If you are working in a senior role in a company, are you aware you could be responsible for the company’s conduct as a director, and potentially exposed to multi-million dollar fines?

ASIC has provided a stark reminder to directors and officers that they can be held personally liable for company conduct after ASIC commenced proceedings in the Federal Court against 11 current and former directors and officers of The Star Entertainment Group Limited (Star).

ASIC is seeking penalties which attract a maximum fine of $1.05 million per breach as well as declarations and disqualification orders against the Star directors and officers.

The Star Case

ASIC is alleging that the 11 directors and officers failed to give sufficient focus to the risk of money laundering and criminal associations, in breach of their director duties.

ASIC is also alleging that the Board members of the Star allowed for the expansion of the Group's relationship with individuals and companies known to have money laundering and criminal ties and failed to make further enquiries of management about those risks, again in breach of their director duties.

Each relevant director and officer of the Star is facing the possibility of disqualification, as well as penalties attracting a maximum fine of $1.05 million per breach.

The Star proceedings are one of the largest civil court actions commenced by ASIC against individual directors and officers. The ASIC chairman, Joe Longo, has described this case as a "landmark" for directors who should be aware of foreseeable risks for the company over which they preside.

Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Banking Commission), it is expected that ASIC and other regulators will be taking more of such enforcement action against directors and officers to reinforce the consequences for failure to comply with director duties.

Don't be the next Star example

In the post-Royal Banking Commission era, directors and officers cannot hide behind the corporate veil – ASIC can, and will, pierce through it.

As noted by the ASIC Chair Joe Longo ‘As I’ve said on many occasions, directors and officers are a critical part of the conduct of business in Australia. Their duty is to understand the operations of the company over which they preside, and the particular risks faced by the business. They are required to bring an inquiring mind to business operations. It is not “set and forget”’. 

In the Star case, ASIC targeted a number of officers, including the Chief Legal and Risk Officer and Chief Casino Officer. An 'officer' of a company has a wide definition that also captures other individuals in the company who are not directors, including any person who:

• makes or participates in making decisions that affect the whole, or a substantial part of the business; or

• has the capacity to affect significantly the financial standing of the entity.

Consider for example executives, general managers, financial controllers and compliance officers.

Further, as seen in the Star case, it is no solution to simply resign from a director or officer position if an issue arises. ASIC and other regulators can still investigate, and commence proceedings against, former directors and officers for previous misconduct and breach of director duties.

Failure to comply with Australian corporation laws (including director duties) has serious consequences for not only the company, but also the individual directors and officers, including: criminal prosecution, investor class action, disciplinary action and damage to brand reputation – not to mention the penalties which can reach millions of dollars and imprisonment.

How can we help?

It is critical that:

• businesses are proactive in establishing a robust governance, risk and compliance framework;

• businesses implement and regularly monitor and evaluate their governance, risk management and compliance framework; and

• each director and officer is fully aware of their director duties and properly discharges those duties.

If you are unsure about your director duties or legal compliance requirements, or you have already been contacted by ASIC or another regulator, please do not hesitate to contact Suzanne Howari or Charles Cheah.

The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.

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