Statutory business judgment rule

Monday, August 3. 2009

The following post is by student contributor, Leigh Howard.

The statutory business judgment rule was implanted into the Corporations Act in 1999 by the instigation of the ‘CLERP’ reform, and has been the subject of both controversy and accolade ever since.  It’s present-day form derives from the United States, where it was developed as a common law doctrine and had considerable influence, particularly in the State of Delaware (for a history of the rule, see Redmond, “Safe Harbours or Sleepy Hollows: Does Australia Need a Statutory Business Judgment Rule?” in Ramsay (ed.) Corporate Governance and the Duties of Company Directors, 1997 p. 185). The Australian manifestation sits alongside the duty to discharge powers with the care and diligence of a reasonable person under s 180. It operates as a defence to any business judgment that that is made in good faith and for a proper purpose, so long as the director has no material personal interest and a belief the judgement is in the best interests of the corporation (see s 180(2) of the Act). Adversaries to the rule fear that the rule could operate as a safe harbour for negligent directors otherwise deserving of scrutiny under the duty of care and diligence. However, law makers on both sides of the Parliament believe that the rule in its present form does not go far enough.

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