ASIC v King – Are you an “officer” of a company?

In this case, the High Court reiterated that a person can be deemed to be an “officer” of a company even if that person does not hold a position as a named ‘Director’ or ‘Secretary’.

This is important, because the law imposes significant legal duties on officers of corporations, breach of which may mean claims against the person and action by regulators for actions of them and the company.

The Corporations Act defines an officer to include a person:

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

• who has the capacity to affect significantly the corporation's financial standing; or

• in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation)”.

In this case, the Australian Securities and Investments Commission (ASIC) commenced proceedings against senior executives, including the chief executive officer (CEO) and executive director of a parent company, of a corporate group after its collapse.

Although lower courts found the CEO did not have the requisite capacity to affect the financial standing of the subsidiary company, the High Court unanimously held that the CEO could actively impact the financial standing and business operations of the subsidiary in his role as CEO.

The High Court noted that the wording of section 9 of the Corporations Act captures those persons who do not hold a position as director or secretary or who are expressly referred to as an officer.  Further, that it would be an “extraordinary state of affairs” that would prejudice shareholders and creditors of the companies within the corporate group if a person could act in a manner that could effectively control the way in which subsidiaries operate without being subject to the duties that are correspondingly conferred by the Corporations Act. 

It’s a reminder that once a senior executive has the ability to “significantly impact the financial standing” of a company, either directly or indirectly, it is likely that they will be considered an officer of the company and abide by duties in the Corporations Act.  Companies should consider this in light of remuneration, D&O insurance coverage and governance arrangements.  

If you require advice in relation to your rights, duties or obligations under the Corporations Act, please do not hesitate to contact:

Alexander Gulli
Lawyer
T: 03 5226 8573
E: agulli@ha.legal

Rod Payne
Principal
T: 03 5226 8541
E: rpayne@ha.legal

Paul Gray
Principal
T: 03 5225 5231
E: pgray@ha.legal