In Cassimatis v Australian Securities and Investments Commission [2020] FCAFC 52, the Federal Court of Australia – Full Court confirmed that the directors of Storm Financial, Emmanuel and Julie Cassimatis, breached their duties as directors imposed by section 180 of the Corporations Act and dismissed their appeal against the declarations of contravention and penalties ordered after the trial. Background.

Mr and Mrs Cassimatis were the directors and the only shareholders of the company which promoted a double gearing model to investors who suffered losses.

Justice Greenwood concluded:

“The terms of s 180(1) are critical.

The section begins with the emphatic direction that a director or officer of the corporation must exercise their powers and discharge their duties with the degree of care and diligence required by the section.

The requirements of the section are not expressed to be “subject to the will of the shareholders unanimously expressed”. The standard is objective and mandated. The objective standard is measured by the degree of care and diligence that a reasonable person would exercise if they were a director, in the corporation’s circumstances, occupying the office held by the appellants and having the same responsibilities as the appellants. Once it is clear that the calculus engages: (a) the corporation’s circumstances (including, the character of its business; the interactions it has with, in this case, retail investors; and the use of the financial model in framing financial advice to vulnerable retail investors); (b) the responsibilities of the appellants within the corporation; and (c) the extent to which a foreseeable risk of harm or jeopardy to the interests of the corporation arises, by reason of the conduct said to fall short of the standard, it is also clear that the text of s 180(1) adopts a normative objective standard of care and diligence, which goes beyond simply the interests of the shareholders.

Thus, conduct falling short of the standard cannot be sanctioned or ratified.

In other words, the shareholders cannot sanction, ratify or approve, qua themselves as directors, their own conduct in contravention of s 180. Nor can they release themselves from such a contravention. That follows because of the normative, objective, irreducible standard of care and diligence directors must live up to, as adopted by the Parliament according to the text of the section, subject to, when engaged, s 180(2), having regard to the utility of that provision in light of the jurisprudence on that topic mentioned earlier.

Accordingly, the circumstance that, at all material times during the period of the impugned conduct, Storm was solvent and that the appellants acted, at all times, with their own approval in their capacity as the holders of 100% of the issued shares in Storm, of their own conduct, as directors, is not an answer to the question of whether, in their capacity as directors, they failed to discharge the irreducible minimum standard required of them by s 180(1).”

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