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Corporate duties below board level clarified

Corporate duties below board level clarified

MIDDLE MANAGERS, consultants and corporate advisers could face the same liabilities as directors and the most senior of executives in the event of company collapses, if recommendations from a…

MIDDLE MANAGERS, consultants and corporate advisers could face the same liabilities as directors and the most senior of executives in the event of company collapses, if recommendations from a HIH Royal Commission report are adopted.

The report puts forward a number of recommendations to clarify the coverage of provisions in the Corporations Act that already impose personal duties and liabilities on professionals below board level.

Released by the Federal Treasurer’s Corporations and Markets Advisory Committee (CAMAC), the report also aims to ensure those provisions take better account of the working arrangements found within many companies, including the increasingly common use of independent contractors, consultants and others in carrying out corporate functions.

The recommendations also aim to tighten up accountability in the way in which corporate groups are commonly managed in practice as a single enterprise, as well as regarding the large role that executives, directors and others play in the running of many companies, especially medium to large enterprises.

“The imposition of legal duties on executives and others below board level is not new,” said Richard St. John, convenor of the Advisory Committee.

“The recommendations recognise the way in which modern corporations are run, without derogating from the responsibilities of directors or enabling them to avoid their statutory duties.”

Specifically, recommendations include application of the duties in ss180 (care and diligence) and 181 (good faith and proper purpose) to directors and corporate officers and “any other person who takes part, or is concerned, in the management of that corporation”.

This clarification will overcome what appears to have been an inadvertent narrowing in recent years of the class of persons below board level subject to those provisions.

The report also recommends extending prohibitions in ss182 and 183 (dealing with improper use of corporate position or corporate information) beyond directors, other officers and employees of a corporation to “any other person who performs functions, or otherwise acts, for or on behalf of that corporation”.

This is to ensure that a person who performs functions for a company cannot avoid these prohibitions, designed to protect the interests of a company and its shareholders, because that person is not technically an officer or employee.

For similar reasons, prohibitions in ss1309 (providing false information to various parties, including a director, auditor or shareholder) and 1307 (falsifying or destroying corporate records) have been extended beyond officers and employees of a corporation to “any other person who performs functions, or otherwise acts, for or on behalf of that corporation”.

The report also considers whether there should be a general provision, as recommended in the HIH Royal Commission report, prohibiting individuals from acting dishonestly in connection with the performance of any statutory obligation imposed on a corporation.

While seeing some attraction in the proposal, the Advisory Committee was not persuaded of the need for such a broad prohibition, given the effect of its other recommendations.

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