Why is Pecuniary Penalties cover so important?

Civil Penalty Provisions

Civil penalties are the 'middle ground' between criminal offences and civil remedies. The purpose of a civil penalty, generally, is to punish or deter a party engaging in a serious breach of the law, as a criminal penalty does. A civil penalty is ordered by a civil court (rather than a criminal court) and, consequently is subject to the lower standard of proof and strict evidence rules of civil proceedings. It will not be necessary to prove any fault element (ie. knowledge or recklessness) on the part of the person (for example that a person intended to breach a civil penalty provision)

 

A director of a company has a myriad of duties imposed upon them in managing a corporation. Many of these duties impose a greater standard of conduct that simply acting in an honest manner. A director may believe, and in fact a court may agree, that they acted honestly in the discharging their director's duties however such director can still be found to have breached their duty to act in 'good faith' (one of the Civil Penalty Provisions within the Corporations Act 2001). Subsequently the director may be exposed to expensive litigation and compensation orders imposed by a court. In addition a contravention of any one of the Civil Penalty Provisions can lead to civil penalties being imposed on directors or officers in excess of $200,000 for each contravention such as:

»  Failng to act in good faith and proper purpose (section 181)

»  Failing to exercise care and diligence in discharging their dutires (section 180)

»  Errors in financial reports (section 344)

»  Allowing a company to trade while insolvent (section 558G)

No Fault Liability

At both federal and state level, companies and their individuals who manage such corporations can be exposed to 'no fault' liability. The most common forms of 'no fault liability' are:

»  Strict liability – where a breach is deemed to have been committed by a company or individual (subject to limited     defences) irrespective of the intent or recklessness with which the conduct was committed.

»  Vicarious liability - where a company or individual is held liable for a breach of legislation by an employee irrespective of     whether the employee intended the act or the company or individual authorised it.

No fault liability can result in substantial penalties being levied against the company and those persons responsible for managing the company. Only limited defences may be available in defence of no fault liability.

 

More information for brokers:

•  View our Pecuniary Penalties Claims Examples

•  Return to the Palladium Main Page

For all other queries please contact the Coverforce Underwriting team on 1-3000-COVER

 

Important Note: Statements about the policy are a summary of cover only and do not constitute adivce in relation to the policy. For full details of terms and conditions please review the policy wording in full.

 

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