The Australian Federal Court’s Centro judgment yesterday in relation to directors’ duties is relevant to New Zealand also, says Chapman Tripp partner Roger Wallis.
The Australian Court references the Feltex decision from the Auckland District Court last year and applies similar principles in the Centro case.
The Judge endorses the New Zealand Court in rejecting the Ministry of Economic Development’s argument that the Feltex directors “should have done it all themselves and become familiar with the complexities of various accounting standards”.
Similarly, the Australian Court accepts that directors are entitled to rely upon specialist advice. Before accepting that advice, however, they must take all reasonable steps, drawing on their own judgement and knowledge, to satisfy themselves that the information they are signing off on is accurate and meets the full disclosure requirements of the law.
There are some important differences between the Feltex and Centro cases – most notably Centro was a civil case covering general directors’ duties, and financial reporting obligations. The Feltex litigation was a narrow criminal proceeding for a strict liability reporting offence, so it was not necessary for the Court to examine broader corporate governance responsibilities.
At the time of the Feltex proceedings, there was no ability in New Zealand for the regulator to take action against a director for breach of directors’ duties. The Financial Markets Authority now has this power under section 34 of the Financial Markets Act and is set to get the right to pursue a criminal prosecution as part of the Government’s Review of Securities Law – but only for egregious misconduct.