Director's Duties and ASIC v Healey

This assignment analyzes the landmark case of Australian Securities and Investments Commission v Healey, focusing on the responsibilities of company directors. It examines how the court held that directors have a duty to review financial statements carefully and cannot simply rely on external advisors. The case highlights the importance of due diligence and understanding the company's financial position before approving financial reports.

1
Australian Securities and Investments Commission v Healey [2011] FCA 717
Introduction
The leading case of Australian Securities and Investments Commission v Healey1 is a case
against the directors of Centro and the said case highlights as how a director can be imposed with
strict duty while giving his consent to the financial statements of the company2. The duty is on
how the statements are presented and how the directors review the same. The decision also
restrict the position of the directors to the extend they rely on the external advisors while
presenting the statements. Through this decision a special responsibility is imposed before any
company director approve the financial reporting statements of the company. Delegation of this
responsibility is not permitted all the time. The court also submitted that the directors who
approve the financial reports must also have the knowledge of the same and this duty cannot be
excused on the ground of failure to read3.
The decision was laid down in favor of ASIC.
Cento is the leading company wherein the defendants was the Chief Financial Officer. On 6th
September they approved accounts which were made part of the Annual Reports of Centro. The
reports were released in ASX but in December Centro asked ASX to stop trading as they require
information’s to be corrected in the reports4.
The duties/responsibilities breached
As per the claims of ASIC, the duties and responsibilities that are violated by the Directors of
Centro are5:
i. The directors of Centro are in violation of section 344 of the Corporation Act. Section
344 of the Act requires every director to undertake all the statutory requirements that
are laid down under Part 2M.3 of the Act that deals with the financial reporting
obligations.
1 Australian Securities and Investments Commission v Healey [2011] FCA 717.
2 Allens, ‘Focus: The Centro Decision And The Approval Of Financial Statements’ 2011
https://www.allens.com.au/pubs/cg/focgjun11_01.htm#Footnotes.
3 Jade, ‘Australian Securities and Investments Commission v Healey [2011] FCA 717’ < https://jade.io/article/226822>.
4 Ibid
5 The Civil Lawyer, 2011, <http://www.the-civil-lawyer.net/2011/06/centro-matter-asic-v-healey-2011-fca.html>.

2
ii. That the directors are in violation of section 180 (1) of the Corporation Act 2001. The
section imposes a duty on the director to act with all due care and diligence in the best
interest of the company and fro proper purpose.
iii. The directors are in violation of Section 601FD (1)(b) of the Corporations Act. The
said section requires the officers of the Responsible Entity of a registered scheme to
conduct in such manner so that such actions are in the best interests of the members.
If there is conflicting situation amid the interest of the entity and members then the
member’s interest must be given priority.
Reasons why the duties were breached
The man reasons because of which the decision was made against Centro are6:
i. That the directors of Centro failed to take reasonable cares that are expected from
them. There was no due diligence and care while catering their duties.
ii. The annual reports of Centro Properties Group (‘CNP’) and Centro Retail Group
(‘CER’) of 2007 did not lay down some very important matters. The reports did not
disclose that CNP has short term liabilities of $ 1.5 billion and guarantees of short
term liabilities of an associated company of US$1.75 billion which is provided after
the balance date. For CER the short term liabilities of $500 million were not
disclosed. Because of the non disclosure the risks of the two companies was not
assessed adequately.
iii. When the disclosure was not made at that time the same were within the knowledge
of the directors. Even if it is assumed that the matters are not within the knowledge of
the directors still those are such matters that should be in the knowledge of the
directors7.
iv. If the directors are not of the view that the financial statements are accurate and
furnished truth, till that time it is their duty that such reports should not be published
in any manner whatsoever.
6 Ibid
7 Francis v United Jersey Bank (1981) 432 A 2d 814; Daniels v Anderson (1995) 37 NSWLR 438,

3
v. The directors have not applied their minds while interpreting the financial statements.
If they would have used their minds then the errors were apparent and can be
rectified.
vi. If any document is approved and signed by any company director then such director
is answerable to its contents. It is their duty to be part of the management of the
company and to carry out their functions in most appropriate manner, that is, they
must be aware of the fundamental of the busies in which they are dealing, they must
be aware of the company functions, its financial status, statements and must apply his
mind wherever applicable.
Thus, it is rightful in submitting that every company director is required to be part of the
financial management of their company. He must ensure that prior approving any financial
statement he must be acquainted with the same.

4
Bibliography
Case laws
Australian Securities and Investments Commission v Healey [2011] FCA 717.
Daniels v Anderson (1995) 37 NSWLR 438.
Francis v United Jersey Bank (1981) 432 A 2d 814.
Online Material
Allens, ‘Focus: The Centro Decision And The Approval Of Financial Statements’ 2011
https://www.allens.com.au/pubs/cg/focgjun11_01.htm#Footnotes.
Jade, ‘Australian Securities and Investments Commission v Healey [2011] FCA 717’ <
https://jade.io/article/226822>.
The Civil Lawyer, 2011, <http://www.the-civil-lawyer.net/2011/06/centro-matter-asic-v-healey-
2011-fca.html>.