BBAL401 Company Law Assignment: ASIC v Healey Case on Director Duty

This case study provides an in-depth analysis of the ASIC v Healey case, focusing on the breaches of directors' duties under the Corporations Act 2001 (Cth). The case revolves around the failure of seven directors and the Chief Financial Officer of Centro Retail Group and Centro Properties Group to exercise due care and diligence in reviewing financial statements, leading to misclassification of liabilities and inadequate disclosure of short-term debts. The Australian Securities and Investments Commission (ASIC) initiated civil proceedings, contending that the defendants failed to comply with financial reporting requirements under sections 295A, 296, 297, and 298 of the Act, resulting in a contravention of section 344(1). The Federal Court, presided over by Justice Middleton, concluded that the defendants breached their duties under section 180(1) of the Act, emphasizing that the responsibility for ensuring accurate financial reporting could not be simply delegated. This document is available on Desklib, a platform offering various study tools and solved assignments for students.

Corporations Law
ASIC v Healey
(Student Details: )

Introduction
 Corporations Act, 2001 (Cth): Main legislation
which sets out the duties and responsibilities for
the directors and officers of the nation, and these
are particularly covered under Part 2D.1 of CA
(Cassidy, 2006).
 Breach of the imposed duties and responsibilities
result in both civil and criminal liabilities for the
director or officer (Latimer, 2012).
 ASIC v Healey [2011] FCA 717 relates to the
breach of the aforementioned duties for seven
directors and the Chief Financial Officer of the
company (Walmsley and Puri, 2011).

Factual Background
 ASIC initiated civil proceedings in this case in
October 2009 against the present and previous non-
executive directors, CFO and CEO of different
companies, covered under the Centro Retail Group
(Retail) and Centro Properties Group (Properties) in
the Federal Court of Australia (Australian Institute of
Company Directors, 2011). Group is referred to as
CG for this project.
 Issue
› The main issue of this case can be stemmed from the
contentions raised by the ASIC regarding the possible
breach of duties covered under Part 2D.1 of the CA by the
defendants of this case.

Rule
 Under the CA, particularly its section 180(1), the
company directors are required to make use of their
powers and fulfil their duties in such a manner which
shows care being taken, along with being diligent in
performing their tasks (Austlii, 2017).
 A breach of provisions covered under section 180(1)
result in the attraction of civil obligations set out under
section 1317E of CA.
› Courts: Power of making a declaration of contravention (ICNL,
2017).
› Upon the grant of this declaration, the ASIC can apply for the
pecuniary penalties under section 1317G ; or
› application pursuant to section 206C of CA for the
disqualification order (Federal Register of Legislation, 2017).

Rule
 The ASIC’s contentions were related to the
director’s failure in performing their duties
properly and in taking the requisite steps in order
to
› secure the adherence by CG for the declarations of
directors as per section 295A of the CA,
› the accounting standard compliance based on section
296 of CA,
› putting forward true and fair position of the company
based on section 297 of CA, and lastly,
› in the matter off annual report of director based on
section 298 of CA, and these breaches result in section
344(1) of the CA being contravened.

Analysis (including legal
arguments)
 ASIC based their claims on the duty of directors
regarding being careful and diligent in their work
against the defendants of this case, apart from their
shortfall in undertaking the steps which were needed
for fulfilling the requirements of the financial
reporting for CG on the basis of CA (Bryans, 2011).
 As per the claims made by the ASIC, the financial
reports which had been created for CG for the year
ended on 30th June 2007 failed to adhere to the
accounting standards, coupled with their failure in
providing the true and fair picture of the performance
of the group and their financial position.

Analysis (including legal
arguments)
 This was due to the shortfall in proper classification of a
chunk of interest value which bore the liabilities as being
current liabilities, which was inherently wrong.
 The reports failed to carry out a discussion on the key
issues, which included the huge amount of short-term
debts not being disclosed, and the same was not done
for the short-term debt guarantees.
 This was in addition to the misclassification of short-term
debt as a major non-current liability, along with the
short-term debt being hidden. As a result of this, a false
view of the group was presented in the matter of the
short-term debt burden (Halsey Legal Services, 2017).

Conclusion (judgment and
role of court)
 The decision was presided over by Justice Middleton
of the Federal Court of Australia and they came to
the conclusion that there was a breach of the duties
by the defendants of this case covered under
section 180(1) of CA, in addition to sections
601FD(3) and 344(1) of CA (Jacobson, 2011).
 Middleton J opined that the defendants had failed in
a big manner when it came to the exercising of the
requisite degree of care and diligence when they
were reviewing the financial statements which led
to the contravention of provisions of this act
(Federal Court of Australia, 2011).

Conclusion (judgment and
role of court)
 Middleton J opined that the defendants had
failed in a big manner when it came to the
exercising of the requisite degree of care and
diligence when they were reviewing the
financial statements which led to the
contravention of provisions of this act (Federal
Court of Australia, 2011).
 And based on the given situation, the
responsibility could not be simply delegated
to another person to hold the same as having
being fulfilled (Austlii, 2011).

References
 Austlii. (2011) Australian Securities and Investments Commission v Healey [2011] FCA 717 (27 June 2011). [Online]
Austlii. Available from: http://www.austlii.edu.au/au/cases/cth/FCA/2011/717.html [Accessed on: 29/11/17]
 Austlii. (2017) Corporations Act 2001. [Online] Austlii. Available from:
www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ [Accessed on: 29/11/17]
 Australian Institute of Company Directors. (2011) Centro Case Summary. [Online] Australian Institute of Company
Directors. Available from: http://www.companydirectors.com.au/~/media/Resources/Director%20Resource%20Centre/
Governance%20and%20director%20issues/case%20summary/ASIC%20v%20Healey%20Centro%20Directors
%20Federal%20Court%20Judgment%20%2027%20June%202011.ashx [Accessed on: 29/11/17]
 Bryans, P. (2011) ASIC v Healey. [Online] Lexology. Available from: https://www.lexology.com/library/detail.aspx?
g=1db0b085-6f89-445e-8548-f1172a1f24b0 [Accessed on: 29/11/17]
 Cassidy, J. (2006) Concise Corporations Law. 5th ed. NSW: The Federation Press.
 Federal Court of Australia. (2011) Australian Securities and Investments Commission v Healey (No 2). [Online] Federal
Court of Australia. Available from: http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/
2011/2011fca1003 [Accessed on: 29/11/17]
 Federal Register of Legislation. (2017) Corporations Act 2001. [Online] Australian Government. Available from:
https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 29/11/17]
 Halsey Legal Services. (2017) Directors' duties: Control and understand the flow of management information. [Online]
Halsey Legal Services. Available from: http://www.halseys.com.au/detail.php?id=19 [Accessed on: 29/11/17]
 ICNL. (2017) Corporations Act 2001. [Online] ICNL. Available from:
http://www.icnl.org/research/library/files/Australia/Corps2001Vol4WD02.pdf [Accessed on: 29/11/17]
 Jacobson, D. (2011) Centro (ASIC v Healey) Case Note: Directors’ Duties for Financial Statements. [Online] Bright Law.
Available from: https://www.brightlaw.com.au/centro-asic-v-healey-case-note-directors-duties-for-financial-statements/
[Accessed on: 29/11/17]
 Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia Limited.
 Walmsley, S., and Puri, R. (2011) The Centro decision - ASIC v Healey & Ors [2011] FCA 717. [Online] Johnson Winter &
Slattery. Available from: https://www.jws.com.au/en/legal-updates-archive/item/198-the-centro-decision-asic-v-healey-
ors-2011-fca-717 [Accessed on: 29/11/17]