The king and li-ability as an "officer" of a company
Posted on March 19, 2020
In March 2020, the High Court unanimously overturned a decision of the Court of Appeal of the Supreme Court of Queensland (Court of Appeal) which held that an individual who acted as “the overall boss” and assumed “overall responsibility” of a group of companies was not an “officer” of a company for the purposes of s 9 of the Corporations Act 2001 (Cth) (Act) on the basis the individual did not occupy a named office or a recognised position within that company.
The First Respondent, Mr King, was the Chief Executive Officer and an executive director of MFS Ltd, the parent company of the MFS Group (the MFS Group). The MFS Group was involved in funds management and financial services.
The Second Respondent, MFS Investment Management Pty Ltd (MFSIM), was a company within the MFS Group and was the “responsible entity”[1] for the MFS Group’s largest registered managed investment scheme known as the Premium Income Fund (PIF).
Mr King was a director of MFSIM but relevantly ceased being a director of MFSIM in February 2007.
In November 2007 (after Mr King had ceased being a director of MFSIM), MFSIM and senior personnel in the MFS Group (including Mr King) drew down approximately $150 million from a loan facility which was entered into by MFSIM solely and specifically for the purpose of PIF. However, instead of using those funds for PIF, MFSIM used the funds to pay down debts of other companies within the MFS Group in contravention of s 601FC of the Act (Duties of Responsible Entities).
The Applicant, ASIC, alleged, among other things, that Mr King was directly liable as an officer of MFSIM under s 601FD (Duties of Officers of Responsible Entities) notwithstanding he was not a director at the time of the contravention.
The Court of Appeal held that Mr King was not an “officer” of MFSIM at the time of the relevant draw down (and contravention of the Act). The Court of Appeal primarily reached this conclusion by construing the definition of “officer” by reference to the terms ordinary meaning as ‘the holder of an office’.
The High Court held from consideration of, among other things, the legislative context, history and purpose of the section, the definition of the term “officer” (including “officer of a corporation” under sub-paragraph (b)(ii) of the definition of “officer”) was not confined to individuals who held a named office or position. Rather, and similarly to a ‘shadow director’, given Mr King was found to have capacity to significantly affect the financial standing of the company, he was an “officer of a corporation”.
In summary, when determining whether an individual has obligations and duties under the Act, it is important to consider the actions of the individual and the influence they have over the company, rather than focusing on whether or not they are a named office holder within the company.
If you have a query relating to whether or not an individual is exposed to a potential breach of duties under the Act or if you are unsure whether an individual may fit the definition of “officer” even though they are not the holder of an office, please do not hesitate to get in contact with us.
[1] S 9 of the Act (“responsible entity” of a registered scheme means the company named in ASIC’s record of the scheme’s registration as the responsible entity or temporary responsible entity of the scheme.)
