Stepping Stones — from Corporate Fault to Directors' Personal Civil Liability

Abstract

Several recent cases have seen the courts approving ASIC's employment of a ‘stepping stone’ approach that applies directors‘ statutory duty of care as well as their other statutory duties in a novel context. The first ‘stepping stone‘ involves an action against a company for contravention of the Corporations Act 2001 (Cth). The establishment of corporate fault may then step stone to a finding that by exposing their company to the risk of criminal prosecution, civil liability or significant reputational damage, directors contravened one or more of their statutory duties in ss 180-2 of the Corporations Act, particularly their statutory duty of care, with the attendant civil penalty consequences. The effect of the ‘stepping stone’ approach is that directors may face a type of derivative civil liability for corporate fault. In this paper we analyse the stepping stone approach and assess the justification for imposing civil liability on directors for their company's misbehaviour. This paper also examines whether an extension of the stepping stone approach could make directors liable for their company's contraventions of non-Corporations Act laws as well as open the floodgates to make directors personally liable to shareholders, creditors, employees, or others affected by corporate fault.