UPfront Chairmen in the hot seat

Court action in the wake of major Australian company collapse is ringing warning bells on this side of the Tasman as to the extent of chairman’s legal responsibility.

The action centres around $93-million civil case brought by the Australian Securities and Investments Commission (ASIC) against John Greaves, former chairman of telecommunications company One.Tel (along with three of the company’s executive directors) for breach of statutory care of duty.

An attempt by Greaves to have the claim struck out because his was non-executive role (and other non-executive directors were not included in the action) was refused by the New South Wales Supreme Court – suggesting that his role did carry an extra duty of care.

Bearing on this were the specific tasks and responsibilities Greaves held in the company (he was founding director and chaired the finance and audit committee), his experience (a qualified accountant with significant experience) and remuneration (A$50,000/year).

The ASIC has hailed this as landmark decision. It believes board chairs have responsibilities beyond that of other directors and argues that these include:
* the general performance of the board;
* the flow of financial information to the board;
* the establishment and maintenance of systems for information flow to the board;
* the public announcement of information;
* the maintenance of cash reserves and group solvency;
* making recommendations to the board as to the group’s prudent management.

The NSW Court decision puts company chairs in the spotlight on both sides of the Tasman, according to law firm Chapman Tripp.

The firm’s newsletter points out that Companies Act legislation here can be interpreted in similar way in that “the director’s role in the company ‘in fact’ will be relevant to determining any duty of care”.

Counsel notes that corporate governance is coming under increasing legal and public scrutiny in the wake of high-profile company collapses.

“In turn, chairmen are becoming better qualified, more experienced and demanding better compensation. In these circumstances, it seems fitting they should also be subject to higher standard of care.”

Directors on both sides of the Tasman will be hanging out for final judgments on the ASIC action so they can discover to what extent they really are in the board’s hot seat.

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