In ASIC v Hellicar  HCA 17 the High Court reaffirmed the duties imposed on directors by the Corporations Act 2001. ASIC had prosecuted the directors, company secretary and general counsel of James Hardie Industries for making misleading statements to the market in 2001.
At that time, the Board of James Hardie attempted to restructure its group to limit ultimate liability to compensate asbestos victims by establishing a medical foundation fund to provide for long term compensation of asbestos victims. The Board met and passed a resolution that a market statement to the effect that (1) the directors of James Hardie had determined the level of funding required by the foundation (2) James Hardie was satisfied that that the foundation was “fully funded” and had sufficient funds to meet anticipated future claims. In fact, the foundation had nowhere near the required amount to meet all expected compensation claims.
The High Court affirmed the trial judge’s findings that the directors, company secretary and general counsel of James Hardie had breached their duties as directors codified in s180(1) of the Corporations Act 2001. Section 180 requires a director or other officer of a corporation to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in the corporation’s circumstances and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. A director or other officer of a corporation who makes a business judgment is however taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:
(a) make the judgment in good faith for a proper purpose; and
(b) do not have a material personal interest in the subject matter of the judgment; and
(c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
(d) rationally believe that the judgment is in the best interests of the corporation.
The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.
The directors and officers charged with the breaches argued that they ought to be excused from prosecution on the basis that contrary to the minutes of the board meeting which recorded the consideration and approval of the release, they did not in fact consider and approve it. The Court found that the minutes and other extrinsic evidence suggested that the Board did approve the release or content very similar to that released.
The decision reaffirms the application of s180(1) of the Corporations Act 2001to directors and office holders in companies. It is notable by reason of the high profile nature of the Board and James Hardie and its attempts to avoid its obligations to asbestos victims. It is a timely reminder to all directors and office holders that the duties imposed on them should not be ignored.