The Australian Institute of Company Directors’ proposed honest and reasonable director defence recognises that honest directors acting carefully will sometimes make the wrong decision.  The proposed defence, if enacted, will provide an overarching safe harbour for directors who act with integrity and commitment, but who now operate in an increasingly complex and compliance focussed regulatory environment.  We will continue to monitor the progress of proposals to enhance the defences available to directors.

According to the Australian Institute of Company Directors (AICD), there are a number of pressures in Australia's corporate operating and regulatory environment (including directors’ concerns about personal liability and the limited nature of the statutory business judgment rule, the risks for directors when companies are approaching insolvency and recent concerns about forward-looking statements).  The AICD suggests that a cultural shift in the regulation of directors is necessary to allow directors that act with integrity and commitment to pursue and harness new opportunities, drive performance and create jobs without being overly concerned about potential personal liability.

The AICD’s proposed Honest and Reasonable Director Defence (Proposed Defence) would:

  • have broad application to all directors of companies regulated by the Act and would be designed to be an overarching defence that may be used as an alternative, or in addition to, any other specific defences which may be available;
  • not alter the primary duties and obligations imposed on directors under the Act or at law generally;
  • be available in circumstances where a director, acting in that capacity, acts (or does not act) honestly and with the degree of care and diligence that the director rationally believes to be reasonable in all the circumstances; and
  • apply to all contraventions set out in the Act, the Australian Securities and Investments Commission Act 2001 (Cth) or any equivalent grounds of liability in common law or in equity applying to the director in his or her capacity as a director.