In Australian Securities and Investments Commission v King  HCA 4 the High Court of Australia decided that the word “officer” as defined in section 9 of the Corporations Act 2001 (Cth) included “a person … who has the capacity to affect significantly the corporation’s financial standing” even if the person does not hold or occupy a named office in a corporation or a recognised position with rights and duties attached to it.
The relevant test is a matter of fact and circumstance to determine whether a person has the requisite capacity to significantly affect the financial standing of the company. Background.
In this case the trial judge’s factual finding that Mr King acted as the “overall boss of the MFS Group” and assumed “overall responsibility for MFSIM”, were sufficient to establish that Mr King had the capacity to affect significantly the financial standing of the subsidiary MFSIM even though he had ceased to be a director of MFSIM at the relevant date.
The result of the decision is that Mr King breached his duties as an officer under the Corporations Act, despite the fact he ceased being a director of the subsidiary before it became insolvent.
The trial judge found that the CEO of MFS Group, Mr. King, and deputy CEO, Mr. White, breached their responsibilities as officers in the company. Mr. White and others were also found to have falsified documents relating to certain payments.
Mr King, was the Chief Executive Officer and an executive director of MFS Ltd, the parent company of the MFS Group of companies.
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 had ceased to be a director of MFSIM in February 2007.
MFSIM entered into a $200 million loan facility with the Royal Bank of Scotland on 29 June 2007 (“the RBS loan facility”). The RBS loan facility was to be used solely for the purpose of PIF, and not for the purposes of other companies in the MFS Group.
On 27 November 2007, MFSIM and senior personnel in the MFS Group, including Mr King, arranged for $150 million to be drawn down from the RBS loan facility. Of these funds, $130 million was paid to MFS Administration Pty Ltd (“MFS Administration”), the treasury company of the MFS Group.
MFS Administration used $103 million of those funds to pay an outstanding debt in the name of MFS Castle Pty Ltd, a wholly owned subsidiary of MFS Ltd.
No agreement had been reached by which MFSIM received any consideration for this payment, nor was there any promise of repayment or security for the transaction.
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Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.