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Practical implications of the James Hardie Decision
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20 May 2009
On 23 April 2009, Justice Gzell of the New South Wales Supreme Court delivered his judgment in Australian Securities and Investments Commission v Macdonald (No. 11)
[2009] NSW SC 287.
The case brought by ASIC in February 2007, against former and current directors and executives of James Hardie Industries Limited, arose from statements made by the company in relation to the restructuring of the company and the capacity of a foundation established by the company to meet future asbestos liabilities.
ASIC's statement of claim stated that the non-executive directors 'knew, or ought to have known and it was the fact that' if James Hardie made a false or misleading statement about funding for asbestos liabilities and 'if the misleading nature of the statement was revealed, it would be harmful to (Hardie's) reputation and could jeopardise market perceptions of (Hardie) and the separation proposal'.
ASIC claimed that the duties of the directors required them to be satisfied that the statements made were correct in all respects. In fact the directors knew, or ought to have known, that the ASX announcement was false.
Our substantial analysis considers the:
- impact of the decision on the statutory duty of care and diligence, particularly for non-executive directors
- practical implications for the:
- conduct of board meetings
- recording of board decisions
- directors not physically present at a meeting
- relative importance of reviewing announcements of decisions as distinct from the decisions themselves
- delegation of authority to review draft announcements, and
- timing of the provision of draft announcements to the board.
Key recommendations:
- Draft announcements on significant matters should be provided with board papers.
- Directors should seek assurance that internal processes for preparing draft announcements have been followed
- Directors who are not physically present at a board meeting should insist on having the same material as their colleagues or be satisfied that the absence of the material is not important.
- Draft ASX announcements should be treated with the same degree of care as the underlying substantive board decisions.
- Directors should regard communications strategy as an area requiring their full attention
- For very significant board decisions, the board should consider whether it should approve the final announcement, even if a proper delegation regime is in place.
- In some cases, directors should abstain on a vote rather than 'going along' with a collective decision, and request that the minutes record their reasons for abstention.
- Formal resolutions should be put on all matters arising for board decision.
- The minimalist approach to keeping minutes will come under increased pressure.
- If the next board meeting is not within one month, draft minutes should be circulated for discussion within a period set by the board.
- Draft minutes should be reviewed carefully before adoption.
- Directors will be judged in the light both of what they know and of what they ought to know in placing reliance on others and in reviewing announcements.
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For more information please contact:
Mark Standen
T:+61 2 9921 4902
Carolyn Reynolds
T: +61 (0)3 8608 2160
Michael Barr-David
T: +61 (0)2 9921 4818
Ross Freeman
T: +61 (0)3 8608 2648
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© Minter Ellison 2010
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 Mark advises on Corporations Law and Listing Rule compliance, corporate governance issues, life insurance regulation and insurance industry restructuring, and M&As. He has acted on various floats and fundraising activities including AMP Society's demutualisation and listing. |
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