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Will your employer protect you if the regulator comes knocking?

26 March 2019

#Dispute Resolution & Litigation, #Corporate & Commercial Law

Howard Rapke

Published by Howard Rapke, Kim MacKay

Will your employer protect you if the regulator comes knocking?

The news that IOOF’s CFO has secured separate legal representation to that of his company in Australian Prudential Regulation Authority’s action against five IOOF directors and executives has delivered an important reminder to all senior executives.

Given the seriousness of the consequences, individuals need to ensure they are properly protected in any proceedings — and securing separate legal representation to their company is considered best practice — even if they are on the ‘same side’ as their employer.

Should ASIC, APRA or the federal police come knocking, most individuals would expect that their company employer will look after them. If they were just doing their job, surely their employer should get them out of the mess?

While an employer will, in most instances, be financially responsible for the employee’s costs in relation to any investigation or prosecution, individuals should consider carefully whether it is in their best interests to allow the company to control their defence. In circumstances where both the company and individual directors and officers are under investigation, the interests of the company and individual may not be aligned. There may come a point where it is in the company’s best interests to throw one individual under the bus to save its own skin. Indeed we saw this happening in the witness box during the banking royal commission hearings — executives pointing the finger at their predecessor or 'rogue advisers' rather than admitting to any systemic failings of the organisation. 

The problem is, this divergence in interests usually comes at a most critical time, as the parties are making final preparations for interviews or hearings. To identify a conflict so late in the day could be catastrophic for an individual. Having to find a new legal team to get up to speed in such a short and stressful period of time could result in a poorly prepared defence and seriously jeopardise their prospects of success.

It is best practice for individuals to be separately represented from day one. They may be able to piggy back off the work undertaken by the company and its lawyers for most of the way. But they can rest assured that their best interests are the number one priority of their own lawyer. They will have control over the conduct of their defence and obtain specific advice on whether the company’s legal strategy is also their best strategy. And, if a diversion of interests or conflict does arise, there is no last minute panic in engaging a lawyer and preparing a defence and strategy on the eve of trial. From the individual’s perspective, there is little downside, as the employer will in most cases still be responsible for covering the individual’s costs of separate representation. 

While banks, insurers or superannuation entities may bear the brunt of media coverage resulting from the royal commission, the biggest impact from subsequent prosecutions bought by regulators is upon individuals, not corporations. Corporations may be obliged to pay fines, they may be the subject of some publicity and there may be an impact upon their share price but it is individuals whose careers, reputations and lives may be at stake.

Authors: Howard Rapke & Kim MacKay 

  • This article was originally published in the Governance Institute of Australia’s news bulletin.

Contacts:

Melbourne
Howard Rapke, Managing Partner 
T: +61 3 9321 9752 
E: howard.rapke@holdingredlich.com

Kim MacKay, Partner
T: +61 9321 9785
E: kim.mackay@holdingredlich.com 

Sydney
Greg Wrobel, Partner 
T: +61 2 8083 0411 
E: greg.wrobel@holdingredlich.com

Brisbane
Paul Venus, Managing Partner 
T: +61 7 3135 0613 
E: paul.venus@holdingredlich.com

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources. 

Howard Rapke

Published by Howard Rapke, Kim MacKay

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