Title

Decriminalisation of Directors' Duty of Care: Part 1: A View Through the Lens of Criminalisation

RIS ID

131116

Publication Details

S. M. Solaiman, 'Decriminalisation of Directors' Duty of Care: Part 1: A View Through the Lens of Criminalisation' (2018) 39 (8) The Company Lawyer 269-276.

Abstract

Central to all duties of directors is the duty of care, skill and diligence (duty of care) which has been engrained in corporate governance since the emergence of business organisations. 1 Corporations have pervaded almost every aspect of our life one way or another, and some of them have now become too big to fail-also too powerful to be regulated. Directors have been given enormous powers to manage and direct the management of the company with corresponding duties to exercise their authorities with due care, skill and diligence, primarily in the best interest of the company. This duty is important because the company is financed, operated and kept alive by other stakeholders such as investors, employees and consumers. A breach of any directorial duties may give rise to litigation which is generally categorised as civil (common pleas) and criminal (pleas of the state or Crown). Any liability imposed by law attached to a breach of legal prohibition inherently contains a deterrent effect in varying degrees between individuals. Criminal liability is widely believed to have a more deterrent effect compared with other forms of legal recourses, including civil compensation or damages, civil penalties and administrative fines. The use of criminal liability for corporate wrongdoings is an old phenomenon that can be traced back to the middle of the 20th century when the US started to increasingly use punitive remedies against both corporations and their officers as a control mechanism. 2 The Corporations Act 2001 of the Commonwealth of Australia (CA2001) includes Sch.3, listing more than 500 sections of this legislation that attract criminal liability of the entity and/or its employees, including directors. Almost all other duties of directors are still subject to both civil and criminal liabilities, 3 whereas s.180(1), containing the duty of care, has been decriminalised since 2000 based mainly on the premise that the concept of negligence which underlies a breach of duty of care is inconsistent with dishonesty. 4 This is so because dishonesty requires a conscious awareness of wrongdoing, as opposed to a failure to exercise due care and diligence. 5

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