The End of the Corporate Shield: The Rise of Director Liability
For years, many executives believed that corporate structures provided an impenetrable shield against personal financial loss when a company breached regulatory rules. However, recent enforcement actions by the Australian Securities and Investments Commission (ASIC) suggest a paradigm shift. The trend is moving toward holding individuals personally accountable for the actions of their firms.
A prime example is the recent Federal Court ruling involving Cigno Australia and BSF Solutions. Beyond the $3 million fines levied against each company, the court didn’t stop at the corporate level. Directors Mark Swanepoel and Brenton Harrison were personally fined $500,000 each.
This signal from the regulator is clear: being a “sole director” no longer guarantees immunity. When a business model is designed to bypass consumer protection laws, the individuals steering the ship are now more likely to face the “sting” of personal penalties.
Why This Matters for Future Business Models
As regulators tighten the net, we can expect a trend where “compliance by design” becomes mandatory rather than optional. The era of “move fast and break things” in the financial sector is being replaced by a regime of strict adherence to the National Consumer Credit Protection Act.
Companies that attempt to operate without an Australian Credit licence or implement “loophole” models risk not only their company’s capital but their directors’ personal assets.
Decoding the “Loophole” Era: The No Upfront Charge Model
The financial industry has a long history of creating complex products to circumvent regulation. One such trend was the “No Upfront Charge Loan Model,” used by Cigno Australia and BSF Solutions. This model was specifically designed to avoid consumer protection laws while still allowing the companies to charge substantial fees.
Between July 2022 and December 2022 alone, this model was used to provide $34 million in loans to over 100,000 Australians, resulting in over $70 million in fees according to ASIC chair Joe Longo.
The future trend here is a “cat-and-mouse” game between innovative fintechs, and regulators. As one loophole is closed, others may emerge. However, the courts are becoming more adept at looking past the label of a product to its actual economic effect on the consumer.
For more on how to spot these traps, check out our guide on spotting predatory lending practices.
The War on Predatory Marketing
Predatory lending often relies on targeting the most vulnerable. Cigno Australia’s website famously advertised “EMERGENCY cash when you require it,” targeting those in financial distress or those seeking Centrelink loans.
We are seeing a trend where regulators are not just looking at the cost of the loan, but the intent of the marketing. When a company markets to “any consumer, and every consumer,” but the actual impact falls heavily on those in financial distress, regulators view this as a serious contravention.
Future trends suggest that “aggressive” marketing in the credit space will face higher scrutiny. The focus is shifting toward “responsible lending” obligations, where the lender must ensure the loan is not unsuitable for the consumer’s specific circumstances.
The “Good Faith” Defense: Legal Advice as a Mitigator
An compelling nuance in recent legal battles is the role of professional legal advice. In the case of Cigno and BSF, Justice Ian Jackman noted that the directors had sought advice from a national law firm, Piper Alderman.
While this did not exonerate them from liability, it did serve to “soften” the penalties. The court inferred that the respondents genuinely regarded the law as complex and intended to act lawfully.
This establishes a trend for corporate governance: documented attempts to seek high-level legal counsel can serve as a critical mitigating factor during sentencing, even if the advice proves insufficient to prevent a breach.
Comparing the Financial Impact
| Entity/Person | Penalty | Core Breach |
|---|---|---|
| Cigno Australia | $3 Million | Unlicensed credit activity & prohibited fees |
| BSF Solutions | $3 Million | Unlicensed credit activity & prohibited fees |
| Mark Swanepoel | $500,000 | Director involvement in breaches |
| Brenton Harrison | $500,000 | Director involvement in breaches |
Frequently Asked Questions
What is the “No Upfront Charge Loan Model”?
It is a lending structure designed to avoid consumer protection laws by eliminating upfront charges while recouping costs through other prohibited fees and charges.
Can company directors be personally fined for company breaches?
Yes. As seen in the Cigno and BSF case, the Federal Court can hold directors personally liable if they were involved in the contraventions.
What happens if a lender operates without an Australian Credit licence?
Operating without a licence is a breach of the National Consumer Credit Protection Act and can lead to significant civil penalties, fines, and court-ordered disgorgement of profits.
What do you think about the $7 million total penalty? Is it enough to deter predatory lenders, or should it have been higher given the $91 million in fees generated? Let us know in the comments below or subscribe to our newsletter for more deep dives into financial regulation.
