A High Court decision overturning a NSW Court of Appeal relating to seven directors of James Hardie shows the law is "rigorous and unforgiving”, according to a Baker and McKenzie partner.
"[The] decision in Shafron shows again that where there is a wrongful disclosure, the law is rigorous and unforgiving,” said Baker and McKenzie corporate partner James Halliday.
The decision reminds all directors and boards of their duty to act with care and diligence, as well as the risks involved.
Halliday targeted comments about the decision to general counsel, who are also often company secretaries. He said “they usually have a high workload and many responsibilities. Despite this, most are very conscientious and mindful of the need to keep their board and investors properly informed”.
“The rigour of this decision is consistent with the line taken in the recent Centro decision and the Court of Appeal in Fortescue, which is currently under appeal to the High Court.”
The Australian Institute of Company Directors has used the decision as a chance to reiterate that continuous disclosure remains an extremely difficult area for listed companies and their boards.
As the Institute continued to review and analyse the full High Court judgment this week, it said the case has potentially wide implications for directors, company secretaries and general counsel, in the understanding of their duties and responsibilities.
“Board members should apply their individual, considered judgement to matters that are highly significant to the company, especially issues with market sensitivity and that involve ASX disclosure,” said John Colvin, Australian Institute of Company Directors CEO and managing director.
“The case again puts the spotlight on the area of continuous disclosure and places additional emphasis on the need for boards to carefully consider whether statements made in their company’s releases are appropriately qualified,” Colvin said.
He argued the case would draw greater focus to board administration processes, such as the selection of agenda items, detail within board papers and minute-taking procedures and approval, which is likely to include increase the demands directors place on company secretaries and general counsels.
“The decision also reinforces the need for ongoing, quality director education. Directors must keep themselves up-to-date, generally and with the law. They should become familiar with this decision,” Colvin said
“We will incorporate discussion of the judgment and its implications within our education activities for directors, where participants learn the theory, and discuss the practice, of directors’ legal duties and responsibilities,” he said.
Company Directors said it is concerned that in an environment where regulation and red-tape is increasing, the role of a company director is becoming increasingly onerous and this is having a detrimental impact on board recruitment and retention.