ASIC wins case against Centro Directors

On 27 June 2011, ASIC reported that it had been successful in its case against eight directors and former executives of Centro Properties Group. ASIC Chairman, Mr Medcraft said the Courts judgment on the legal duties of directors and management sent a clear message to boardrooms across the country about corporate accountability.

In his decision, Middleton J said,
'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.'

Mr Medcraft also 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.

A penalty hearing is to be scheduled.

Further details are available here.

SFC directs company to take civil action against former directors for losses.

The SFC is making it clear that directors duties mean something. After earlier in the week banning 2 directors for failing to ensure adequate and timely disclosure to shareholders, on 18 March 2010, the SFC announced that it had obtained a court order directing Rontex International Holdings Ltd (Rontex) to bring legal proceedings against three former executive directors for compensation.

This is the first time the SFC has obtained an order in the High Court directing a listed company to commence civil proceedings to seek recovery of compensation for the loss and damage suffered by the company as a result of directors’ misconduct.

Rontex was ordered to commence proceedings within 60 days against its former executive directors, Mr Cheung Keng Ching, Ms Chou Mei and Mr Kevin Lau Ka Man.

The court also granted orders disqualifying Cheung and Chou from being a company director or being involved in the management of any company, without leave of the court, for five years (except for a private company through which they continue to conduct a business). Lau, who consented to the orders, was disqualified for a period of four years.

The breaches centred on four investments entered into by the company or its subsidiaries between 2002 and 2005, resulting in Rontex suffering losses and damages of about $19 million

For further information please see SFC obtains court order to direct listed company to commence proceedings against former directors

Directors Banned for Failing in Disclosure Duty

On 17 March 2010, SFC reported that it had obtained orders in the High Court to disqualify two former executive directors of Warderly International Holdings Ltd (Warderly) for failing to ensure timely disclosure of material information to the company’s shareholders. This is the first time directors have been disqualified for this type of misconduct.

The orders disqualify Ms Ellen Yeung Ying Fong and Mr John Lai Wing Chuen from being directors or being involved in the management of any corporation for five years

Both Yeung and Lai accepted they had breached their duties to Warderly and specifically, they agreed they failed on a number of occasions to ensure Warderly complied with the disclosure requirements under the Listing Rules and to give shareholders all the information they might reasonably expect.

Mark Steward, the SFC’s Executive Director of Enforcement, said “Directors have an obligation to ensure the company reports material information to the investing public on a timely basis. Failure to do so destroys trust and confidence in the market.”

For further information please use the following link Directors Banned for failing in disclosure duty

ASIC releases consultation paper on director's duty to prevent insolvent trading

On 24 November 2009, ASIC announced the release of Consultation Paper 124 Directors’ duty to prevent insolvent trading: Guide for directors (CP124). CP124 and the guidelines, are ASIC’s way of emphasizing the need for directors, particularly those in small-to-medium enterprises in financial difficulty, to fully understand this duty.

CP 124 sets out the relevant legal background and the key principles that ASIC considers directors need to take into account in performing their duty to prevent insolvent trading.

Those principles are that a director:

• must keep him or herself informed about the financial affairs of the company and regularly assess the company’s solvency;
• immediately on identifying concerns about the company’s viability, should take positive steps to confirm the company’s financial position and realistically assess the options available to deal with the company’s financial difficulties;
• should obtain appropriate advice from a suitably qualified person; and
• should consider and act appropriately on the advice received in a timely manner                

By releasing this consultation paper, ASIC is not only looking for ways to ensure directors are aware of their duties, but it is looking to understand the bigger picture. ASIC is hoping to obtain information on the use of external professionals and advisors to aid directors in meeting their duties, compliance costs with any additional obligations and the general ways a director could demonstrate compliance. This will aid ASIC in developing the assessment framework for establishing if there has been a breach of duty or not.

ASIC is seeking feedback on these proposals by 22 January 2010.

For a copy of CP124 please use this link Consultation Paper 124