ASIC Chairman Mr Greg Medcraft today welcomed the Federal Court’s decision in its case against eight directors and former executives of Centro Properties Group, citing it as a landmark decision in Australian corporate governance.
Mr Medcraft said Justice Middleton’s judgment on the legal duties of directors and management sent a clear message to boardrooms across the country about corporate accountability.
‘The central question in the proceeding was whether the directors were required to apply their own minds to, and carry out a careful review of, the proposed financial statements and the proposed directors report, to determine that the information they contained was consistent with the director's knowledge of the company's affairs, and that they did not omit material matters known to them or material matters that should have been known to them,’ Mr Medcraft said.
Mr Medcraft endorsed the statement by Middleton J that:
'A director is an essential component of corporate governance. Each director is placed at the apex of the structure of direction and management of the company. The higher the office that is held by a person, the greater the responsibility that falls upon him or her. The role of a director is significant as their actions may have a profound effect on the community, and not just shareholders, employees and creditors.'
The Chairman said the case also highlighted the danger of boards uncritically relying on management, or the auditors.
‘Each member of the board must bring and apply their own skills and knowledge when declaring financial statements are true and fair,’ he said.
‘This is not a responsibility company boards can delegate or merely rubber stamp. It’s not good enough for directors to just be present.’
Mr Medcraft said there was a minimum standard of boardroom participation that directors must meet. This means the key elements of a company’s financial position are something directors should understand and be able to communicate accurately to the market.
‘Directors are an important gatekeeper for our markets. The community expects them to take their responsibilities seriously, and discharge their duties carefully,’ Mr Medcraft said.
‘This case makes clear directors’ responsibilities to apply their skills and knowledge to the financial statements of the company.
‘The Court found that Centro’s directors fell short of the minimum standard of boardroom participation. It is not unrealistic to expect that these standards should be met.’
Mr Medcraft said ASIC would continue its consistent approach to enforcing the law.
‘We will continue to take on the big and difficult cases, when we think it’s in the public interest. The public would expect nothing less,’ he said.
A penalty hearing is to be scheduled.
ASIC alleged that the seven directors of Centro Properties Group and Centro Retail Group failed to discharge their duties with due care and diligence in approving the financial reports for Centro Properties Ltd, Centro Property Trust, and Centro Retail Trust for the year ended 30 June 2007.
ASIC also contended that the directors, and the former chief financial officer, knew that the entities had very significant short-term interest bearing liabilities, and should have known that these liabilities were incorrectly classified in the 2007 financial reports.
The defendants to ASIC’s civil penalty action were:
Mr Brian Healey, former Chairman and non-executive director
Mr Andrew Thomas Scott, former Chief Executive Officer (CEO) and Managing Director
Mr Samuel Kavourakis, a former non-executive director
Mr James William Hall, a non-executive director
Mr Paul Ashley Cooper, a non-executive director
Mr Peter Graham Goldie, a former non-executive director
Mr Louis Peter Wilkinson, a former non-executive director; and
Mr Romano George Nenna, former CFO.
ASIC sought orders to disqualify the directors and officers from managing corporations and asked the Court to impose pecuniary penalties on them.
At the commencement of the trial Mr Nenna filed an Amended Defence admitting most of ASIC’s allegations against him.