¹ Corporations and Markets Advisory Committee, Personal Liability for Corporate Fault, Report (2006) ('Personal Liability Report’).

² ASIC v Elm Financial Services Pty Ltd (2005) 55 ACSR 533 ('Elm Financial Services’); ASIC v Maxwell (2006) 59 ACSR 373 ('Maxwell’); ASIC v Warrenmang Ltd (2007) 63 ACSR 623 ('Warrenmang’); ASIC v Sydney Investment House Equities Pty Ltd (2008) 69 ACSR 1 ('Sydney Investment House Equities’); ASIC v Macdonald [No 11] (2009) 256 ALR 199 ('Macdonald [No 11]’); Morley v ASIC (2010) 274 ALR 205 ('Morley’); ASIC v Citrofresh International Ltd [No 2] (2010) 77 ACSR 69 ('Citrofresh [No 2]’); ASIC v Fortescue Metals Group Ltd (2011) 190 FCR 364 ('Fortescue Metals Group’).

³ The term ‘stepping stone’ stems from Keane CJ's description of ASIC's proceedings in Fortescue Metals Group (2011) 190 FCR 364, 370 [10].

⁴ Corporations Act s 180(1).

⁵ Elm Financial Services (2005) 55 ACSR 533; Maxwell (2006) 59 ACSR 373; Warrenmang (2007) 63 ACSR 623; Sydney Investment House Equities (2008) 69 ACSR 1.

⁶ Corporations Act s 180(2).

⁷ Ibid ss 189 and 190 respectively.

⁸ See Sydney Investment House Equities (2008) 69 ACSR 1, 36 [170]–[172]. As well as the contractual breach the company was involved in multiple contraventions of the Corporations Act.

⁹ (2008) 69 ACSR 1.

¹⁰ (2006) 59 ACSR 373.

¹¹ (2010) 77 ACSR 69.

¹² (2011) 190 FCR 364.

¹³ (2010) 274 ALR 85 ('James Hardie Industries NV’).

¹⁴ (2009) 256 ALR 199.

¹⁵ Sections 1043E and 1041H of the Corporations Act are current equivalent provisions.

¹⁶ James Hardie Industries NV (2010) 274 ALR 85 involved the company's appeal of the first instance decision in Macdonald [No 11] (2009) 256 ALR 199; Citrofresh [No 2] (2010) 77 ACSR 69; Fortescue Metals Group (2011) 190 FCR 364.

¹⁷ (2005) 55 ACSR 533.

¹⁸ (2006) 59 ACSR 373.

¹⁹ (2008) 69 ACSR 1.

²⁰ (2007) 63 ACSR 623.

²¹ Elm Financial Services (2005) 55 ACSR 533; Sydney Investment House Equities (2008) 69 ACSR 1.

²² Corporations Act s 314.

²³ Ibid s 319.

²⁴ Ibid s 601ED.

²⁵ Elm Financial Services (2005) 55 ACSR 533; Sydney Investment House Equities (2008) 69 ACSR 1.

²⁶ Corporations Act s 911A.

²⁷ Ibid s 912A(1).

²⁸ (2008) 69 ACSR 1, 36 [170]–[172].

²⁹ Sections 180(1), 181(1) and 182(1) of the Corporations Act are all civil penalty provisions. However, unlike s 180(1), which only has civil penalty consequences, s 184 specifies that breaches of either ss 181 or 182 are also criminal offences if it is proved that a defendant was intentionally dishonest or reckless.

³⁰ Maxwell (2006) 59 ACSR 373, 402 [110]. See also Citrofresh [No 2] (2010) 77 ACSR 69.

³¹ Maxwell (2006) 59 ACSR 373, 399 [104]. A similar point was made in Vines v ASIC (2007) 73 NSWLR 451, 463 [84] and Warrenmang (2007) 63 ACSR 623, 628 [22].

³² Ibid.

³³ Corporations Act s 180(1)(a).

³⁴ Ibid s 180(1)(b).

³⁵ Sydney Investment House Equities (2008) 69 ACSR 1, 11 [28]. See also Maxwell (2006) 59 ACSR 373, 402 [110]; Macdonald [No 11] (2009) 256 ALR 199; Citrofresh [No 2] (2010) 77 ACSR 69. A similar point arises in non-stepping stone cases such as ASIC v Adler (2002) 168 FLR 253; Circle Petroleum (Qld) Pty Ltd v Greenslade (1998) 16 ACLC 1577; Permanent Building Society v Wheeler (1994) 12 ACLC 674.

³⁶ See, eg, Maxwell (2006) 59 ACSR 373; Sydney Investment House Equities (2008) 69 ACSR 1; and Macdonald [No 11] (2009) 256 ALR 199.

³⁷ Finkelstein J in Fortescue Metals Group (2011) 190 FCR 364, 433 [231] onwards discusses the impact the company's misleading statements had on investors.

³⁸ (2011) 190 FCR 364.

³⁹ The media releases and ASX announcements falsely represented that framework agreements with Chinese contractors were contractually binding.

⁴⁰ Corporations Act s 180(2).

⁴¹ Fortescue Metals Group (2011) 190 FCR 364, 427 [198].

⁴² Ibid 427 [199].

⁴³ (2009) 256 ALR 199.

⁴⁴ James Hardie Industries NV (2010) 274 ALR 85.

⁴⁵ Morley (2010) 274 ALR 205.

⁴⁶ Briginshaw v Briginshaw (1938) 60 CLR 336, 361–2 (Dixon CJ).

⁴⁷ ASIC v Hellicar (2012) 286 ALR 501.

⁴⁸ The High Court held that the facts indicated that the board minutes, which recorded the tabling of the draft ASX announcement and its approval, were evidence of the truth of the matters recorded: ibid 519 [69], 532 [119], [121]. The Court of Appeal was also wrong to hold that ASIC breached a duty of ‘fairness’ by failing to call a witness: ibid 541 [156], 545 [170].

⁴⁹ (2010) 274 ALR 205.

⁵⁰ Ibid 382 [921].

⁵¹ (2012) 286 ALR 612.

⁵² Corporations Act s 9 (definition of ‘officer of a corporation’ paras (a) and (b)).

⁵³ Corporations Act s 181(1) requires directors or other officers to exercise their powers and discharge their duties in good faith in the best interests of the corporation. Directors must also exercise their powers for a proper purpose. Section 182(1) specifies that a director, secretary, other officer or employee must not improperly use their position to gain an advantage for themselves, someone else or cause detriment to the corporation.

⁵⁴ Maxwell (2006) 59 ACSR 373, 402 [109]. See also Macdonald [No 11] (2009) 256 ALR 199. On the other hand in Sydney Investment House Equities (2008) 69 ACSR 1, 12 [34] Hamilton J was of the view that s 181 may be breached where the conduct of the director is not in the interests of the company, even if there was no subjective dishonesty.

⁵⁵ (2006) 59 ACSR 373.

⁵⁶ Ibid 418 [180].

⁵⁷ ASIC v Adler (2002) 168 FLR 253, 365 [458].

⁵⁸ Warrenmang (2007) 63 ACSR 623.

⁵⁹ R v Byrnes (1995) 183 CLR 501, 514–15 (Brennan, Deane, Toohey and Gaudron JJ).

⁶⁰ (2007) 63 ACSR 623.

⁶¹ (2006) 59 ACSR 373.

⁶² See, eg, Mentmore Manufacturing Co Ltd v National Merchandising Manufacturing Co Inc (1978) 89 DLR (3d) 195, 203; Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517. See further Ross, Grantham and Charles, Rickett, ‘Directors’ “Tortious” Liability: Contract, Tort or Company Law?’ (1999) 62 Modern Law Review 133Google Scholar; Andrew, Borrowdale, ‘Directors’ Liability in Tort’ [1999] New Zealand Law Journal 51Google Scholar.

⁶³ Hardie Boys J in Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 said: ‘The problem that has vexed the common law courts in this area is that of respecting the doctrine of separate legal personality on the one hand, and of allowing an adequate remedy on the other': at 525.

⁶⁴ Watson and Willekes noted that ‘despite an increasingly widespread perception to the contrary, tortious liability of directors to tort victims has nothing to do with protecting shareholders from liability, which is what the corporate veil from Salomon onwards was intended to do': Susan, Watson and Andrew, Willekes, ‘Economic Loss and Directors’ Negligence’ (2001) Journal of Business Law 217, 218Google Scholar.

⁶⁵ Latin, ‘let the master answer'.

⁶⁶ See further John, H Farrar, ‘The Personal Liability of Directors for Corporate Torts’ (1997) 9 Bond Law Review 102Google Scholar; Helen, Anderson, ‘The Theory of the Corporation and Its Relevance to Directors’ Tortious Liability to Creditors’ (2004) 16 Australian Journal of Corporate Law 73Google Scholar and references cited therein.

⁶⁷ VS, Khanna, ‘Corporate Criminal Liability: What Purpose Does it Serve?’ (1996) 109 Harvard Law Review 1477, 1479–80Google Scholar.

⁶⁸ Ibid 1484–6.

⁶⁹ Lawrence, Friedman, ‘In Defense of Corporate Criminal Liability’ (1999) 23 Harvard Journal of Law and Public Policy 833, 841Google Scholar.

⁷⁰ Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705; Tesco Supermarkets Ltd v Nattrass [1972] AC 153, 170–1; David Wishart, ‘Anthropomorphism Rampant: Rounding up Executive Directors’ Liability’ [1993] New Zealand Law Journal 175.

⁷¹ [1995] 2 AC 500, 507, 511. Lord Hoffman held that there was no general theory of attributing states of culpability to companies, but rather that corporate liability in any given case, based on the knowledge or intentions of its employees, depended on the terms of the particular offence. It is important to note that the identification doctrine was not introduced for the purpose of exculpating directors or managers from liability for their behaviour, but rather for the purpose of attributing to the company liability for actions and intentions which might otherwise fall solely on the particular actor. See further G R, Sullivan, ‘The Attribution of Culpability to Limited Companies’ (1996) 55 Cambridge Law Journal 515, 521–3Google Scholar; Neil, Campbell and John, Armour, ‘Demystifying the Civil Liability of Corporate Agents’ (2003) 62 Cambridge Law Journal 290, 292–7Google Scholar; Eilis, Ferran, ‘Corporate Attribution and the Directing Mind and Will’ [2011] 127 Law Quarterly Review 239, 243–50Google Scholar. See also Stephen J in Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475, 483.

⁷² See further Celia, Wells, ‘Corporate Crime: Opening the Eyes of the Sentry’ (2010) 30 Legal Studies 370, 384–8Google Scholar.

⁷³ Fisse argued that ‘[f]ines, no matter how large, do not guarantee that corporate offenders will respond by revising their internal operating procedures or physical protection devices in such a way as adequately to guard against repetition of the offence.’ Brent, Fisse, ‘Recent Developments in Corporate Criminal Law and Corporate Liability to Monetary Penalties’ (1990) 13 University of New South Wales Law Journal 1, 8Google Scholar.

⁷⁴ Brent, Fisse and John, Braithwaite, ‘The Allocation of Responsibility for Corporate Crime: Individualism, Collectivism and Accountability’ (1988) 11 Sydney Law Review 468, 469Google Scholar. See also Daniel, R Fischel and Alan, O Sykes, ‘Corporate Crime’ (1996) 25 Journal of Legal Studies 319, 324Google Scholar.

⁷⁵ A less successful provision is the imposition of liability on directors under s 596AB(1) for intentionally preventing the recovery of the entitlements of employees of a company, or significantly reducing the amount of the entitlements of employees of a company that can be recovered. Action for recovery of losses caused by this behaviour can be brought by the company's liquidator under s 596AC(2). No actions have ever been brought under this section due to the difficulty of establishing the intention requirement.

⁷⁶ Daniels v Anderson (1995) 37 NSWLR 438; ASIC v Healey (2011) 196 FCR 291.

⁷⁷ Corporations Act s 1317E(1)(e).

⁷⁸ Ibid s 588M(2).

⁷⁹ Ibid s 588G(3).

⁸⁰ Ibid s 209(1).

⁸¹ Ibid ss 256D(3), 259F(2), 260D(2).

⁸² Ibid ss 181, 182, 191.

⁸³ Ibid s 1317E(1)(b).

⁸⁴ Ibid s 209(3). The capital maintenance provisions also have criminal equivalents: ss 256D(4), 259F(3), 260D(3).

⁸⁵ Corporations and Markets Advisory Committee, Personal Liability for Corporate Fault, Discussion Paper (2005) ('Personal Liability Discussion Paper’); Corporations and Markets Advisory Committee, ‘Personal Liability Report', above n 1.

⁸⁶ Prior conviction of the corporation is usually not necessary in order for derivative liability to arise. Corporations and Markets Advisory Committee, ‘Personal Liability Discussion Paper', above n 85, 21 [4].

⁸⁷ Ibid 1 [1].

⁸⁸ Ibid 27–8 [6.2.1].

⁸⁹ These are neatly summarised in Corporations and Markets Advisory Committee, ‘Personal Liability Report', above n 1, 29–33 [3.3].

⁹⁰ Ibid.

⁹¹ The Committee was of the view that, as a general principle, individuals should not be penalised for misconduct by a company except where it can be shown that they have personally assisted or been privy to that misconduct, that is, where they were accessories: ibid 9–10 [1.5.2]. Model legislation imposes liability on ‘persons conducting a business'. The liability of each duty-holder under the legislation is limited by the extent to which they influence and control the work of the persons to whom the duty is owed.

⁹² The Hon Chris Bowen, ‘Minco Agrees on Principles for Reform of Directors’ Liability Provisions’ (Media Release, No 036, 6 November 2009). One piece of model legislation, the Work Health and Safety Act 2011 (Cth) began its operation on 1 January 2012, and state adoptions have been passed or are in the process of being considered by the state parliaments. In addition, the federal government is in the process of harmonising pieces of federal legislation so that the same rules of derivative liability occur in each. The first of these is the Personal Liability for Corporate Fault Bill 2012 (Cth), released in January 2012, which tackles some aspects of liability under the Corporations Act, the Foreign Acquisitions and Takeovers Act 1975 (Cth), the Insurance Contracts Act 1984 (Cth), and the Pooled Development Funds Act 1992 (Cth).

⁹³ See Senate Standing Committee on Legal and Constitutional Affairs, Parliament of Australia, Company Directors’ Duties: Report on the Social and Fiduciary Duties and Obligations of Company Directors (1989) (Cooney Committee) [2.39].

⁹⁴ Frank, H Easterbrook and Daniel, R Fischel, The Economic Structure of Corporate Law (Harvard University Press, 1991) 62Google Scholar. Coase argued that it is wrong to simply impose restraints upon director behaviour without weighing up the total cost of that intervention. R H, Coase, ‘The Problem of Social Cost’ (1960) 3 Journal of Law and Economics 1, 2Google Scholar.

⁹⁵ Dale, A Oesterle, ‘Corporate Directors’ Personal Liability for “Insolvent Trading” in Australia, “Reckless Trading” in New Zealand and “Wrongful Trading” in England: A Recipe for Timid Directors, Hamstrung Controlling Shareholders and Skittish Lenders’ in Ian, M Ramsay (ed), Company Directors’ Liability for Insolvent Trading (Centre for Corporate Law and Securities Regulation and CCH Australia Ltd, 2000) 19, 30Google Scholar.

⁹⁶ Vanessa, Finch, ‘Personal Accountability and Corporate Control: The Role of Directors’ and Officers’ Liability Insurance’ (1994) 57 Modern Law Review 880, 885Google Scholar.

⁹⁷ Mark, Byrne, ‘Directors’ Fear of Derivative Liability and Occupational Health and Safety Laws’ (2011) 29 Company and Securities Law Journal 213Google Scholar.

⁹⁸ Andrew, Keay, ‘Directors’ Duties to Creditors: Contractarian Concerns Relating to Efficiency and Over-Protection of Creditors’ (2003) 66 Modern Law Review 665, 686Google Scholar.

⁹⁹ See also Treasury, Australian Government, Review of Sanctions in Corporate Law, Consultation Paper (2007) vii.

¹⁰⁰ See above nn 41, 42 and accompanying text.

¹⁰¹ Byrne, above n 97, 227.

¹⁰² The relevant sections are ss 206C, 1317G and 1317H respectively. The company may also seek compensation under s 1317H.

¹⁰³ See Corporations and Markets Advisory Committee, ‘Personal Liability Report', above n 1, for a discussion of directors’ personal criminal liability for offences committed by their companies.

¹⁰⁴ (2011) 190 FCR 364, 427 [197]–[199].

¹⁰⁵ Employers must not contravene National Employment Standards, modern awards or enterprise agreements: Fair Work Act 2009 (Cth) ss 44, 45 and 50 respectively. Section 546 allows for the making of pecuniary penalty orders against employers for failure to pay these wages, and gives the court discretion to order payment to the Commonwealth, a particular organisation or a particular person (s 546(3)). Section 550 imposes accessory liability on persons involved in the company's breach, but there are no orders provisions allowing for an order that the director be disqualified or expressly allowing the court to make orders of compensation against the accessory.

¹⁰⁶ Taxation Administration Act 1953 (Cth) sch 1, sub-div B, 16–70.

¹⁰⁷ Ibid sch 1, 269–20.

¹⁰⁸ Note that a court may also disqualify directors on the application of ASIC for insolvency and non-payment of debts where the director has been involved in two or more failed corporations within the past seven years and ‘the manner in which the corporation was managed was wholly or partly responsible for the corporation failing': Corporations Act s 206D(1)(b)(i).

¹⁰⁹ Australian Government, Treasury, Action Against Fraudulent Phoenix Activity Proposals Paper, November, 2009 [4.2.5].

¹¹⁰ For example, where the corporate fault consists of the company's contravention of s 1041H by engaging in misleading and deceptive conduct in relation to a financial product or a financial service, s 1041I gives persons who suffer loss or damage as a result of that conduct the right to recover that loss or damage from the contravener as well as any person involved in the contravention.

¹¹¹ Even if shareholders satisfy the s 237 criteria and are given leave to sue directors in the name of the company, pt 2F.1A of the Corporations Act does not enable them to derive a personal benefit because if such derivative litigation succeeds the company, not the shareholders, gains the benefit of any orders made against directors.

¹¹² Competition and Consumer Act 2010 (Cth) sch 2 ('Australian Consumer Law’).

¹¹³ See above n 66 and accompanying text.

¹¹⁴ The section is even broader than this, contemplating actual contraventions, attempts, aiding abetting counselling or procuring, inducing or attempting to induce, being knowingly concerned in or conspiring to contravene the Act.

¹¹⁵ Corporations Act s 1324(6).

¹¹⁶ Ibid s 1324(7).

¹¹⁷ Ibid s 1324(10).

¹¹⁸ (1984) 8 ACLR 609.

¹¹⁹ See also Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11.

¹²⁰ For early cases under the section's predecessor under the Companies Code, s 574, see Broken Hill Pty Co Ltd v Bell Resources (1984) 2 ACLC 157, 161–2 and Cullen v Wills (1991) 31 FCR 19, 27.

¹²¹ Allen v Atalay (1993) 12 ACLC 7; Airpeak Pty Ltd v Jetstream Aircraft Ltd (1997) 73 FCR 161; cf Mesenberg v Cord Industrial Recruiters Pty Ltd (1996) 39 NSWLR 128. For a criticism of Mesenberg, see Robert, Baxt, ‘Section 1324 Does Provide a Shareholder with a Cause of Action: Mesenberg's Case Criticised’ (1997) 15 Company and Securities Law Journal 313Google Scholar.

¹²² (1997) 73 FCR 161.

¹²³ Ibid 167.

¹²⁴ Commentators have agreed with this interpretation. See, eg, John, Dyson Heydon, ‘Directors’ Duties and the Company's Interests’ in P D, Finn (ed), Equity and Commercial Relationships (Law Book Co, 1987) 120Google Scholar; Irene, Trethowan, ‘Directors’ Personal Liability to Creditors for Company Debts’ [1992] Australian Business Law Review 41, 57Google Scholar; Robert, Baxt, ‘Will Section 574 of the Companies Code Please Stand Up! (And Will Section 1323 of the Corporations Act Follow Suit)’ (1989) 7 Company and Securities Law Journal 388, 400Google Scholar. See also Keith, Fletcher, ‘CLERP and Minority Shareholder Rights’ (2001) 13 Australian Journal of Corporate Law 290, 300Google Scholar.

¹²⁵ Parliamentary Joint Committee on Corporations and Financial Services, Parliament of Australia, Corporate Insolvency Laws: A Stocktake (2004) 66 [4.72].

¹²⁶ (2011) 84 ACSR 562.

¹²⁷ Ibid 570 [56(c)].

¹²⁸ [2012] QCA 129 ('McCracken’).

¹²⁹ Ibid [30].

¹³⁰ Ibid [29], [33].

¹³¹ Ibid [26]–[28].

¹³² Ibid [28].

¹³³ Ibid [34]–[39].

¹³⁴ Company Law Review Act 1998 (Cth) sch 2 cl 240.

¹³⁵ Corporations Act s 1317E(1)(c).

¹³⁶ Ibid s 1317J(4).

¹³⁷ R P, Austin and I M, Ramsay, Ford's Principles of Corporations Law (Butterworths, 14th ed, 2010) 754Google Scholar.

¹³⁸ American Law Institute, Principles of Corporate Governance and Structure: Restatement and Recommendations (Tentative Draft V44, 1982) 220–1, quoted in ibid.

¹³⁹ Baxt argues that ‘[t]here has been an unexplained failure on the part of the legal profession to use this section of the Corporations Law': Robert, Baxt, ‘Do We Really Need a Statutory Exception to Foss v Harbottle?’ (1994) 22 Australian Business Law Review 298, 298–9Google Scholar. He further states that ‘[s]ection 1324 is rarely used in reported litigation. I have always been puzzled by this, particularly following the decision of Hayne J in the Victorian case of Allen v Atalay (1993) 11 ACSR 753': Robert, Baxt, ‘A Body Blow to Section 1324 of the Corporations Law? Will the Derivative Action Get a New Lease of Life?’ (1996) 14 Company and Securities Law Journal 312Google Scholar, 312. See also Robert, Baxt, ‘Section 1324 Does Provide a Shareholder with a Cause of Action — Mesenberg's Case Criticised’ (1997) 15 Company and Securities Law Journal 313, 313Google Scholar.

¹⁴⁰ See, eg, Byrne above n 97.