Centro case highlights directors' responsibilities
- Date:31 Aug 2011
- Type:Media release
The Australian Institute of Company Directors does not comment on the circumstances of individual directors or companies, or on matters before the courts, and so will not be commenting on the specifics of the Centro case or on the nature of the penalties imposed today by the Federal Court on the individual directors and executives involved.
It also important to note that the judgment and penalties imposed may be subject to appeal.
There will be on-going debate over the wider significance of the Centro case and whether the judgments represent an application of existing law or new law in the area of directors' duties and the extent to which directors can rely on management and expert advisors to the company.
However it is interpreted, it highlights important issues for the director community and provides a reminder of the significant responsibilities that come with the role of director.
The judgment reminds directors that while they are entitled to rely on specialist knowledge and advice provided by management and external advisors, there are limits to that reliance.
We note Justice John Middleton's comment in this regard that "in approving the relevant accounts, the non-executive directors operated in accordance with a set of well-established corporate governance practices, relied on expert accounting in so doing, and relied on the operation of a number of "safety nets" designed to ensure that the accounts which were presented to the Board were true and correct" and that "these safety nets failed due to no fault of the non-executive directors".
It is also significant that Justice Middleton found that the Centro board's corporate governance structures were in accordance with the ASX's Corporate Governance Council's Principles and Recommendations and that all of the board's relevant corporate governance practices and procedures "were followed in the process of approval of the relevant financial statements" which were the subject of the case.
His Honour concluded that each of "the directors are intelligent, experienced and conscientious people" and that they "acted as they did in good faith, and believing that they were discharging their duties properly".
He also commented positively on the fact that the directors "took immediate steps to investigate and inform the market as soon as they were aware" of an issue with the accounts.
Justice Middleton ordered each of the defendants in the proceedings to pay a proportion of the plaintiff's costs. He rejected ASIC's call for penalties and disqualification orders to be imposed on each of the non-executive directors, finding that the orders proposed were "sufficient for general deterrence".
His Honour held that because the non-executive directors "were and remain men with valuable experience and skills of benefit to the public", more punitive penalties for the directors, such as disqualification, would be "unnecessary and excessive" and "would not be in the public interest".
Company Directors will incorporate discussion of the judgment and its implications within its professional development programs for directors.
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