Penalties, directors' duties and non-executive directors: Australian Securities and Investments Commission v Healy (No 2) (2011) 196 FCR 430

Maria Nicolae, David Morrison

Research output: Contribution to journalArticleResearchpeer-review

Abstract

The Centro decision sparks considerable debate amongst academics, legal practitioners and the corporate sector particularly as to the standard of liability imposed on corporate directors and the limits on reliance with respect to financial matters. The latter decision, discussed herein, continues to provide interest. For directors, the practical concern remains the standard that attaches to them and whether their status, as either executive or non-executive, alters the expectation.

This decision does not advance any new propositions as to director liability. It does however continue the trend of the past two decades that appears to be that the courts recognise that executive directors cannot be expected, as a matter of practicality, to be involved in the day-to-day operations of the company; and further, that non-executive directors ought to serve more of an active role in the management of the company. As such the decision may signify a further developmental step towards the closing of the "gap" between executive and non-executive directors. At the same time, the decision may also signify a move toward "substance over form" when examining the gap.

Particularly of interest is whether the narrowing of the gap by the path of judicial consideration may further tip non-executive directors to a point where the potential costs of being found liable for an insolvent company's debts exceed the benefits; and if this is followed by marked reluctance to serve as a non-executive officer of a company, whether this development is followed by the legislature.
Original languageEnglish
Pages (from-to)209-216
Number of pages8
JournalInsolvency Law Journal
Volume20
Issue number3
Publication statusPublished - 2012

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abstract = "The Centro decision sparks considerable debate amongst academics, legal practitioners and the corporate sector particularly as to the standard of liability imposed on corporate directors and the limits on reliance with respect to financial matters. The latter decision, discussed herein, continues to provide interest. For directors, the practical concern remains the standard that attaches to them and whether their status, as either executive or non-executive, alters the expectation.This decision does not advance any new propositions as to director liability. It does however continue the trend of the past two decades that appears to be that the courts recognise that executive directors cannot be expected, as a matter of practicality, to be involved in the day-to-day operations of the company; and further, that non-executive directors ought to serve more of an active role in the management of the company. As such the decision may signify a further developmental step towards the closing of the {"}gap{"} between executive and non-executive directors. At the same time, the decision may also signify a move toward {"}substance over form{"} when examining the gap.Particularly of interest is whether the narrowing of the gap by the path of judicial consideration may further tip non-executive directors to a point where the potential costs of being found liable for an insolvent company's debts exceed the benefits; and if this is followed by marked reluctance to serve as a non-executive officer of a company, whether this development is followed by the legislature.",
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Penalties, directors' duties and non-executive directors: Australian Securities and Investments Commission v Healy (No 2) (2011) 196 FCR 430. / Nicolae, Maria; Morrison, David.

In: Insolvency Law Journal, Vol. 20, No. 3, 2012, p. 209-216.

Research output: Contribution to journalArticleResearchpeer-review

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AB - The Centro decision sparks considerable debate amongst academics, legal practitioners and the corporate sector particularly as to the standard of liability imposed on corporate directors and the limits on reliance with respect to financial matters. The latter decision, discussed herein, continues to provide interest. For directors, the practical concern remains the standard that attaches to them and whether their status, as either executive or non-executive, alters the expectation.This decision does not advance any new propositions as to director liability. It does however continue the trend of the past two decades that appears to be that the courts recognise that executive directors cannot be expected, as a matter of practicality, to be involved in the day-to-day operations of the company; and further, that non-executive directors ought to serve more of an active role in the management of the company. As such the decision may signify a further developmental step towards the closing of the "gap" between executive and non-executive directors. At the same time, the decision may also signify a move toward "substance over form" when examining the gap.Particularly of interest is whether the narrowing of the gap by the path of judicial consideration may further tip non-executive directors to a point where the potential costs of being found liable for an insolvent company's debts exceed the benefits; and if this is followed by marked reluctance to serve as a non-executive officer of a company, whether this development is followed by the legislature.

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