Director and Manager held personally liable for company breaches of the Australian Consumer Law. Are you next?
The Federal Court has delivered a timely reminder to directors and managers about their personal liability when a company breaches the law.
In the recent Geowash Case[1], the Federal Court ordered $4.2 million in penalties against former carwash and detailing company Geowash Pty Ltd (Geowash) as well as its director (Ms Saman Ali) and its franchising manager (Mr Charles Cameron) for breaches of the Australian Consumer Law and the Franchising Code of Conduct.
Ms Ali is personally liable to pay $1.045 million in penalties, while Mr Cameron is liable to pay $656,000.
The Court also ordered Ms Ali and Mr Cameron:
to pay $1 million to franchisees as partial compensation for losses suffered by those franchisees; and
each be disqualified from managing corporations in Australia for a specified period (Ms Ali is disqualified for 5 years and Mr Cameron is disqualified for 4 years).
The Geowash Case is yet another example of the adverse consequences that follow when businesses (and directors) fail to take the necessary steps to establish and maintain an effective legal compliance framework.
The Geowash Case
In February 2019, the ACCC was successful in its prosecution of Geowash when the Federal Court found Geowash had breached the Australian Consumer Law and the Franchising Code of Conduct by:
engaging in misleading and deceptive conduct;
engaging in unconscionable conduct; and
failing to act in good faith,
in relation to the sale and marketing of its Geowash franchises.
The ACCC also succeeded in prosecuting the director (Ms Ali) and the franchising manager (Mr Cameron) of Geowash, on the basis that they caused Geowash to engage in the conduct and were thereby directly or indirectly knowingly concerned in, or a party to, the breaches by Geowash.
On 24 January 2020, the Court ordered substantial penalties against Geowash, Ms Ali and Mr Cameron, as well as the disqualification of Ms Ali (5 years) and Mr Cameron (4 years) from managing corporations in Australia.
Directors, officers and managers be warned!
Following the Banking Royal Commission and the Franchising Inquiry, regulators such as the ACCC and ASIC are not only focusing on the misconduct of companies, but also the misconduct of directors, officers and managers who cause companies to breach the law (whether directly or indirectly, and whether by act or by failing to act!).
If you are in business or you are a director, officer or a manager of a company, it is critical that you:
establish an effective and robust legal compliance framework in your business; and
review and monitor the legal compliance of your business operations on an ongoing basis.
How can we help?
If you are unsure about your legal compliance or you have been contacted by a regulator in relation to your legal compliance, please do not hesitate to contact Peter Wright or Suzanne Howari.
The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.
[1] Australian Competition and Consumer Commission v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 4) [2020] FCA 23 (Geowash Case).