Asic V Healey Case Study

This research question is regarding to the case of ASIC v Healey (2011) 196 FCR 291. On October 2009, they were sued by The Australian Securities and Investments Commission (ASIC). There were many controversy regarding this matter as overly harsh and unduly harsh. Some considered this as a wake-up call for directors by Katz, Lipton, Rosen and Wachtell to take responsibility by fulfilling their duties so they will act with a degree of care and diligence. On the contrary, some considered it as overly harsh due to the requirement to the understanding of financial literacy. This essay will provide a summary of the ASIC v Healey case followed by the decision made by judges and why they made the decision then lastly followed by our opinion regarding

Justin Middleton stated that Centro group breached s180(1) because the directors did not exercise their powers with a degree of care and diligence since they did not read the financial statements. Under s344, directors have the obligation to read and understand the financial statement established in Morley v ASIC [2010] NSWCA 331. On the other hand, Mr Hullah stated due to the large amount and elusiveness of the financial report it is unreasonable to expect non-executive directors to detect the errors (ASIC v Healey, 2011, p342). However, Justin Middleton stated the board has the power to control the information they receive (ASIC v Healey, 2011, p 346). The utmost importance is that the directors have to able to comprehend with the information at hand thus they should have controlled the flow of information to ensure that they received a prospectus that is intelligible to them. Hence, under General Corporation Law s 141(e) they are fully protected from liability for breach of fiduciary duty if they receive“…advice of any reasonably carefully selected advisor as to matters that the director reasonably believed to be in the advisor’s area of expertise” (Kat, Lipton, Wachtell & Rosen., 2011). Furthermore, they defended themselves by using the judgement rule, s180(2), since they claimed to have followed the procedures and processes. However, under s189,

After all, directors are more familiar with company and its day to day transaction more than anyone else since that is their responsibility. Even though the directors have followed the procedures and received advice from qualified advisors from management and auditors that does not mean the directors do not have to assess the information received under s189 which was established in Sheahan v Verco & Hodge [2001] SASC 91. The directors stated that there were too many information which compromised of 450 pages. However, as Justin Middleton said the directors could minimise the information so they will only receive the vital information and that is intelligible to them. After all, it is important for directors to comprehend what sort of situation they are encountering and to certify that the financial statement is accurate. Otherwise, if the directors do not go through financial statement and relies solely on the auditors and management then being a director would have less requirements which can lead to an unqualified person becoming a director and causes the company to wind up. Not to mention, directors are meant to be more experienced and knowledgeable accumulated through their lifetime since that is what differentiate them from