wellington capital limited news, page-4

I found this interesting reading relating to 'Directors' indemnities and the Australian Consumer Law' and was wondering if it is the new changes that has caused the resignation of several company directors recently (ie Equtitrust)

Extracted from this article http://www.claytonutz.com/publications/news/201101/24/directors_indemnities_and_the_australian_consumer_law_are_you_covered.page
What's the current position?

A director or manager can already be disqualified for breach of a civil penalty provision in the Corporations Act 2001 or of certain provisions in the Trade Practices Act 1974, such as misuse of market power, exclusive dealing or resale price maintenance, and for failure to ensure that certain product safety provisions are met. In deciding whether such an order is appropriate, the court looks at whether the breach was intentional or dishonest, what damage was caused by the breach and the likelihood of the offending conduct being repeated.

What's changed under the Australian Consumer Law

Under the new Australian Consumer Law, either ASIC or the ACCC will be able to seek orders disqualifying directors and managers if they breach any of a number of consumer protection provisions. The disqualification can be either for a limited period of time, or permanent. Directors and officers also face significant fines if, for example, they are "knowingly concerned" in breaches of the legislation.

These contraventions include

unconscionable conduct;


false representations in relation to the supply of goods;


breach of certain consumer safety provisions, including a failure to notify certain product-related injuries; and


a failure to comply with a substantiation notice.


Directors and officers can be held liable if they are involved in:
a contravention or attempted contravention of such a provision;
aiding, abetting, counselling or procuring a person to contravene such a provision;
inducing or attempting to induce a person, whether by threats or promises or otherwise, to contravene such a provision; or
in any way being, directly or indirectly, knowingly concerned in, or party to, the contravention; or
conspiring with others to contravene such a provision.

The new prohibition on indemnifying directors and officers

Defending proceedings brought by the regulators under the new Australian Consumer Law will necessarily involve significant legal costs. A company is not allowed to indemnify against liability for these breaches, or against legal defence costs if such liability is established.

The new Australian Consumer Law makes it an offence (section 229 ACL) for a company to indemnify:

a liability to pay a pecuniary penalty under section 224 ACL;


legal costs incurred in defending or resisting proceedings in which the person is found to have such a liability.


Any attempt to do so is void (section 230 ACL).

This means that a company cannot indemnify its directors and officers for pecuniary penalties and legal costs, if they are found personally liable for contraventions of consumer protection provisions in the Australian Consumer Law.