Litigation and Dispute Resolution

Can a company be considered insolvent based upon inability to repay a future debt?

19 September, 2022

Navigating the array of laws that impact on every facet of your company’s business can be a minefield. This two part series has a focus on some of the statutes that can impact upon you and your company, and ways to limit your personal exposure to liability as a director.

Navigating the array of laws that impact on every facet of your company’s business can be a minefield. As a director of a company, you owe duties to the company under the Corporations Act 2001 (Cth) and at law, such as the duty to act in the best interests of the company and the duty to act with care and diligence. A breach of those duties will render you personally liable to the company for any loss suffered by the company.

However, you can also be personally liable as a director under a variety of statutes, including if you are ‘involved’ in a contravention by your company under those laws. This is commonly known as ‘accessorial’ liability and whilst the reach of accessorial liability varies, it generally covers instances where you have been ‘involved’ in a contravention by:

  • aiding, abetting, counselling or procuring the contravention;
  • inducing the contravention, including by threats, promises or otherwise;
  • being in any way, including by act or omission, directly or indirectly, knowingly concerned in or a party to the contravention; or
  • conspiring with others to effect the contravention.

In this two part series, we consider some of the statutes that can impact upon you and your company, and ways to limit your personal exposure to liability as a director. In Part 1, we specifically look at the statutory liability of directors under taxation laws, company laws, workplace laws and some industry specific statutes where you can be held personally liable if you are a director.

Your company’s unpaid GST and taxation offences

It is well known that a director may be held personally liable for the company’s unpaid ‘pay as you go’ (PAYG) contributions. In 2012, the director penalty regime was extended to include personal liability for unpaid superannuation guarantee charge (SGC) contributions. Now, the Federal Government has proposed extending the scope of the regime yet again to incorporate personal liability for the company’s unpaid GST.

Under the current regime:

  • if a company has failed to fulfil its PAYG or SGC obligations, the Australian Tax Office (ATO) may serve the director of the company with a Director Penalty Notice (DPN) outlining the unpaid amounts and any remission options available to them;
  • if the director fails to arrange payment of the penalty within 21 days of the date of the DPN, the ATO may seek to recover the penalty from the director personally; and
  • the penalty will be equal to the unpaid amount of the company’s PAYG or SGC liability.

The Government’s proposal to extend the regime to unpaid GST, if implemented, will also enable the ATO to recover unpaid GST amounts personally from the directors of a company. In other words, the directors of a company would be liable to pay to the ATO as a penalty an amount equal to the amount of GST that the company has failed to pay. Directors will be able to discharge their liability for unpaid GST in the same way as payments of outstanding PAYG and SCG contributions. This proposal makes the provision for the payment of GST by your company in addition to PAYG and SCG contributions as important as ever.

Directors can also be personally liable under section 8Y of the Taxation Administration Act 1953 (Cth) if their corporation does or omits to do an act or thing that constitutes a taxation offence. This is because under section 8Y, a person who is concerned in, or takes part in, the management of the corporation will be deemed to have committed the taxation offence of the corporation and will be punished accordingly.

Your company’s breach of the Corporations Act 2001 (Cth)

Directors may be liable as an accessory to their company’s contravention of the Corporations Act under section 79 of the Act if they were ‘involved’ in the contravention.

An example of this is the well-known case of Asic v Adler and 4 Ors [2002] NSWSC 171, where the Supreme Court held that three directors of the collapsed insurance company HIH Insurance Limited (HIH), were ‘involved’ in HIH and its wholly owned subsidiary’s contraventions of section 208 (related party financial benefits without shareholder approval) and the subsidiary’s contravention of s260A (financial assistance for the purchase of shares) of the Corporations Act.

There have been a plethora of cases since then, where courts have found directors liable for breaches of section 79, often in conjunction with the common law rule in Barnes v Addy. See, for example, ASIC v Australian Investors Forum Pty Ltd & Ors (No 2) [2005] NSWSC 267, where a director was held to be accessorily liable under section 79 for the company’s contravention of section 727(1) of the Corporations Act, which requires a disclosure statement to be lodged before an offer of securities is made.

These cases demonstrate the importance of ensuring that your company complies with its obligations under the Corporations Act and that you are fully aware of your obligations to minimize your exposure to personal liability. Preventing a contravention by your company in the first place is the best form ofprotection against this type of liability.

Your company’s infringement of workplace laws

The Fair Work Act 2009 (Cth) is another law where directors can be held personally liable as an accessory to a contravention of the Act. This Act sets out the rights and obligations of employees and employers in relation to matters such as industrial action, enterprise agreements, workplace discrimination, unfair dismissal, adverse action and the national employment standards.

Section 550 of the Act provides that a person who has been involved in the contravention of a civil penalty provision of the Act is taken to have contravened that provision themselves. Therefore, directors, officers, managers, consultants and contractors who have been involved in a company’s contravention of a civil penalty provision may be personally liable for the actions of that company. The Fair Work Ombudsman (FWO) has revealed that in 2015, 92% of the matters that were filed in court by the FWO sought orders against accessories.

In the matter of FWO v Step Ahead Security Services Pty Ltd & Anor [2016] FCCA 1482, the first respondent, Step Ahead Security Pty Ltd (the Company), had contravened Act by underpaying its employees a total of $22,779.72. The Court held that the director of the Company was, for the purposes of s 550(2) of the Act, involved in the Company’s contraventions of the Act. The Company and director were ordered to pay the unpaid wages to the employees. In addition, the Court imposed a penalty of $257,040 on the Company and $51,408 on the director.

Another statute governing the workplace that impacts upon directors is section 27 of the Work Health and Safety Act 2011 (NSW) and equivalent Commonwealth Act. These laws impose a duty upon officers of a ‘person conducting a business’ (which includes a company) to exercise due diligence to ensure that the company complies with that duty or obligation. The penalty for a failure to exercise due diligence may be equal to the penalty faced by the company.

It is important that directors seek legal advice about the obligations that apply to their company under workplace laws, and implement adequate internal reporting, audit and due diligence processes to monitor the company’s compliance with its obligations, such as the payment and treatment of employees. Procedures for avoiding breaches of a company’s obligations under workplace laws should also be put into place to minimise the risk of directors being held personally liable for the company’s actions. Other strategies involve including clauses in contracts with suppliers, contractors, employees and the like to ensure that they comply with the requirements of the relevant Acts.

Industry specific statutes

Additional duties and obligations may be placed upon directors and officers depending on the nature of the activities that their company engages in or the industry that their company operates in by industry specific legislation.

The following are examples of some of the statutes that may apply.

  • Protection of the Environment Operations Act 1997 (NSW)

This Act imposes accessorial liability, executive liability and special executive liability on directors and managers of companies that contravene certain provisions of the Act. Offences include polluting water, transporting waste to a place that cannot lawfully be used as a waste facility for that waste, and negligently disposing of waste in a manner that harms or is likely to harm the environment.

  • Liquor Act 2007 (NSW) and Gaming Machines Act 2001 (NSW)

Section 71 and 199A of these Acts, respectively, enable a director (or person involved in the management of the company) to be held liable as an accessory to the company’s contravention of the Act. Offences that a director may be liable for include selling liquor without a licence to do so under the Liquor Act, and possessing, supplying, selling or installing a gaming machine that is not approved under the Gaming Machines Act.

  • Heavy Vehicle National Law (NSW) also known as the ‘Chain of Responsibility’ (CoR) law

If your company consigns, packs, loads or receives goods as part of your business, you could be held liable for breaches of this legislation even though you have no direct role in driving or operating a heavy vehicle. This is because employers, prime contractors, vehicle operators, packers of goods and loading managers of goods can be liable for contraventions of certain mass, dimension or loading restraints, fatigue or speed laws under sections 183, 219, 261 and 315 of the Act.

For example, you could be liable as a director if a person who your company employs drives a heavy vehicle on a road that does not, or whose load does not, comply with the mass, dimension or loading requirements applying to the vehicle. Changes to these laws are coming in mid-2018 to align them more closely with workplace health and safety laws. It is important to understand how these laws may impact you.

  • Home Building Act 1989 (NSW)

This Act imposes accessorial liability, executive liability and special executive liability on directors and managers of companies that contravene certain provisions of the Act. For example, a director may be liable if their company represents that it is the holder of a contractor licence, and the director knows that it does not hold that contractor licence.

  • Sex Discrimination Act 1984 (Cth)

Section 105 provides that a person who causes, instructs, induces, aids or permits another person to do an act that contravenes certain provisions of the Act (pertaining to discrimination in work and other areas) is taken to have done that act themselves. For example, a director of a company that provides goods or services may be held personally liable if that company discriminates against a person based on the person’s sex, sexual orientation, pregnancy or marital status by refusing to provide the person with goods or services, or in the manner or terms or conditions on which the goods or services are provided to the person.

What can you do?

It is important to understand the laws that impact on your business so that you can put in place appropriate measures to ensure your company complies with its obligations. Being aware of your obligations and making sure that your company is compliant, is an effective way to reduce your risk of being held personally or accessorily liable under statute.

The best way to achieve this is through obtaining proper legal advice in relation to the activities undertaken by your company so that you can understand the obligations placed upon the company and its directors, as well as the consequences of failing to comply with these obligations.

McCabes can assist in helping you to understand which legislation is applicable to you and your company, the obligations that apply to you as a director, and can advise you on strategies for reducing your exposure as a director.

Want to know more?

For further information about your potential personal liability as a director, stay tuned for Part 2 of this series.

In Part 2, we will look at some of the statutes that govern your company’s interactions with consumers, customers and competitors, and how you as a director may be held personally liable under these laws.


McCabes will be running a ‘Deepwater and Safe Harbours’ seminar series commencing in March 2018. The first seminar in the series will focus on navigating your way as a director and will provide practical guidance on how to stay out of deep water and how to find safe harbours. If you are interested in attending this seminar, please contact [email protected] to register for the details.

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
29 August, 2023

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty.  The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes
18 August, 2023
Litigation and Dispute Resolution

Expert evidence – The letter of instruction and involvement of lawyers

The recent decision in New Aim Pty Ltd v Leung [2023] FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.

Published by Justin Pennay
10 August, 2023