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Personal Responsibility of Corporate ‘Officers’

On 11 March 2020 the High Court delivered a decision in Australian Securities and Investments Commission v King [2020] HCA 4.  It related to whether an individual who was not a director, was still an “officer” of a corporation as defined in the Corporations Act.

Briefly, substantial funds were borrowed from the Royal Bank of Scotland (RBS) in 2007.  They were to be used solely for the purpose of a specific company (‘PIF’) within a corporate group; and not for other companies in the group.  Five months after the loan facility was established, it was partly drawn down.  The funds initially went to a company that acted as ‘treasurer’ for the whole corporate group. The treasury company then applied some of those funds (just over $100 million) to pay a debt owed by a subsidiary. There was no agreement or arrangement for the subsidiary to repay, or to give security.  This money was not used solely for the purposes of PIF, as the loan from RBS required.

The loan drawdown, and the application of funds to the debt of the subsidiary, occurred after a Mr King had ceased to officially be a director of the treasury company that paid the debt owed by its subsidiary.   ASIC commenced proceedings both against the treasury company for breaches of the Corporations Act; and also against Mr King, including on the basis that as an officer of the treasury company he had acted dishonestly or without due care or diligence. Although Mr King was not a director of the treasury company, ASIC contended that his level of involvement in the decision to pay a subsidiary and not PIF, meant he was a company ‘officer’ within the Corporations Act definition and a person “who has the capacity to affect significantly the corporation’s financial standing“.

The primary Judge found that Mr King was in effect the “overall boss” of the corporate group (including the treasury company) but the Queensland Court of Appeal held that was not enough to make Mr King an ‘officer’ in the relevant sense because, it said, it was necessary that the capacity to affect a company’s affairs derive from some recognised position with rights and duties attached to it. 

The High Court disagreed and (unanimously) said that the fact that Mr King was the “overall boss” of the corporate group (and had overall responsibility for the treasury company) made Mr King an officer for relevant purposes. The primary judge’s original finding, that Mr King had breached the Corporations Act for misusing his position, was upheld and he was ordered to pay costs in the High Court and the Court of Appeal.

The case demonstrates that people who exercise “de facto” control or influence over companies can still have responsibilities (and liabilities) even though they are not formally appointed as directors or officers of the company.

Liability limited by a scheme approved under Professional Standards Legislation

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