Austin's New Business Judgment Rules (NBJR)

IV AUSTIN’S NEW BUSINESS JUDGMENT RULE

A Elements

In contrast to the AICD’s defence, Austin’s proposal for a new business judgment rule (NBJR) is substantially objective. The NBJR provides that a person acting in the capacity of a director does not breach a duty imposed by legislation unless the party alleging the breach proves that:

(a) there was no business judgment; or
(b) there was a business judgment, but:
1) the director was dishonest;
2) the director had an undisclosed material personal interest; or
3) the business judgment was one that no reasonable person in the director's position could have made.

The NBJR defines ‘business judgment’ as ‘any exercise of judgment relating to taking or not taking action in connection with any business of the corporation’. The reference to ‘any business’ generally rather than
A presumption, more so than a defence, reduces the scope for courts to conduct hindsight review of commercial decisions and also provides superior protection for director’s reputational interests, by limiting the circumstances where a breach can be established. This aspect of the NBJR mirrors the mirrors the business judgment rule developed by the courts of Delaware.

Furthermore, Pelling suggests that the NBJR reduces the emphasis on directors accumulating evidence regarding their business judgments as a safeguard against potential challenges in Court. Although construed as a positive by Pelling, this may foster a culture of concealment, whereby directors intentionally suppress material which could defeat the presumption. Additionally, compiling evidence regarding a director’s dishonesty or material personal interests to rebut the NBJR will impose a substantial burden on ASIC’s notoriously limited resources, thus undermining the regulator’s capacity to hold directors