The Corporations Act 2001 (Cth) (“the Act”) imposes strict statutory and fiduciary duties on directors and officers of companies.  The majority of the director’s duties create civil obligations and when breached a civil penalty is imposed.  It is often overlooked that section 184 of the Act creates a criminal offence id a director recklessly or intentionally fails to exercise their directorial powers in good faith or for a proper purpose.  The maximum penalty for contravening section 184 of the Act is 5 years imprisonment or a fine of $360,000 or both.  Criminal proceedings against directors are not as uncommon as people believe, the ASIC’s six-monthly report covering July to December 2016 discloses that as at 1 January 2017 there are 9 criminal actions (and 22 civil actions) against directors and officers which are pending before the court.

In the recent decision in R v Sigalla [2017] NSWSC 52, Andrew Sigalla was sentenced to 10 years imprisonment with a non-parole period of 6 years after being convicted of  24 counts of dishonestly using his position as a director to gain a benefit for himself or a third party contrary to section 184 of the Act.  Mr Sigalla was a director of TZ Ltd and used his position as director to transfer over $8.6 million of company funds and shares to himself and personal creditors such as his bookmaker.

When determining Mr Sigalla’s sentence, Justice Adamson took into account Mr Siggalla’s lack of remorse (and “significant hubris” at [86]), that only $250,000 of the $8.6 million taken from the company was recovered by ASIC, and that sentence must be a general deterrent to other directors because it is “notoriously difficult to detect and prosecute” directors who misuse their position.  His Honour noted that the court needed to impose a strict criminal sentence when a director contravenes section 184 of the Act to safeguard investors from directors of public companies misusing their position and to restore investor confidence in the ASX.

If you are unsure of any of your duties as a director or an officer of a corporation, please contact us.

Alison De Gruyter