ASIC sued James Hardie companies and other tennon-executive officers of the company for breaching the various laws andsections of Corporation Act of Australia, 2001. The above case was under thejudgment of Gzell J. During the investigation of the case Gzell found thedirector and other seven non executive staff has breached the Section 180 ofthe Australian corporation act under which they were supposed to act with duecare and diligence. In Announcement of ASX 2001, JHIL claimed that they havefunded $284 million dollar for compensation to the injured persons with theirasbestos medicine which was actually a misleading and deceptive information andall the executive officer including director have breached Section 180(1),acting with due care and diligence.
With respect to the deed, the Director andthe general counsel has breached the section 180(1) of the act. Further, inthis, CEO and CFO and general counsel have also breached the section 180(1) bynot advising the Board correctly and wisely. Even if the there was no loss ordamage happen to any of the investor but if it happened who would have beenliable for that, as the company was not having sufficient funds to compensate. Incontinuation to this, the CEO James Hardie has breached the section 180(1) dutyof due care and diligence in respect of approving the ASX announcement whichwas misleading and deceptive. JHIL has also breached the section 995(2) and 999by the act in respect of releasing the wrong and deceptive information in ASX announcement.Along with this, the company also fails to complywith the section 1041H, under which they mislead and deceived the informationin ASX announcements.
The court of New South Whales found James Hardie CEO ofthe company guilty in breaching the section 1041H and 1041E for misleading theinformation in announcements.Analyzing the situation and findings, it was seenthat there were number of allegations against James Hardie and the company byASIC on their announcements, intelligence, nature and structure of the companyand others. In August 2009, Gzell came to the conclusion andimposed following punishments to the CEO, CFO and other non-executive officers-ü Disqualified CEO from manager position for next 15years and imposed fine of $3.5 millionü The general counsel was disowned from his position andmanagerial duties for next 7 years minimum and was fined $75,000.ü CFO was disqualified from his duties for next 5years and imposed a heavy fine of $35,000.ü The company JHINV was held liable and suppose to payfine of $80,000.ü The other non-executive officers were barred from theirduties for 5 years and imposed fine of $30,000 eachIn this case, ASIC also rose the breaching ofSection 181 on James Hardie but failed to made obligation against him. Therewere numerous numbers of breaches done by the company and everyone involved waspunished and held liable for the breach.
Impact of Decision on Australian companiesThe decision made by the court was an achievement inthe corporate governance of Australia. This was a benchmark and a landmarkdecision for the governance which will be treated as lesson for every companyin ASX to work with duty of care and diligence and in a good faith. It came upwith a broadened clarification and guidance on the application of the duties ofexecutive officers and the directors while taking important decisions of thecorporation while disclosing facts and figures to the market to give the real picture.Along with this the major impact on the companies were-v The decision is guidance is direction on the leveland responsibility of the non-executive directors of the companies and the waysto manage the strategic and important matters of the company and disclosingthese decisions in the open market.v It is an example for the companies to look into thematters more precisely and carefully.v Now the directors should be more cautious andinclined towards the decisions of the board meetings and should understand theimportance of duty of care and due diligence. v Along with this, the ASIC has also broadened itsprosecution for the directors which means the non-executive officers are alsoin line of firing as the executive officers.
So, non-executive officers ordirectors cannot escape from their liability.Apart from the above impact, it was a alarmingdecision for other Australian companies to follow the basic sections of the actand ensure that the important and vital decisions are being noted in minutes.Also, the directors must have the real documents or the proofs for the data orfinancials they are providing in the meeting and in ASX announcements.
It isthe duty of the director to read the document thoroughly before signing or approvingthe document. Also, he/she must speak up if they found something wrong or notright in the documents or the decision. It is not only for the directors, thegeneral counsel also held some duties which include protecting corporation fromlegal obligations and he/she cannot reject the role of general counsel anytime