29/09/2009 - 06:51

WA has most burdensome laws on directors

29/09/2009 - 06:51


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Western Australia has been rated worst in the country in terms of the number of laws imposing liability on directors, according to the Australian Institute of Company Directors 'Boardroom Burden Report Card'.

WA has most burdensome laws on directors

Western Australia has been rated worst in the country in terms of the number of laws imposing liability on directors, according to the Australian Institute of Company Directors 'Boardroom Burden Report Card'.

The AICD report card, which measures on a state by state basis the "business-friendliness" of legal regimes in terms of the content of laws imposing liability on directors, the number of those laws in operation in each state and territory and the procedural fairness with which they are administered, found most states fail the test when it comes to the excessive liability burden imposed on company directors.

But with 141 laws imposing liability on directors, WA was rated the worst, followed by NSW, Queensland and South Australia, which also had in excess of 100 pieces of legislation of this type.

There are 663 state and territory laws which impose personal liability on individual directors for corporate misconduct.

That is, directors are liable because they are a director, even where they may not have had any personal involvement in a breach.

In some states and under some legislation the onus of proof is reversed, removing the presumption of innocence, and there are very narrow legal defences and limited rights of appeal.

The AICD report card shows that overall only two states - ACT and Victoria - received better than a pass mark, while six failed. None got better than a credit.

Queensland had the worst report card overall, with a bottom of the class mark of 18.23 per cent, while South Australia (26.70), Western Australia (34.66) and New South Wales (37.23) also did poorly, all falling well short of a pass mark.

The ACT topped the class with 72.63 per cent, followed by Victoria (70.34), Tasmania (47.69) and the Northern Territory (46.67).

"This new report card highlights for directors the best and the worst states to do business in Australia from a director liability standpoint," AICD chief executive officer John Colvin said.

"It also should carry a strong message for governments.

"Director liability issues affect business decision-making and can have an impact on where companies invest and create new jobs.

"If you were a director, where would you want to do business, locate investment projects and create jobs: a state that gets a mark of 70 per cent or one that gets 18 per cent?

"All state and territory governments should be looking to assess and reform their director liability laws, along the lines already agreed by the Council of Australian Governments (COAG).

"We need a first rate corporate governance legislative regime at the state and Federal levels. The states' record in this area is very poor, with little thought to the long-term effects of not dealing with the issue.

"They need to stop stalling and get on with it - they are failing the test on director liability and failing the Australian economy.

"The message from this report card is: Must try harder".

Mr Colvin said a vital step was for states and territories to meet promises to conduct audits of their director liability legislation against the principles agreed to by COAG, with the aim of identifying laws in need of reform.

AICD noted that the COAG principles demonstrate that this reform is not about reducing standards or aiding those directors guilty of misconduct.

"We are already seeing directors under more scrutiny in light of current economic conditions, and in some cases this will be justified," Mr Colvin said

"Where directors are fulfilling their duties diligently and ethically, however, they should be entitled to greater certainty of their legal position or liability exposure."

Mr Colvin said the results of the report card reinforce the message of a survey of directors by the Federal Treasury and AICD, which showed that the burden of legal risk being confronted by Australian directors is making many qualified people shy away from taking up board seats and causing others to get out, through resignation or premature retirement.


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