Forgive Us Our Commercial Errors
Hall v Poolman: forgive us our commercial errors and deliver us from personal liability, amen.
Nicholas Phillips
Introduction
The corporate regulator has lately conceded the attachment of personal liability to company directors to have become excessively arduous and uncommercial.[1] These remarks particularly accord with and underscore recent hints proffered both by law reformers[2] and judges that it is necessary to reassess the policy balance struck by the imposition of personal liability on directors under the insolvent trading regime.[3] In this context the great import of the decision of the New South Wales Supreme Court in Hall v Poolman[4] (hereafter ‘Poolman’) cannot be overstated. The judgment of Palmer J treats, inter alia, several live and controversial issues going to the heart of company law and insolvency jurisprudence.[5] For present purposes, the salient issue was whether the discretionary power to forgive directors who act honestly and reasonably, contained in s 1318[6] of the Corporations Act 2001 (Cth),[7] ought to be exercised to relieve directors of personal liability flowing from breach of the duty to prevent insolvent trading.[8] Answering this question affirmatively, Palmer J warned that where a director’s exercise of commercial judgment in attempting to save a company from illiquidity turns out to be erroneous and the company fails, personal liability for insolvent trading ought not to attach. In so emphasising that the court must ever remain cognisant of commercial realities, Palmer J suggested that the s 1318 discretion to forgive provided an ideal mechanism for readdressing this policy deficiency stemming from the stringency of the insolvent trading regime. This note argues that Poolman provides a sound clarification and appropriate extension of the application of the s 1318 dispensatory power with respect to the prohibition against insolvent trading. In doing so it is submitted that the sympathetic and generous approach
Nicholas Phillips
Introduction
The corporate regulator has lately conceded the attachment of personal liability to company directors to have become excessively arduous and uncommercial.[1] These remarks particularly accord with and underscore recent hints proffered both by law reformers[2] and judges that it is necessary to reassess the policy balance struck by the imposition of personal liability on directors under the insolvent trading regime.[3] In this context the great import of the decision of the New South Wales Supreme Court in Hall v Poolman[4] (hereafter ‘Poolman’) cannot be overstated. The judgment of Palmer J treats, inter alia, several live and controversial issues going to the heart of company law and insolvency jurisprudence.[5] For present purposes, the salient issue was whether the discretionary power to forgive directors who act honestly and reasonably, contained in s 1318[6] of the Corporations Act 2001 (Cth),[7] ought to be exercised to relieve directors of personal liability flowing from breach of the duty to prevent insolvent trading.[8] Answering this question affirmatively, Palmer J warned that where a director’s exercise of commercial judgment in attempting to save a company from illiquidity turns out to be erroneous and the company fails, personal liability for insolvent trading ought not to attach. In so emphasising that the court must ever remain cognisant of commercial realities, Palmer J suggested that the s 1318 discretion to forgive provided an ideal mechanism for readdressing this policy deficiency stemming from the stringency of the insolvent trading regime. This note argues that Poolman provides a sound clarification and appropriate extension of the application of the s 1318 dispensatory power with respect to the prohibition against insolvent trading. In doing so it is submitted that the sympathetic and generous approach