Coercive control and insolvency

ASIC has asked registered liquidators to “stay alert” for signs of family and domestic violence when conducting insolvency administrations.[1] 

ASIC explains that any behaviour that is violent, threatening, controlling, or is intended to make a person or that person’s family feel scared and unsafe, can be considered as family and domestic violence. 

An aspect of such conduct is economic abuse which can occur through company directorships. That is, abusive partners can coerce their spouse or partner into becoming a co-director or sole director of a company and signing documents while denying them any decision-making powers or access to financial information. That person is then left to bear liability for breaches of directors’ duties, including penalties, debts (often incurred without their knowledge) and possibly bankruptcy.

Coercive control

This is all part of a larger concern about abusive or controlling relationships generally and how the law can deal with them, including by way of criminal law reform.  Coercive control is now a [precisely defined] criminal offence in NSW.[3] 

There are also the National Principles to Address Coercive Control in Family and Domestic Violence which were released in September 2023 by the Commonwealth and State and Territory governments. 

This issue is also presently the subject of a 2024 inquiry by the Parliamentary Joint Committee (PJC) on Corporations and Financial Services into the Financial Services Regulatory Framework in Relation to Financial Abuse. 

The Economic Abuse Reference Group (‘EARG’) made a comprehensive submission to the PJC both to its 2023 inquiry into corporate insolvency, to which the government has given no response, and more recently to its current 2024 inquiry.   

As a defence to insolvent trading 

In the context raised by ASIC, of insolvency, the concept of coercive control has been suggested as a defence to insolvent trading.[4] 

“Victim survivors” are described as being coerced into assuming liability for corporate wrongdoing as ‘straw’ directors of family companies controlled by the perpetrator. With little or no decision-making power nor access to critical information, they are often unable to assume an active role in monitoring the company’s financial situation, and to take steps to prevent the company from engaging in insolvent trading, as required by s 588G.  They are

“left to bear the liability for breaches of directors’ duties including severe penalties and significant debts incurred, often without their knowledge”.

Defences to insolvent trading in s 588H(4) of the Corporations Act allow directors who are absent from management because of “illness or some other good reason” to be excused from liability. Whatever the gender of the director, mostly male, defences of good reasons have not commonly been upheld.  Academic Vivien Chen suggests an amendment to section 588H(4) specifying family violence as being a good or legitimate reason for a director’s absence from management which, it is argued, would reduce the likelihood of systems abuse and contribute to better outcomes for victim survivors. [5]

The law remains that a person who is a director of a company has duties under the Corporations Act and at general law.  The Court in DCT v Clark rejected a director’s defence, under the same wording in s 588FGB(5), based on her claim that while she signed company documents, they were not explained to her and that her signature occurred in situations in which:

“I would usually have a frying pan in one hand and be signing with the other”.[6] 

In that context, it is argued that the existing defences under the Corporations Act (and under the Taxation Administration Act 1953)

“have not been interpreted to apply in circumstances of family violence, leaving victim survivors with few options to seek release from liability incurred as a result of financial abuse and coercive control. This is exacerbated by lack of access to financial information, as victim survivors are often prevented from accessing information about the company by the perpetrator and/or the company’s accountant”.

There was however no element of coercion in DCT v Clark, the woman becoming a director of a small company in the belief that two directors were required. 

Law reform that seeks to balance issues of domestic coercion and directors’ duties might be difficult, each body of law having differing interests to protect; not unlike the tension between family law and spouses, and bankruptcy and creditors.  This is illustrated to some degree in a case where a director’s convictions for family violence and breach of bail offences were not “offences involving dishonesty” such as to disqualify him from being a director, pursuant to s 206B(1)(b)(ii) of the Corporations Act.[7] 

ASIC

Absent law reform, ASIC is asking liquidators to be mindful of signs of potential family and domestic violence when conducting their administrations.

Among other issues concerning, for example, directors’ completion of the report on company activities and property, relevant breaches of the law may warrant reporting to ASIC under s 533 and related sections of the Corporations Act. 

As for ASIC itself, where such matters come to its attention, ASIC says it assesses them on a case-by-case basis.[8]

“Where we have evidence that a director has been appointed without consent (e.g. with a fake signature), we are able to remove the person as a director from the company register”.  

Otherwise, where there is no evidence that a person has been appointed as a director without their consent or under duress, ASIC says it will advise the person to seek legal advice.  It

“does not generally take the role of arbitrator in company disputes about officeholders”. 

Bankruptcy

ASIC and others also raise the scenario of a victim being left to bear liability for breaches of directors’ duties by way of debts, possibly leading to their bankruptcy.

AFSA raises domestic violence within its Vulnerability Framework guidance including in the context of mental health and financial distress. As to trustees, without compromising their duties, AFSA generally expects trustees to be

“attentive, compassionate and responsive to stakeholders who may be in vulnerable circumstances, such as those suffering from mental health or domestic violence”.[9] 

Coercive control or duress may be raised in the context of an annulment application, rarely successfully.

The EAIG also raises punitive and stigmatising aspects of bankruptcy law itself, although on issues as much punitive for both genders.  Some of these are the subject of current, limited, law reform; for example as to the severe operation of the National Personal Insolvency Index.  On one limited aspect, AFSA does say it will consider requests to withhold a bankrupt’s address from being published on the NPII if, for example, the person has had a domestic violence order or apprehended violence order granted to protect them. 

Other agencies

Useful guidance is also available from AFCA – see The AFCA Approach to joint facilities and family violence – which explains the problems that can arise where borrowers, who have taken on loans jointly with one or more other borrowers, suffer a relationship breakdown, or, more seriously, where there may be family violence and financial abuse. AFCA gives an example of a claim that a person should not be held liable for a debt because they were coerced to take out a loan in their own name or jointly with another person and received no benefit from it.

AFCA also refers to elder abuse as another form of family violence which can also involve financial abuse.

The Australian Small Business and Family Enterprise Ombudsman also gives guidance on this issue.[2]

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[1] ASIC Corporate Insolvency Update – Issue 33, September 2024 – Stay alert for signs of family and domestic violence when conducting external administrations

[2] ASBFEO – Fast Facts – Domestic Family Violence.pdf 

[3] Crimes Act 1900 (NSW), Division 6A – Abusive behaviour towards intimate partners 

[4] Hidden Risks of Economic Abuse through Company Directorships” [2024] UNSWLawJl 5; (2024) 47(1) UNSW Law Journal 105, Vivien Chen. Chen, Vivien — “Hidden Risks of Economic Abuse through Company Directorships” [2024] UNSWLawJl 5; (2024) 47(1) UNSW Law Journal 105 (austlii.edu.au)

[5] See also Intimate partner economic abuse in loans and guarantees: An empirical review of 10 years of cases, Susan Barkehall Thomas, Becky Batagol and Madeleine Ulbrick, (2022) 35(3) Australian Journal of Family Law 252, 256.

[6] Deputy Commissioner of Taxation v Clark [2003] NSWCA 91 (1 May 2003) (austlii.edu.au)

[7] Waters v Diesel Holdings Pty Ltd [2024] VSCA 77

[8] PJC Financial Services Regulatory Framework in Relation to Financial Abuse Submission, ASIC submission 48. 

[9] Integrity Principles of Trustees and Debt Agreement Administrators | Australian Financial Security Authority (afsa.gov.au)