25 JULY 2011
Media commentary of Rupert Murdoch’s evidence in the international phone hacking scandal and the recent Centro Case are yet a further reminder for all company directors to take their role as a director very seriously.
The Centro Case, whilst largely restating well known principles, confirmed that reliance on advisers (even from large international firms) or those who do not understand your business is no defence to an allegation of breach of statutory duty in the absence of independent assessment and acceptance of their advice.
In Centro, both management and their external adviser, a major well known accounting firm had presumably reviewed both the proposed financial statements and the directors report for the company and failed to identify any errors. ASIC sought and obtained declarations from the Federal Court that each of the directors had breached their statutory duty of care and diligence owed to the Centro entities in approving consolidated financial accounts.
So what is required of company directors?
- Directors are entitled to seek assistance in carrying out duties and rely on others – but the extent of the reliance should not be taken too far;
- Directors are required to have the ability to read and understand the financial statements and know what must be disclosed – you must understand what is being approved or adopted;
- Directors do not necessarily need to have a detailed awareness of the day to day activities of the company – you must be involved in the management of the company so that you may oversight risk assessment and legal compliance measures.
The irony is that you need to have almost as much expertise as your adviser. Reliance on information or professional or expert advice must be made in good faith and after independent assessment of the information or advice having regard to your own knowledge of the company and the complexity of its structure and operations.
Unless your professional adviser is hands on, takes time to understand your business and has knowledge of its structure and operations beware!
For further information please contact:
[contactsbox] [leftcolumn]Contact Partner: Ross Kinneally
Direct Telephone : 07 3210 5770
Mobile Telephone : 0419 773 003
[email protected]
Contact Partner: Tracey Miley
Direct Telephone : 07 3210 5780
Mobile Telephone : 0438 776 161
[email protected]