The Enforcement of Directors’ Duties in Australia: An Empirical Analysis

This article explores the private and public enforcement of directors’ duties in the Australian context and provides an empirical assessment of the enforcement of these laws. The literature suggests a complementarity between the mode of enforcement and the dispersion of share ownership. That is, coordination costs may affect the likelihood of private enforcement, whereas public enforcement is not subject to collective action problems. To explore these claims, this article presents a new database of 145 Australian cases involving alleged breaches of directors’ duties. The results indicate that the probability that a publicly listed company will have one of its directors named a defendant is 0.08 %, which suggests a rate of enforcement more similar to the US than the UK. Further, the modality of enforcement varies according to whether the company is publicly listed or private. Moreover, the substantive issues in cases resulting from public enforcement differ systematically from those brought by private parties, and the research confirms prior findings that insolvency is a trigger of litigation against errant directors. Finally, a significant proportion of private enforcement actions in the dataset are initiated by companies themselves, as opposed to shareholders. This modality of enforcement has not been discussed in prior literature.