In ASIC v Healey  FCA 717, directors of the Centro Group approved the annual financial statements which misclassified a number of borrowings as non-current liabilities. The key issue was the extent to which the directors were required to apply their own minds to and carry out a careful review of the annual financial statements.
Middleton J held that the directors breached their statutory duty to act with care and diligence and to take all reasonable steps to comply with the financial reporting obligations in the Corporations Act 2001 (Cth), as they did not review the accounts sufficiently thoroughly, in light of their knowledge of the company's operations and financial position.
It was noted that although directors are entitled to delegate the preparation of accounts, they cannot substitute reliance on others for their own examination of an important matter that falls specifically within the board's responsibilities. Where necessary, directors should make appropriate inquiries to ensure that the financial statements do not omit material matters that are known to them or should be known to them.
Directors should ensure that they have sufficient time to review information submitted to the board for approval and, where necessary, having regard to their knowledge of the company's operations and financial position, make relevant inquiries before approving financial statements.
See G + T update for further details.