A recent High Court Decision in Australian Securities and Investments Commission v King  HCA 4 provides further clarity to the contentious issue of Shadow and De Facto Directorships.
The key issue in the case was the construction of the definition of ‘officer of a corporation’ under s9 of the Corporations Act 2001 (Cth) (the Act).
Mr King was the CEO and an executive director of MFS Ltd (also known as Octaviar Ltd), the parent company of the MFS Group of companies (MFS Group). Premium Income Fund (PIF) was the largest registered managed investment scheme in the MFS Group and MFS Investment Management Pty Ltd (MFSIM) was its responsible entity.
Mr King did not hold a formal ‘officer’ role in the subsidiary company MFSIM.
The High Court appeal relates to ASIC’s contention that Mr King was liable under s601FD of the Act (which imposes duties on ‘officers’ of responsible entities) as an ‘officer’ of MFSIM.
The key question under consideration by the Court was therefore, whether Mr King met the definition of ‘officer’ under para (b)(ii) of the definition of ‘officer of a corporation’ s 9 of the Act.
The Queensland Supreme Court of Appeal found that Mr King did not fall within the definition. In order for Mr King to meet the definition within para (b)(ii), the Court held that ASIC needed to prove that Mr King had acted in an ‘office’ of MFSIM, in the sense of a ‘recognised position with rights and duties attached to it’.
ASIC argued that this construction was incorrect.
The High Court unanimously held that Mr King was an ‘officer’ of MFSIM within the definition of ‘officer’ in para (b)(ii), overturning the Queensland Court of Appeal’s narrower interpretation.
In their judgement, Keifel CJ, Gageler J and Keane J held that the Court of Appeal erred in giving ‘officer’ its ordinary meaning (ie the holder of an office) ‘contrary to the orthodox view’.
An officer of a corporation includes a person who has engaged in certain conduct (para (b)(i)), who has a certain kind of capacity (para (b)(ii)), or who has (or had) a certain influence on the directors of the corporation (para (b)(iii)). The question was not whether Mr King held a named office in MFSIM. Taken together, the facts and circumstances described compelled the conclusion that Mr King was a person who had the capacity to significantly affect the financial standing of MFSIM.
In the words of ASIC Chairman John Price this decision provides ‘clear guidance on who is an “officer” of a corporation and establishing that the duties and responsibilities to a company, its creditors and shareholders under the Act will apply to individuals who have the capacity to significantly affect the financial standing of a company’.
Mr Price said that the decision ‘sends a clear signal to anyone running a company – in name or in effect – that they should be responsible and held accountable for their actions’.