An ACCC 'first' - breach of Australian consumer law results in director being banned for 15 years

Key takeaways

Are you a director of a company? Did you know that the ACCC can ask the Court to ban you from managing any company if you breach the Australian Consumer Law?

Recently, the Federal Court banned a company director from managing a company for 15 years for misleading investors as to the earnings potential of a business. The case demonstrates the willingness of the ACCC to seek (and the Courts to impose) long bans for breaches of the Australian Consumer Law.

The case is a timely reminder to as to why you and your company should fully understand and abide by your obligations under the Australian consumer law.

What did the director do to warrant a management ban?

Mr Laurence Hann was the director of a group of proprietary limited companies that made false representations to, and otherwise misled, people to invest in a cleaning business which had no hope of generating any profits. The representations were made in advertisements, letters and telephone calls and persuaded people to assist in the running of the business as volunteers and induced others to pay large sums of money to purchase exclusive dealership rights in particular geographic areas.

The representations were misleading because the distribution business offered for sale did not have the potential to generate earnings of the advertised amounts and there was no realistic prospect that these businesses would deliver the claimed earnings.

Why 15 years?

The Court was satisfied, on the facts of the case, that a ban for 15 years was warranted given the deliberate nature of the conduct.

Is this a one-off or will there be more?

Although this is the first time the Court has disqualified a director from managing corporations for a contravention of the Australian Consumer Law, the ACCC currently has four other cases before the courts in respect of which it is also seeking management bans (one of which is for 20 years). While the conduct in all of these cases appears to be deliberate and deceitful, there is no reason why the ACCC could not seek a management ban for shorter periods for reckless conduct.

What should you do now?

Check that your compliance program for Australian Consumer Laws is comprehensive and up to date, and that all directors fully understand and abide by the obligations under the law.