ASIC v. Rich

"Australian Securities & Investments Commission v. Rich" [2003] [http://cclsr.law.unimelb.edu.au/judgments/states/nsw/2003/february/2003nswsc85.htm NSWSC 85] is an Australian corporate law case concerning the fiduciary duties of directors around corporate opportunities.

Facts

At One.Tel, a telecomms company, between 1 January and 29 May 2001 there were four non-executive directors. These were Mr JD Packer, Mr LK Murdoch, Mr RS Adler and Mr Greaves. Mr Greaves was the Chairman of the non-executive directors, and of the Finance and Audit Committees and got a $50,000 salary. The others got none. ASIC, the market regulator, alleged that Mr Greaves had breached his statutory duty under s.180(1) of the Corporations Law, and that he should be disqualified from being a director. They also made similar claims against the two managing directors (Mr Rich and Mr Keeling) and the finance director (Mr Silbermann). The company had run into the ground by the start of 2001, and it was alleged that these directors failed to take reasonable steps to ensure that the debts due to creditors were paid, that enough information was given to the board, and enough was done to manage the company in a way that would avoid insolvency.

Judgment

Austin J held that Mr Greaves was liable for breach of his statutory duty.

cquote|77 In any event, even where a director is entitled to trust subordinates, he or she is not necessarily exonerated from being informed. In "Daniels v Anderson", Clarke and Sheller JJA (at 499) approved the statement of Tadgell J in "Commonwealth Bank of Australia v Friedrich" (5 ACSR at 126) that a director is required by law to be capable of keeping abreast of the company's affairs, sufficiently to act appropriately if there are reasonable grounds to expect that the company will not be able to pay all its debts in due course. Their Honours said (at 500) that in some respects at least, "the director must inform himself or herself about the affairs of the company", and they added (at 501) that "the responsibilities of directors require that they take reasonable steps to place themselves in a position to guide and monitor the management of the company". They also approved (at 503) a statement of Pollock J in "Francis v United Jersey Bank", 432 A.2d 814 (1981), at 821-3, that "directors are under a continuing obligation to keep informed about the activities of the corporation", and (at 504) the statement by Lee J in "Federal Deposit Insurance Corporation v Stanley", 770 FSupp 1281 (1991) at 1310, that "all the directors of a bank have a duty to be generally familiar with the business and financial conditions of the bank and to devote a sufficient amount of time and energy to overseeing the affairs of the bank to allow them to discharge their responsibilities to the depositors and shareholders".

78 Santow J's summary of the duty of care of directors in "ASIC v Adler" (41 ACSR 72 at [372] ) also adopts the proposition that a director is under a continuing obligation to keep informed about the activities of the corporation and in particular, its financial status.

79 If the duty to keep informed exists for all company directors, it must be a duty imposed on the company chairman, whose "responsibilities" may be enhanced.

ee also

*"Keech v. Sandford" (1724) 2 Sel Cas Ch 61
*"Guth v. Loft"
*"Regal (Hastings) Ltd v. Gulliver" [1967] 2 AC 134n
*"Boardman v. Phipps" [1967] 2 AC 46

Notes