DIRECTORS’ PERSONAL LIABILITY- IS THE PROPOSED AMENDMENT TO SECTION 197 ACCEPTABLE WHEN COMPARED WITH HANEL V O’NEILL?

Abstract

[On 2 June 2005, the Australian Government announced a proposal to amend s. 197 of the Corporations Act. This is to overturn the decision in Hanel v. O'Neill (“Hanel”) where the South Australian Supreme Court has expanded the circumstances in which directors of trustee companies can be held personally liable for the debts under the current section 197(1) of the Corporations Act 2001 (Cth). The multiple interpretations presented in Hanel highlighted the uncertainty of s. 197 and this uncertainty is height- ened in at least two subsequent cases. The article provides a detailed analysis of how the decision in Hanel is affecting the directors' freedom of management and suggests some precautionary measures that the directors could take as protection against creditor's actions under s. 197. The au- thor welcomes the proposed amendment because the new section will cre- ate certainty for directors as to the scope of their potential personal liability, but contends that the substance of the proposed s. 197 is not ac- ceptable as there is potential for abuse by directors of certain trustee com- panies.]