This case serves as an important reminder that board appointments should not be taken lightly - even as a “personal favour”. Directors should ensure that they are sufficiently abreast of the affairs of their companies and actively involved in their management. An argument that a director was “not really involved” in management is unlikely to find favour when the company finds itself in strife.
Mr Maley was the director of 5 companies which, after his resignation, were wound up on the grounds of insolvency. This case involved an appeal from a decision by ASIC to disqualify Mr Maley from managing corporations for two years pursuant to section 206F of the Corporations Act 2001 (Cth) which gives a discretion to disqualify if a person has been an officer of at least 2 companies that have failed within the last 7 years.
Liquidators’ reports confirmed that the companies were mismanaged and possible breaches of the Corporations Act were reported, including a failure to maintain adequate books and records and insolvent trading. Mr Maley contended that he only accepted the appointments as a personal favour (in connection with a loan) and the failure to remove him was an oversight. On this basis, he argued that he was not really involved in the management of the failed companies and that there was insufficient evidence of his involvement to warrant disqualification.
The Administrative Appeals Tribunal found that a disqualification period of 2 years was not excessive. It noted the following in relation to the factors to be considered under section 206F(2):
- beyond having Mr Maley as a common director, there was little evidence of the companies being related to one another and as such it could not be established that the collapse of the different companies was part of one episode of failure;
- Mr Maley’s claim that he was not involved in the management of the failed companies did not excuse his behaviour. His conduct as a director was considered culpable even if he was not actively involved in the affairs of the companies as the mismanagement occurred “on his watch”; and
- it is in the public interest to remove directors with a track record of failure and thus on balance, the public interest favoured Mr Maley’s disqualification.
See the case.