The directors are the main backbones of any company and they are provided with numerous duties and liabilities the breach of which can make them liable as per the said Act. One of such duties is the continuous disclosure of information that has the effect on market value. Continuous disclosure exists on the principle such that all the investors must have equal access to the company information regularly. In the present assignment, this duty of the directors will be emphasised in the light of the statement made by Middleton Justice in the case of ASIC v Healey (2011) 196 FCR 291. Although such duty is mandatory as per the provisions of the said Act yet there are times where such disclosure is not required.

The issue here is to analyse whether directors of a company shall certify the fairness and trustworthiness of the financial statements by publishing it in the annual reports when those matters are not disclosed in the light of section 674 of the Corporations Act 2001 (Cth).

In Australia, the business entities are mostly dealt under the effect of the Corporations Act 2001 (Cth) which is the Act of the Commonwealth of Australia at both interstate and federal level. It is the primary legislation that regulates the working, control and governance of the company. A company has the duty to reveal information so that all investors and shareholders are well informed about the company affairs.

The directors of any company can be personally held liable in case the concerned company fails to provide continuous disclosure. This is enumerated in section 674 of the Act. Similar provisions were given in the Listing Rule 3.1. This is important because it is the duty of the directors to act in good faith to result the best possible interest of the company and also for an adequate purpose as laid down in section 181 of the Act.

In the said case, the annual reports of the Centro Group of Companies did not reveal important matters. The matter that was not revealed was crucial regarding risk assessment of the Centro. Revealing such information to the shareholders or the market as the case may be is regarded as one of the main purposes of the Act such that the financial reports and statements have to be prepared as well as published. The directors are bound to approve them considering that they provide true and accurate information.

In this case, the non- disclosed matters are known to the directors. As the information was known to them, they are not supposed to certify them by publishing them. Here the case of Francis v United Jersey Bank (1981) 432 A 2d 814 can be referred where the judge held that directors are important part of corporate governance. The directors have the duty to analyse the information available to them, understand them, apply an inquisitive mind to interpret it. If they do not do so, then they breach the fiduciary duties they have towards the company and will be liable to ASIX.

As per ASIX Rule 3.1 various information that are available to the directors must be revealed. In case the directors fail to do so such that the directors give, permit or authorize misleading or false information to the ASIX by not taking reasonable measures to ensure the trustworthiness of the information will said to breach section 1309(2) that imposes a penalty of 2 years imprisonment. Similarly as per section 1041H, no person is allowed to engage in any conduct related to financial service or product which is false or deceptive and if any one does so, then he will be liable to breach section 1041H of the Act. This can be supported by the decision given in James Hardie case ASIC v Hellicar (2012) HCA 17 where the directors breaching the above provision will the directors liable under section 180(1) as it will amount to violation of the director’ duties of diligence and care. Similar observation was made by the court in the case of Forrest v ASIC (2012) HCA 39. Failure to provide continuous disclosure will result into committing an offence by the director and he is made liable for criminal or civil liability.

However there certain provisions as given under ASX Listing Rule 3.1A where continuous disclosure is not required. This is an exception to the ruled of continuous disclosure. Such disclosure is not needed when it will be the breach of law if such information is revealed or the information is regarding any incomplete negotiation or proposal or when the information is about a trade secret or such information is generated regarding the internal management reasons. Moreover such information does not required when no reasonable person will expect disclosing the information. Thus it is seen such disclosure is required when the matter to be disclosed is crucial to the company’s interest. This can be supported by Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405.

Thus it is seen that the statement made by Middleton is relevant and significant as it indirectly helps the directors to avail the safe harbour shield in case the company undergoes insolvency. They must always analyse the information regarding financial statements minutely before allowing publication of the same in the annual reports. When they are sure about the fairness and trustworthiness of the information, then they shall disclose them by publishing. This will protect the directors from insolvent trading claim such than they can establish that they have undertaken adequate course of action which is expected to result better and positive outcome of the company.

The rationale behind this is that the directors of the company must be proactive while taking steps to act in the best interest of the company. When it has been decided by the directors that a proper course of action is to be undertaken by them in order to come under the ambit of the safe harbour provision, they must consider whether and if yes by what means it can be disclosed to the third parties that they are under the safe harbour umbrella. This can be achieved by adhering to the disclosure obligation. Thus the directors must always keep themselves up to date regarding the company affairs and they shall only keep continuous oversight over this. The information regarding financial statements will be published which are certified by them to be true and perfect. For this the directors are needed to have financial knowledge. Thus it can be said that the directors are responsible for the financial quality as they are authorised to approve them.

Bibliography:

Chapple, Larelle, and Thu Phuong Truong. “Continuous disclosure compliance: does corporate governance matter?.” (2015) Accounting & Finance 55.4: 965-988.

Du Plessis, Jean, and Jim Mathiopoulos. “Defences and relief from liability for company directors: Widening protection to stimulate innovation.” (2016) Australian Journal of Corporate Law 31: 17-07.

Katselas, Dean. “Insider trading in Australia: Contrarianism and future performance.” (2018) Pacific-Basin Finance Journal 48: 112-128.

Tiba, Firew. “Safe Harbor Carve-out for Directors for Insolvent Trading Liability in Australia and Its Implications.” (2019) USFL Rev. 53: 43.

ASIC v Healey (2011) 196 FCR 291.

Forrest v ASIC (2012) HCA 39.

Francis v United Jersey Bank (1981) 432 A 2d 814.

James Hardie case ASIC v Hellicar (2012) HCA 17.

Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405.

ASX Listing Rules, Chapter 3: Continuous disclosure, Listing Rule 3.1.

Corporations Act 2001 (Cth).