina Rinehart, executive chairman of the Hancock Prospecting group.

Under the AICD proposal, the Corporations Act would be changed to insert an ‘honest and reasonable’ director defence. It would apply when directors had acted in an honest way, with the appropriate level of care.

It would give directors a ‘safe harbour’ in a number of matters, ranging from allegations of misleading or deceptive conduct through to failing to disclose matters to the Australian Securities Exchange (ASX) in a timely manner.

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