Not a Director – But Are You a Company Officer?

There are many instances of statutory duties and liabilities being imposed personally on company directors and officers under current legislation.
These duties apply across an ever- widening range of legislation and activities from workplaces to finance, environmental to consumer affairs.

The imposition of such liability on directors has always been readily accepted and understood, but the casting of the net over influence wielding third parties such as managers and advisers, consultants, contractors and others has long been problematical.

More than a director

The recent unanimous High Court decision of Australian Securities & Investments Commission v King and Anor indicates a potentially broader view and clarification of the category of persons who will be regarded at law as company officers.

Mr King was a CEO and executive director of a publicly listed parent company, MFS Pty Ltd.
There were many companies under the umbrella of the parent company, including, MFS Investment Management Pty Ltd (MFSIM), which was the responsible entity of a managed investment scheme, The Premium Income Fund (Fund).

MFSIM used $130M of a loan of almost $200M from RBS to itself to pay down some debts of MFS, without any contractual or legal obligation, without any consideration or basis of doing so. When MFS subsequently went into liquidation, the Fund suffered the loss of the monies used to pay the MFS debts.

The role of Mr King and others was the basis of the ASIC investigation and prosecution and ASIC contended that the payment of the $130 million to pay the debts of MFS amounted to a misappropriation of funds from the Fund.
Mr King, although a director of the Parent Company, was not a director of MFSIM.

ASIC alleged that Mr King, as an “officer” of a responsible entity (MFSIM) of a registered scheme (the Fund), he had not acted honestly, or with a degree of care and diligence, or in the best interests of the members of the Fund had breached s.601FD(1)(e) and (f) of the Corporations Act which requires an officer of a responsible entity to a registered scheme to act honestly, with care and diligence, and in the best interests of members of the scheme.

In the structure of the MFS Group, the Fund was a registered scheme, and MFSIM was its responsible entity.

Part (b) of the definition of “officer” in S. 9 of the Corporations Act defines “officer” as including a person:
i. Who makes or participates in making decisions that affect the whole … of the business of the corporation;
ii. Who has the capacity to affect significantly the corporation’s financial standing; or
iii. In accordance with whose instructions or wishes, the directors of the corporation are accustomed to act.

Mr King’s influence
The evidence at trial indicated that Mr King, whilst not a director of the Fund in fact wielded a great degree of influence over it by:
• regularly giving directions to and initiating steps by MFSIM
• Having an executive director of MFSIM, report directly and frequently to himself in the performance of his own role in MFSIM, and he customarily acted in accordance with Mr King’s instructions and wishes.
• Having a decisive influence over the steps taken by MFSIM,

An objective question of the degree of influence
The High Court found that the question of whether a person was an officer within the meaning of the Corporations Act, is an objective one, both of fact and of degree, and depends upon the level of influence which the person has over the affairs and running of a company. Merely having an influence over company decisions will not necessarily make a person an “officer”, and more was needed to establish the position.

The significance of the decision lies in its opening up of the potential for an increased class of third parties as falling within the definition of “officer” and the consequential liability in any particular instance that would follow such a finding.

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