Even though the company is a legal entity s per s. 124 Corporations Act 2001 but yet the decisions on the behalf of the same are taken by the top management usually the CEO or MD (Managing Director). At times, there are certain civil or criminal liabilities that may arise for the company due to the inappropriate or fraudulent conduct of particular agents. In such a situation, the concept to directing mind and will is found useful in order to confer liability on the person or persons who collectively represent the mind of the company and are responsible for the negligence or fraud committed. The directing mind of the company usually refers to the top management personnel who has the requisite authority from the board of directors and hence directs the company into a particular director for achieving stated goals (Baxt, Fletcher and Fridman, 2008).
The ‘directing mind and will’ in the context of a company would refer to any individual who is acting as the agent of the company and has a sphere of authority within which he/she is supposed to act. This concept tends to highlight that the state of mind of the company essentially refers to that of the agents particularly the top management that has the maximum control. As a result, any liability arising from such actions would essentially not be limited to company but the agent whose mind and will were involved in the underlying action. However, there are certain safeguards particularly for the top management available such as the business judgement rule in order to escape liability (Ciro and Symes, 2013).
One of the key advantages of the company business structure over other business structures (partnership, sole trader) is that the liability is limited to the assets of the company and the personal assets of the owners cannot be liquidated for the settlement of company dues unless there is a personal guarantee. However, in certain cases or situations, it is possible that court ignores the limited liability and holds the shareholders or owners as responsible for the company outstanding liabilities. This is called as piercing of the corporate veil and is usually carried out in limited circumstances (Cassidy, 2013).
Some of these circumstances include serious corporate frauds, corporate asset and personal asset intermingling, corporate form abuse to exploit limited liability protection, under-capitalization of the firm and failure to distinguish between the identity of the company and the respective owners. A simple example where the piercing of corporate veil would be done by the court is where a former employee of a company under non-competence clause sets up a company in the same business with the intent to limiting personal liability. Another instance could be when there is lack of adequate corporate records with regards to assets and liabilities which hint towards non-separation of corporate and personal assets. Also, companies which are put in place to carry fraudulent activities are prime candidates of corporate veil piercing since company structure is used with the intention of escaping liabilities arising on account of fraud (Fisher, Anderson and Dickfos, 2009).
Baxt, R., Fletcher, K.L. and Fridman, S. (2008) Corporations and Associations Cases and Materials. 10th edn. Butterworths: LexisNexis Australia.
Cassidy, J. (2013) Corporations Law Text and Essential Cases. 4th edn. Sydney: Federation Press.
Ciro, T. and Symes, C. (2013) Corporations Law in Principle. 9th edn. Sydney: LBC Thomson Reuters.
Fisher, S., Anderson, C. and Dickfos, (2009) Corporations Law - Butterworths Tutorial Series. 3rd edn. Butterworths, Sydney: LexisNexis Australia.