The case of Australian Securities and Investment Commission v Hellicar sets a clear precedent for company directors and officers in the context of approving information being released to the general public.
The case concerns the directors’ approval of an ASX announcement which stated that James Hardy Industries Ltd had sufficient funds to meet all legitimate compensation claims anticipated from people injured by asbestos products that were manufactured in the past by two former subsidiaries of James Hardie Industries Ltd. This claim turned out to be false and as such was the basis for a breach of s 180(1) of The Corporations Act 2001 (Cth) which requires directors and officers to act with a degree of care and diligence that a reasonable person in that position would exercise.
In the same proceeding, the Australian Securities and Investment Commission (ASIC) brought an action against the General Counsel and Secretary of James Hardy Industries Ltd which was later appealed in Shafron v Australian Securities and Investment Commission.
Mr Shafron was both the company’s general counsel and secretary. Mr Shafron was, by virtue of s 9(a) of The Corporations Act, an officer of the company through his role as secretary.
Mr Shafron contested his liability as an officer by arguing that his conduct in the issue was not done in his capacity as company secretary but rather in his capacity as general counsel, which would fall outside the definition of officer within the Corporations Act 2001 (Cth). The High Court dismissed that submission. It was found that there was no divide between Mr Shafron’s roles as company secretary and general counsel.
The High Court then went on to conclude that Mr Shafron had not exercised the relevant standard of care by failing to advise the CEO or the Board of the legal risk from the misleading disclosure of information. It was held that Mr Shafron had participated in the decision to disclose the misleading information by his act and therefore fell under the broad definition of an officer under s 9(b)(i) of The Corporations Act 2001(Cth).
The decision has been a reminder that officers of companies and general counsel where they meet that definition will be held to account for their failures to meet standards of care and skill in the release of information to the public about the company’s affairs.