You can run but you can’t hide – the role of the Officer
25 June 2020 by Andrew Douglas
Case: Australian Securities and Investments Commission v King  HCA 4 (King’s Case)
In corporations and safety law there has been a habit of identifying Officers for the purposes of risk management and then believing there are no other officers. The recent amendments to Queensland safety law, focusing on the influence of leaders to establish liability is no doubt a response to the strict interpretation of King’s case (see below).
In closely held large family business – beware! Often the leading mind and enabler of decision making is not a director but a trusted advisor (commonly a well-connected, business consultant, accountant or lawyer). Being a consultant is no barrier to liability (hence the need for the person to be named in insurances and do their own due diligence on decision making).
The King’s Case judgment, which was handed down on 11 March 2020, addresses the meaning of ‘officer’ in s9(b)(ii) of the Corporations Act 2001 (Cth), which is in the following terms:
“officer” of a corporation means:
(b) a person:
(ii) who has the capacity to affect significantly the corporation‘s financial standing;
The court had to decide whether Mr King, who performed management duties for a company (a subsidiary), was an officer of that company, notwithstanding that he did not hold a role as a named officer with the company. The company, which operated managed investments, was a subsidiary and Mr King was an executive director of the parent company and CEO of the corporate group, but not of the subsidiary. The subsidiary borrowed funds which were paid to another company in the group. ASIC brought an action against Mr King, alleging he was an ‘officer’ of the subsidiary company for the purposes of s601FD, which imposes duties on the officers of companies which operate registered investment schemes.
The Queensland Supreme Court of Appeal held that, to fall within the definition of officer, the individual must hold a named office or a ‘recognised position with rights and duties attached to it’ (i.e. the narrow view).
All five High Court judges (in 2 separate judgments) rejected the narrow interpretation and adopted a more substantive test. The facts established that Mr King, as group CEO, acted as the ‘overall boss’ of the group and assumed ‘overall responsibility’ for the subsidiary. This was enough to establish that he ‘had the capacity to affect significantly the corporation’s financial standing’.
- The decision makes it clear that anyone running a company – in name or in effect (and this CAN be a CONSULTANT) – may be held responsible for their actions in relation to the company;
- In the context of corporate groups, courts will consider the individual’s overall position of influence within the group. Not being a named ‘Officer’ is irrelevant and
- The court stated it may even be possible for third parties advising a company, such as a consultants and financial advisers, to be held liable as ‘officers’ but only if they are sufficiently involved in the management of the corporation that they are able to affect the implementation of advice.
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