Directors and Officers Liability Insurance - Recent Australian reforms

Last year in this publication we speculated that the agenda for directors and officers and their insurers in 2012 was likely to be dominated by the fallout from the sovereign debt crisis in Europe and the impact that could have on the availability of capital worldwide. At the time of publication, European governments are still working hard to manage this issue and the direct impact on directors and officers (D&O) insurance and director liability and exposure in Australia, beyond a general slowdown in the economy and business confidence, has been limited. There remains healthy capacity to write D&O insurance in Australia and rates remain competitive.

From a claims perspective, the environment remains active but stable.

Looking back, 2012 will be remembered for a number of key decisions on director liabilities, Australia's biggest class action settlement and further legislative reform. We touch on some of those highlights below.

KEY DECISIONS

James Hardie

In November 2012, the New South Wales Court of Appeal handed down its penalty decision against former non-executive directors, the former company secretary and general counsel of James Hardie Industries (James Hardie) for their breach of duties by approving James Hardie's release of a misleading statement to the Australian Securities Exchange. That followed the High Court's decision earlier in 2012 imposing liability on the seven former James Hardie Directors. The Court of Appeal rejected appeals from seven former James Hardie Directors (James Hardie's former Chief Executive, Peter MacDonald was not part of the appeal) to scrap any penalties and disqualifications that were originally recommended by the judge in the first instance decision. The Court of Appeal ordered:

An increase to the fine imposed on Peter Shafron (former company secretary and general counsel) from AU$50,000 to AU$75,000 and the retention of his seven-year ban as a company director A reduction of disqualification to act as company directors from five years to three years and fines cut from AU$30,000 to AU$25,000 for the other Australian-based directors, namely Meredith Hellicar, Michael Brown, Geoffrey O'Brien, Greg Terry and Peter Wilcox A shorter disqualification to act as company directors for the US-based directors, namely Martin Koffell and Michael Gillfillan, of about one year and 11 months. These directors were fined AU$20,000 each. Australian Wheat Board (AWB)

Another case that has given some guidance as to the range of penalties courts will impose on directors was the penalty cases against former directors of AWB.

In December...