Directors to hide from a sea of liabilities in a new safe harbour

Abstract

The current business judgment rule provides a possible safe harbour to protect officers from claims they have acted without the appropriate level of care and diligence. Under consideration for some time has been a proposal to introduce a broader and more generic type of rule to provide protection against actions based upon any of the ‘core’ duties. It would extend immunity from liability to cover s 181 (Duties of Good Faith), s 182 (Use of Position),s 183 (Use of Information) and s 588G (Insolvent Trading). This proposal was part of a Treasury Department review of corporate law sanctions. Although there has since been a change in government, early indications would suggest the Minister would be supportive of such an approach and the new government has already taken steps to review directors’ liabilities and consider the merits of a broader business judgment rule. The purpose of this article is to identify the risks and inherent difficulties that must come from this type of safe harbour. While the proposal may appear to be a simple extension of the existing rule, the reality is that it must be quite different. In the form it is likely to take there is the potential for it to be too generic and weak. It is argued that it fails to take into account the nature of the extra duties affected and the principles that underpin them. Further, in attempting to overcome some practical concerns of directors, a new set of risks will be created that could undermine the legal cornerstones of good corporate governance.