Directors' personal liability-is the proposed amendment to Section 197 acceptable when compared with Hanel v O'Neill?

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 heightened 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 author welcomes the proposed amendment because the new section will create certainty for directors as to. the scope of their potential personal liability, but contends that the substance of the proposed s. 197 is not acceptable as there is potential for abuse by directors of certain trustee companies.

Recent amendment to section 197- is it acceptable?

The majority decided in Hanel v O’Neill that directors of trustee companies
could be held personally liable to discharge the debts incurred by a
company pursuant to s 197(1) of the Corporations Act 2001 (Cth). On
18 November 2005, legislation was passed to amend s 197(1); this was to
overturn the decision. This article evaluates other relevant cases and
argues that the recent amendment to s 197 is unsatisfactory as it leaves
potential for abuse by directors of certain trustee companies. The article
suggests further reform to the section and to this end, suggests ways for
s 197 to reconcile with other parts of corporate law, such as insolvent
trading and directors’ duties.