It is not only directors and officers who can be exposed to personal liability in carrying out their duties. Executives and other employees, particularly in heavily regulated industries, also need to be aware of relevant civil and criminal liabilities. Businesses and individuals must remember to look beyond the Corporations Act when considering potential areas of liability and measures to mitigate liability risks.
In what circumstances can personal liability arise?
The personal liability that may attach to the conduct of a director, officer, executive or other employee is not limited to the well recognised directors’ duties that are found in the Corporations Act 2001 (Cth).
Consideration must also be given to industry-specific requirements which may impose personal liability, either under the general law or under particular legislation or regulation. For example:
Personal liability can arise in relation to:
Liability in these and other circumstances may be civil, criminal or both, and is typically directed towards the person who engaged in the relevant conduct. Liability can also often be indirect and extend to someone who is knowingly involved or concerned in the conduct, or to someone who aided, abetted, counselled, procured or induced the conduct.
Measures to mitigate personal liability
Addressing the potential risk of personal liability is important from a risk mitigation perspective and in ensuring that key personnel are adequately and appropriately protected for “just doing their job”. Indemnifying those personnel and ensuring that adequate underlying insurance cover is in place are key aspects of this risk mitigation.
Deed of access, indemnity and insurance
Businesses can ensure that key personnel are not unnecessarily exposed to the financial consequences of personal liability by entering into a suitably drafted deed of access, indemnity and insurance with these personnel. The deed should be carefully drafted to ensure that it provides appropriate indemnity coverage and includes appropriate conditions.
At the same time businesses should review their insurance arrangements to make sure that they have insurance cover to protect key personnel and the business against exposure to all relevant liabilities.
Internal risk management systems
Businesses should also take practical risk management steps such as:
Please contact us if you would like to discuss steps that can be taken to identify and address areas of liability for executives and officers in your business.
This article provides general comments only. It does not purport to be legal advice. Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.
Kylie Dunn, Senior Associate in our Disputes Team
Direct Telephone: +61 8 8210 2286
Nicole Mead, Associate in our Disputes Team
Direct Telephone: +61 8 8210 2270