At the end of last year, the Australian Securities and Investments Commission (ASIC) issued civil penalty proceedings in the Federal Court of Australia against Harold Mitchell and Stephen Healy, two former directors of Tennis Australia Limited.
The circumstances underline that corporations (including not-for-profits) should ensure appropriate conflict and risk management policies are not only documented, but are appropriately implemented in business dealings. It is also a word of warning for directors of their strict duties in their positions, and the consequences if they don’t meet their obligations.
This action concerns the process for awarding the broadcast rights for the Australian Open to the Seven Network on a five-year term in 2013, allegedly without a competitive tender process. The deal with the Seven Network was for a reported $195 million, despite Network Ten supposedly canvassing to Tennis Australia that it was prepared to offer up to $250 million. Mitchell allegedly commented at the time that: “Nine has the cricket, Seven has the tennis and football, and Ten gets the dregs."
In its media release, ASIC alleges that both Mitchell and Healy:
withheld material information from the Tennis Australia board when it made its decision to award the domestic broadcast rights;
failed to ensure that the board was fully informed about the value of the rights, the interest of parties other than the Seven Network in acquiring those rights and the best method of marketing them;
failed to advise the board that Tennis Australia was likely to obtain better terms by putting the rights out to competitive tender; and
failed to ensure that a sub-committee, that had been appointed by the board to advise it about the granting of the rights, carried out its functions.
In relation to Mitchell alone, ASIC also alleges that he:
passed on to the Seven Network confidential information about the interest of its competitors in acquiring the rights;
passed on to Seven Network confidential information about the views and negotiating position of Tennis Australia’s management and board about the granting of the rights;
downplayed to the Tennis Australia board the interests of parties other than the Seven Network in acquiring the rights;
failed to inform the Tennis Australia board about the concerns that the Seven Network had over the interest of Network Ten in acquiring the rights; and
encouraged the Tennis Australia board to conclude an agreement with the Seven Network instead of putting the rights out to competitive tender.
ASIC is seeking declarations that Mitchell and Healy contravened various provisions of the Corporations Act 2001 (Cth) in regards to their obligations and duties as directors, and is seeking pecuniary penalties be ordered against Mitchell and Healy and that both be disqualified from managing corporations.
Mitchell’s defence has only recently been lodged with the Federal Court, and the Court has listed the matter for trial to commence on 4 November 2019 with a further Case Management Hearing listed for 30 August 2019.
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