This is especially the case when the information in question relates to approval of financial statements. Post balance date-events The court adopted the same approach in respect of the post balance-date guarantees.
A reading of the financial statements by the directors is not merely undertaken for the purposes of correcting typographical or grammatical errors or even immaterial errors of arithmetic.
The Federal Court held that they had all breached their statutory duties Asic v centro relation to the final accounts which were published by two Centro entities in that year. The value of Centro securities has substantially reduced. Moreover, as a matter of principle, the court had little sympathy for this problem.
The claimants allege they suffered substantial losses because they acquired their CNP and CER securities before this information was revealed, when the prices of the securities were inflated.
The case law indicates Asic v centro there is a core, irreducible requirement of directors to be involved in the management of the company and to take all reasonable steps to be in a position to guide and monitor.
The scrutiny by the directors of the financial statements involves understanding their content. Middleton J found that: The accounting standards in required that: The directors did not need a sophisticated knowledge or understanding of accounting standards to join these dots.
Directors must have a degree of financial literacy. The second set of issues concerned disclosure of post balance-date events. Liability judgment, , see also  and . The Corporations Act imposed on directors the critical responsibility of approving and adopting financial statements.
It demonstrates that the obligations on directors approving financial statements are onerous. No one suggests that a director should not personally read and consider the financial statements before that director approves or adopts such financial statements.
How financially literate must a director be? The uncertainty arising from this aspect of the Centro decision is likely to be a concern for many directors.
It is important to bear in mind, however, that this case, like any other, turns on its own particular facts. Giving that information to shareholders and, for a listed company, the market, is one of the fundamental purposes of the requirements of the [Corporations Act ] that financial statements and reports must be prepared and published.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. In light of the Centro decision, directors who get more information than they can read in the time available need to apply pressure on management to decrease the volume of information or increase the amount of time available to absorb it.
Justice Middleton was satisfied that the mistakes in this case were so obvious that the directors could not simply accept the advice of management and the auditors.
I do not consider this requirement overburdens a director, or as argued before me, would cause the boardrooms of Australia to empty overnight. The 7 defendant directors comprised the first defendant Healey, the CEO and the 5 non-executive directors. A loss of confidence in the management of CNP and CER on the part of investors and other participants in the financial market is itself calculated to affect the market price of the securities of the entities, and therefore the interests of security holders and lenders.
The Judge found that both CNP and CER had significantly understated the level of their actual current interest-bearing liabilities in their final accounts: This general duty had to be construed consistently and harmoniously with the s requirement to take all reasonable steps to comply with, or to secure compliance with, the financial reporting obligations of the Corporations Act.
Therefore they must have known that there was no unconditional right to defer settlement. The second stage related to the process of reviewing the accounts.
What each director is expected to do is to take a diligent and intelligent interest in the information available to him or her, to understand that information, and apply an enquiring mind to the responsibilities placed upon him or her.
The importance of the financial statements is one of the fundamental reasons why the directors are required to approve them and resolve that they give a true and fair view.
These include the following: Debt classification Justice Middleton approached the debt classification issue in two stages. Such a responsibility arises in this proceeding in adopting and approving the financial statements. ASIC is seeking orders that each of the defendants pay pecuniary penalties and be disqualified from managing corporations.
There is a responsibility to read, understand and focus upon the contents of those reports which the law imposes a responsibility upon each director to approve or adopt.Focus: The Centro decision and the approval of financial statements 29 June In brief: This week's Federal Court decision in relation to ASIC's case against Centro's directors demonstrates how demanding a director's duties in approving financial statements are.
In order to meet those demands, Boards may seek to change the ways in which financial information is presented to them and how.
Lee J’s recent decision in Perera v GetSwift Ltd to allow only one overlapping class action to proceed (the Webb Proceeding) and to permanently stay the other two Federal Court actions (Perera and.
Events result in collapse of Centro The annual reports of Centro and Centro Retail Group (CER)-a subsidiary company of Centro failed to disclose significant matters. ASIC Centro Win Bolsters Class Actions published May 24, In Junethe Australian Securities and Investments Commission (ASIC) won its case against the directors and senior management who had led the Centro Group in ASIC sought declarations that each of the defendants had breached their statutory duty of care and diligence owed to the Centro entities and thereby contravened ss.
(1), FD(1) and (1) of the Corporations Act (C‟th)(the Act) in approving consolidated financial. The Federal Court finds corporate watchdog ASIC has proved its case against Centro directors who missed billion-dollar errors in the firm's accounts.Download