Are you a Company Director – How the Corporate Veil Is being Pierced and limited liability eroded

Thursday , 31, March 2016 Leave a comment

For many business owners and their advisors, a company structure has long been the preferred model for a business in order to limit the personal liability of the people behind the business, in the case of a company, the company directors.


However, what we are seeing more frequently is the erosion of that ‘limited liability’. In addition to their obligations under the Corporations Act 2001 (Cth) and the common law, directors may find themselves exposed to personal liability in certain circumstances for breaches of other laws by the company. For example:

a) The Competition and Consumer Act 2010 (Cth) (“CCA”) – depending on the circumstances, where a company has contravened a provision of the CCA (i.e. the unconscionable conduct provisions, false representations related to the supply of goods, breach of consumer safety provisions or failure to comply with notices from the Australian Competition and Consumer Commission), directors of that company may be found to be personally liable.

b) Work Health and Safety laws (“WHS”) – all companies with employees must ensure the health, safety and welfare at work of their employees, contractors and other persons. Breaches of the relevant WHS Act attract large fines. In some States, where a company violates one of the WHS Acts, directors will be deemed to also be in breach of the WHS Acts unless they are able to satisfy a court that the director could not influence relevant conduct of the company, or the director used all due diligence to prevent the contravention by the company.

c) Environmental protection laws – serious offences, like the disposal of waste without lawful authority, causing leakage or spillage of a harmful substance and emission of ozone depleting substances can carry penalties of in excess of $1 million for a company. Where an offence is proved against a company, the directors of the company risk being held liable for the ancillary offence of aiding, abetting, attempting or conspiring to commit such an offence.

d) Taxation – Directors may be prosecuted personally for tax offences committed by the company.

e) Superannuation – all employers in Australia (such as a company) must provide a minimum level of superannuation each quarter for each employee. If the employer fails to provide that minimum level of superannuation, the employer will be liable to pay the superannuation guarantee charge. Directors may be personally liable for an amount equal to the superannuation guarantee charge owed by the company.

As you can see, directors are now, more than ever, required to be actively involved in ensuring that their companies comply with not only the Corporations law but also any other laws relevant to the operations of the company like those set out above.

Source : Aulich Civil Law

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