Detailed Analysis of ASIC v Healey: Corporations Law Case

This case study analyzes the Australian Securities and Investments Commission (ASIC) v Healey case, focusing on breaches of director's duties under the Corporations Act 2001 (Cth). The case involved the directors and CFOs of the Centro Property Trust (CPT), Centro Properties Limited (CPL), and Centro Retail Trust (CRT), who were accused of failing to disclose significant short-term liabilities in the company's financial statements. The court found that the directors had breached their duty of care and diligence, emphasizing the importance of financial literacy and the responsibility to scrutinize financial reports. The judgment discusses the delegation of duties, the required level of financial expertise for directors, and the role of non-executive directors, highlighting the serious implications of failing to meet these obligations. The court relied on precedents like Francis v United Jersey Bank and Daniels v Anderson, reinforcing the requirement for directors to actively engage with the company's financial information. Penalties were imposed on the CEO and CFO, while the non-executive directors faced lesser consequences, underscoring the varying degrees of responsibility within a corporate board. The case underscores the importance of accurate financial disclosures and the duty of directors to ensure transparency and protect shareholder interests.

Running Head: CORPORATIONS LAW
CORPORATIONS LAW
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Case Summary:
Australian Securities and Investments Commission v Healey and Others
[2011] FCA 717
Case Introduction:
The Australian Securities and Investment Commission (ASIC) had commenced proceedings
against the directors, Chief Financial Officers of the Centro Property Trust (CPT), Centro
Properties Limited(CPL) and Centro Retail Trust (CRT). The ASIC had alleged that the directors
and the chief financial officers of the Centro group of companies had contravened the provisions
of the section 180(1), 344(1) and 601FD (3) of the Corporations Act 2001 (Cth). The ASIC
alleged the directors and the chef financial officers had approved the consolidated financial
statements of the group of companies for the financial year ending of 30th June 2007 at the board
meeting which was attended by the aforementioned directors. However, the annual reports of the
Centro group of companies had failed to disclose relevant and significant matters. In this case,
the report that had been submitted by Centro Properties Group failed to disclose the short term
liabilities amounting to 1.5 billion dollars of the company. The short term liabilities had been
classified as non-current liabilities. Further the companies failed to disclose guarantees of short
terms liabilities of an associated company of 1.7 billion of US dollars which had been given after
the balance date. The Centro Retail Group had also failed to disclose short term liabilities of five
hundred million which had been classified as non-current liabilities. Due to the failure to
disclosure of the significant matters, the value of Centro Securities had been significantly
reduced. In this case ASIC had brought actions against Healey, the first Defendant, the CEO of
Centro Group of companies and 5 non executive directors.

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Duties of directors breached
In this case the directors of the Centro group of companies had been alleged to have breached
their duty of failing to notice the omission of the short terms debts amounting to billions of
dollars in the financial reports of the Centro Group. It can be stated that Centro Group had been
listed on the Australian Securities Exchange as an investment organization.
In this case it had been alleged by the ASIC that the directors had breached the provisions of
sections 180(1), 344(1)and 601FD(3) of the Corporations Act 2001 (Cth). The Corporations Act
2001 (Cth) contains the rules and the provisions in relation to governance of companies in
Australia. Section 180(1) of the Corporations Act 2001 states that a director or an officer of a
company has the duty to exercise their powers and discharge their duties with a degree of
diligence and care that any reasonable person would exercise if:
 Such reasonable was a director or officer of the company
 Such reasonable person had the same responsibilities as the director in consideration and
held the same position as the director.
It can be stated that this section imposes a civil penalty as provided in section 1317e the
Corporations Act 2001 (Cth) on any director who contravenes the provisions of the section
180(1) of the Corporations Act 2001 (Cth).
In accordance with section 344(1) of the Corporations Act 2001(Cth), it can be stated that any
director of a company, disclosing entity and registered scheme will contravene the provisions of
this section if they fail to comply with the provisions of Part 2M.2 or Part 2M.3 or sections
324DAA, 324DAB AND 324DAC. It can be stated that a person who contravenes the
provisions of section 344(1) will incur a civil liability as per the provisions of section 1317e.

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In section 601FD of the Corporations Act 2001 (Cth) that a director or officer of a registered
scheme is required to :
 act honestly while discharging his powers
 exercise his powers with a degree of diligence and care as any other reasonable person
would exercise acting in the position of the director
 Exercise his duties which are in the best interest of the members; in case of a conflict
between the interests of the members and the interests of the responsible entity, such
director or officer must regard the interest of the members with more priority.
 not use any information acquired by such director or officer by virtue of a being a officer
of the responsible entity for the purpose of gaining advantage for himself or any other
person, cause detriment to the members of the scheme
 not improperly use their position to gain advantage for himself or any other person and
cause detriment to the members of the scheme.
 Take all necessary steps that would have been taken by a reasonable person acting in the
position of the director so as to ensure that they comply with the provisions of the act and
the any other condition that is imposed by the Australian financial services limited.
It has been provided specifically in subsection 601FD(3) that any person who is found to be in
contravention of subsection 601FD(1) would be held to contravened subsection 3.
Discussion and analysis of the judgment of the Court
In this case his honor had held that the ASI had been successful in breaching the sections 180(1),
344(1) and 601FD (1) of the Corporations Act 2001 (Cth) which are related to the duties of
directors to be discharged with diligence and care. However, it had been held by his honor that

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there had been no indications about the fact that the directors of the companies had acted with
dishonestly. The court by interpreting the facts of the case, stated that the directors in this case
had failed to take all reasonable steps required of them as directors by the law in discharging the
duties with due diligence and care. The courts held that the matters related to short terms of the
debts of the company must have been known to the directors or could be reasonably expected to
have been known by the directors.
The Court in this case relied on the judgment of the cases Francis v United Jersey Bank (1981)
432 A 2d 814 and the case Daniels v Anderson (1995) 37 NSWLR 438. In the aforementioned
cases it had been held by Pollock J and Clarke and Sheller JJA respectively that going
through paces is an essential part of the duties of the director. A held by Pollock J in
the aforementioned case of Daniels v Anderson, it can be stated that a director must not be
treated as an essential element of the corporate governance and not a mere ornament.
The act of approving the reports in consideration could not have been an act of technical
oversight. Further the courts held that the information that had not been disclosed to the
shareholders of the share market had serious implications for the same. Risks of the investments
could not be assessed properly and accurately due to the failure of disclosure of such
information. The court held that the mandatory disclosure provisions were the fundamental
requirements and purposes of this act. The court held that the directors were required to read the
read the reports for the purpose of checking their accuracy and inspecting any discrepancy
existing in the financial statements. The court held that the act of certifying the reports without
conducting inspections about the accuracy of the same was a breach of the duties of the directors,

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as the financial reports of the company were supposed to give a fair view of the financial
position of the company.
It can be stated that the allegations are considered to be serious and if substantiated,
such allegations can have very serious consequences of professional and personal
reputations of the defendants. In the case of Australian Securities and Investments
Commission v Macdonald (No 11) [2009] NSWSC 287; (2009) 71 ACSR 368, (2009) 230 FLR
1, it had been recognized by Gzell J that the seriousness of the allegations and the
potential consequences of the civil penalty provisions required the application of the
Briginshaw standard.
In the case of Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 it had been held by
the High Court that for the application of a petition for divorce based on the ground of adultery,
the standard of proof that was required was not that of proof beyond reasonable doubt. In this
case it had been stated by Dixon J that when the law requires burden of proof of any of
the facts, the court or tribunal must be convinced about the actual occurrence of such
proof or its existence. However in civil matters, the affirmation of an allegation can be
made out to the reasonable satisfaction of the tribunal.
The majority of the high court applied the decision of the Briginshaw v Briginshaw case
in the Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110
ALR 449 case.

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Thus it was evident in this given scenario that the duty to inspect the financial documents of the
company was a duty which the directors were not authorized to delegate. The court stated that
the directors of a company need not possess infinite knowledge or ability and were not required
to take part in the day to day activities of the company, however they are required to discharge
the duties assigned to them with due diligence and care.
In the second hearing of the case, the appropriate penalties to be imposed on the directors for
breaching the provisions of the sections as discussed above were considered. It had been held by
the court that the defendants did not have the rights to claim relief from liability. The court made
declarations of contravention as per the provisions under section 1317D of the Corporations Act
against all the directors in consideration. The defendants had claimed to seek relief by stating
that they relied on the expert advice of others such as the management and the auditors, however
the court was not persuaded by this claim. His honor in the second hearing of the case held that
directors cannot avoid their liabilities as they were required to possess financial literacy to detect
frauds and errors in the financial statements.
However, while addressing the liability of the non executive directors, the court held that no
additional penalties should be imposed on them except a share of the payment of the Australlian
Securities and invests commission. The chief executive officer had been ordered to pay a
penalty of thirty thousand dollars to the commonwealth and the chief financial officer of the
Centro group of companies, who had made admissions before the trial was banned from
managing the affairs of a corporation for a period of two years starting from 4:30 pm on 10th
October 2011.
Relevance of the decision

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Thus by analyzing the facts of the ASIC V Healey case, it can be stated that courts view director
of corporations, especially the directors of the public listed companies as the representatives of
the shareholders. Therefore, they are required to use their experience and skill to monitor,
oversee and evaluate the reports which contain the financial statements of the companies. Such
directors are also required to challenge the operations of the companies in order to ensure that the
management are fulfilling their duties with due care and diligence.
It can be stated that there are three issues of importance which have arisen from the decision of
this case. They are:
 delegation of duty and reliance on others by the directors of the companies
 the extent of financial literacy required to be possessed by directors for the purpose of
managing the affairs of the corporation
 The role of non-executive directors
It can be said in relation to the findings of this case that directors of NFPs regardless of whether
they are directors of companies or not have the same responsibilities and duties as directors of
commercial companies. The judgment of this case, ‘ASIC v Haeley’ therefore implies that
directors are required to possess enough financial skills to understand and evaluate financial
statements of the companies and assess when such duties must be delegated to others. Such
directors must read the documents containing the financial statements of the companies
carefully, maintain reasonable knowledge of the business of the organization in concern and
question anything that is of found to be suspicious or beyond their level of understanding.

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Reference List:
Corporations Act 2001 (Cth)
Australian Securities and Investments Commission v Healey and Others [2011] FCA 717
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449 case
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287;
(2009) 71 ACSR 368, (2009) 230 FLR
Francis v United Jersey Bank (1981) 432 A 2d 814
Daniels v Anderson (1995) 37 NSWLR 438