The Federal Court has found that eight directors and former executives of Centro Properties Group breached their duties when they failed to notice multi-billion dollar errors in its accounts.
Australian Securities and Investments Commission (ASIC) Chairman Greg Medcraft said yesterday (27 June 27) that Justice Middleton's judgment is a landmark decision in Australian corporate governance.
"This case makes clear directors responsibilities to apply their skills and knowledge to the financial statements of the company. It's not good enough for them just to be present in boardrooms," he said.
Justice Middleton found the directors breached their duties when they approved financial statements for 2006-07 which did not disclose that Centro was required to repay billions of dollars of debt within a matter of months, including a $1.1 billion J.P. Morgan facility by December.
Middleton read 23 paragraphs of his 186-page decision in court, noting that the case was ''not about a mere technical oversight'' but that it went to the heart of whether directors of substantial publicly listed companies must ''apply their minds'' to their review of financial statements in order to determine information is consistent with what they know and that it does not omit material matters.
ASIC sought orders to disqualify the directors and officers from managing corporations and have pecuniary penalties imposed upon them. A penalty hearing is set to be scheduled.
"The judgement sends a clear message to boardrooms around the country about corporate responsibility and the danger of boards uncritically relying on management or the auditors," said Medcraft.
Yesterday's win follows a string of high-profile legal losses by ASIC (including One.Tel, Fortescue Metals boss Andrew Forrest and James Hardie directors) which damaged the credibility of the watchdog.
Medcraft said this decision should send a message that ASIC is "not afraid to take on the big cases, when we think it's in the public interest".