Securities & Investments Commission V Healey

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Securities & Investments Commission V Healey

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Question:
Discuss about the Australian Securities and Investments Commission v Healey [2011] FCA 717.

Answer:

Introduction
The leading case of Australian Securities and Investments Commission v Healey[1] is a case against the directors of Centro and the said case highlights as how a director can be imposed with strict duty while giving his consent to the financial statements of the company[2]. The duty is on how the statements are presented and how the directors review the same. The decision also restrict the position of the directors to the extend they rely on the external advisors while presenting the statements. Through this decision a special responsibility is imposed before any company director approve the financial reporting statements of the company. Delegation of this responsibility is not permitted all the time. The court also submitted that the directors who approve the financial reports must also have the knowledge of the same and this duty cannot be excused on the ground of failure to read[3].
The decision was laid down in favor of ASIC.
Cento is the leading company wherein the defendants was the Chief Financial Officer. On 6th September they approved accounts which were made part of the Annual Reports of Centro. The reports were released in ASX but in December Centro asked ASX to stop trading as they require information’s to be corrected in the reports[4].
The duties/responsibilities breached
As per the claims of ASIC, the duties and responsibilities that are violated by the Directors of Centro are[5]:

The directors of Centro are in violation of section 344 of the Corporation Act. Section 344 of the Act requires every director to undertake all the statutory requirements that are laid down under Part 2M.3 of the Act that deals with the financial reporting obligations.
That the directors are in violation of section 180 (1) of the Corporation Act 2001. The section imposes a duty on the director to act with all due care and diligence in the best interest of the company and fro proper purpose.

The directors are in violation of Section 601FD (1)(b) of the Corporations Act. The said section requires the officers of the Responsible Entity of a registered scheme to conduct in such manner so that such actions are in the best interests of the members. If there is conflicting situation amid the interest of the entity and members then the member’s interest must be given priority.

Reasons why the duties were breached
The man reasons because of which the decision was made against Centro are[6]:

That the directors of Centro failed to take reasonable cares that are expected from them. There was no due diligence and care while catering their duties.
The annual reports of Centro Properties Group (‘CNP’) and Centro Retail Group (‘CER’) of 2007 did not lay down some very important matters. The reports did not disclose that CNP has short term liabilities of $ 1.5 billion and guarantees of short term liabilities of an associated company of US$1.75 billion which is provided after the balance date. For CER the short term liabilities of $500 million were not disclosed. Because of the non disclosure the risks of the two companies was not assessed adequately.
When the disclosure was not made at that time the same were within the knowledge of the directors. Even if it is assumed that the matters are not within the knowledge of the directors still those are such matters that should be in the knowledge of the directors[7].

If the directors are not of the view that the financial statements are accurate and furnished truth, till that time it is their duty that such reports should not be published in any manner whatsoever.
The directors have not applied their minds while interpreting the financial statements. If they would have used their minds then the errors were apparent and can be rectified.
If any document is approved and signed by any company director then such director is answerable to its contents. It is their duty to be part of the management of the company and to carry out their functions in most appropriate manner, that is, they must be aware of the fundamental of the busies in which they are dealing, they must be aware of the company functions, its financial status, statements and must apply his mind wherever applicable.

Thus, it is rightful in submitting that every company director is required to be part of the financial management of their company. He must ensure that prior approving any financial statement he must be acquainted with the same.

Bibliography
Case laws
Australian Securities and Investments Commission v Healey [2011] FCA 717.
Daniels v Anderson (1995) 37 NSWLR 438.
Francis v United Jersey Bank (1981) 432 A 2d 814.
Online Material
Allens, ‘Focus: The Centro Decision And The Approval Of Financial Statements’ law 2011 https://www.allens.com.au/pubs/cg/focgjun11_01.htm#Footnotes.
Jade, ‘Australian Securities and Investments Commission v Healey [2011] FCA 717’ < https://jade.io/article/226822>.
The Civil Lawyer, 2011, .

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