In Australian Securities & Investments Commission v Lewski, Australian Securities & Investments Commission v Wooldridge, Australian Securities & Investments Commission v Butler and Australian Securities & Investments Commission v Jaques [2018] HCA 63 the High Court of Australia unanimously allowed, in part, four appeals by ASIC from a decision of the Full Court of the Federal Court of Australia that the four directors had not breached their duties as officers under the Corporations Act. The High Court reinstated declarations, made by the primary judge, that the respondent director in each of the four appeals (“the four directors”) had contravened the Corporations Act 2001 (Cth), and remitted those matters to the Full Court for determination of penalties, disqualification orders, costs, and a cross-appeal to that Court. Background.
Each of the four directors was a director of Australian Property Custodian Holdings Ltd (“APCHL”), the responsible entity of a managed investment scheme The Prime Retirement and Aged Care Property Trust (Prime Trust).
On 19 July 2006, the four directors resolved to amend the scheme’s constitution (without member approval) to introduce, without corresponding benefit to the members of the scheme, substantial new fees payable to APCHL (“the Amendment Resolution”). One of the new fees was a “Listing Fee” payable upon the listing of the scheme’s units on the Australian Securities Exchange. On 22 August 2006, all five directors resolved to lodge the amended constitution with the Australian Securities & Investments Commission (“ASIC”) (“the Lodgement Resolution”). The amended constitution was lodged the next day and would have taken effect then if valid. In 2007, the directors acted to cause the Listing Fee to be paid to companies associated with one of the directors (“the Payment Resolutions”).
ASIC commenced proceedings in the Federal Court of Australia alleging breaches of duties concerning the Lodgement and Payment Resolutions, and contraventions of related party transactions provisions (ss 208 and 209(2)) of the Corporations Act by payment of the Listing Fee.
The primary judge held that the Amendment Resolution was invalid for non-compliance with s 601GC(1)(b) of the Corporations Act, and that the contraventions alleged by ASIC were established. His Honour disqualified each of the four directors from managing corporations and ordered pecuniary penalties against all five directors. On appeal, the Full Court set aside the orders and declarations made by the primary judge.
On appeal, the High Court held that each of the Lodgement Resolution and Payment Resolutions was invalid. Those resolutions adversely affected members’ rights, so the amendments did not comply with s 601GC(1) of the Corporations Act. The concept of interim validity relied upon by the Full Court is not supported by the text or protective purpose of s 601GC. The Court held that the duties of APCHL and the directors were not satisfied by an honest or reasonable belief in the validity of the amendments and that each of the alleged breaches had occurred.
ASIC’s Listing Fee appeal was not allowed.
ASIC did not ask the High Court to set aside the Full Federal Court’s finding that the fifth director Mr Peter Clarke had not breached his duties and no adverse findings were made against him by the High Court.
