ASIC sued James Hardie companies and other ten
non-executive officers of the company for breaching the various laws and
sections of Corporation Act of Australia, 2001. The above case was under the
judgment of Gzell J. During the investigation of the case Gzell found the
director and other seven non executive staff has breached the Section 180 of
the Australian corporation act under which they were supposed to act with due
care and diligence. In Announcement of ASX 2001, JHIL claimed that they have
funded $284 million dollar for compensation to the injured persons with their
asbestos medicine which was actually a misleading and deceptive information and
all the executive officer including director have breached Section 180(1),
acting with due care and diligence. With respect to the deed, the Director and
the general counsel has breached the section 180(1) of the act. Further, in
this, CEO and CFO and general counsel have also breached the section 180(1) by
not advising the Board correctly and wisely. Even if the there was no loss or
damage happen to any of the investor but if it happened who would have been
liable for that, as the company was not having sufficient funds to compensate. In
continuation to this, the CEO James Hardie has breached the section 180(1) duty
of due care and diligence in respect of approving the ASX announcement which
was misleading and deceptive. JHIL has also breached the section 995(2) and 999
by the act in respect of releasing the wrong and deceptive information in ASX announcement.
Along with this, the company also fails to comply
with the section 1041H, under which they mislead and deceived the information
in ASX announcements. The court of New South Whales found James Hardie CEO of
the company guilty in breaching the section 1041H and 1041E for misleading the
information in announcements.
Analyzing the situation and findings, it was seen
that there were number of allegations against James Hardie and the company by
ASIC on their announcements, intelligence, nature and structure of the company
In August 2009, Gzell came to the conclusion and
imposed following punishments to the CEO, CFO and other non-executive officers-
ü Disqualified CEO from manager position for next 15
years and imposed fine of $3.5 million
ü The general counsel was disowned from his position and
managerial duties for next 7 years minimum and was fined $75,000.
ü CFO was disqualified from his duties for next 5
years and imposed a heavy fine of $35,000.
ü The company JHINV was held liable and suppose to pay
fine of $80,000.
ü The other non-executive officers were barred from their
duties for 5 years and imposed fine of $30,000 each
In this case, ASIC also rose the breaching of
Section 181 on James Hardie but failed to made obligation against him. There
were numerous numbers of breaches done by the company and everyone involved was
punished and held liable for the breach.
Impact of Decision on Australian companies
The decision made by the court was an achievement in
the corporate governance of Australia. This was a benchmark and a landmark
decision for the governance which will be treated as lesson for every company
in ASX to work with duty of care and diligence and in a good faith. It came up
with a broadened clarification and guidance on the application of the duties of
executive officers and the directors while taking important decisions of the
corporation 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 level
and responsibility of the non-executive directors of the companies and the ways
to manage the strategic and important matters of the company and disclosing
these decisions in the open market.
v It is an example for the companies to look into the
matters more precisely and carefully.
v Now the directors should be more cautious and
inclined towards the decisions of the board meetings and should understand the
importance of duty of care and due diligence.
v Along with this, the ASIC has also broadened its
prosecution for the directors which means the non-executive officers are also
in line of firing as the executive officers. So, non-executive officers or
directors cannot escape from their liability.
Apart from the above impact, it was a alarming
decision for other Australian companies to follow the basic sections of the act
and 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 or
financials they are providing in the meeting and in ASX announcements. It is
the duty of the director to read the document thoroughly before signing or approving
the document. Also, he/she must speak up if they found something wrong or not
right in the documents or the decision. It is not only for the directors, the
general counsel also held some duties which include protecting corporation from
legal obligations and he/she cannot reject the role of general counsel anytime