Centro and the Monitoring Board – Legal Duties Versus Aspirational Ideals in Corporate Governance
Jennifer G. Hill
University of Sydney - Faculty of Law; European Corporate Governance Institute (ECGI)
University of New South Wales Law Journal, Vol. 35, No. 1, pp. 341-359, 2012
Sydney Law School Research Paper No. 12/70
ECGI - Law Working Paper No. 195/2012
Pothers about liability risks for company directors and officers are nothing new in corporate law. The global financial crisis, however, created a unique and unfamiliar commercial matrix in which such concerns were played out. Although Australia fared better than many jurisdictions during the global financial crisis, nonetheless, the crisis had some significant commercial and legal effects, including in the area of directors’ liability.
One decision highlighting the potential dangers for directors in this regard is ASIC v Healey (2011) 196 FCR 291) ('Centro liability decision'), an Australian decision concerning financial disclosure and breach of directors’ duties, which has been described in the US as a 'wake-up call from down under'. This article explores an apparent incongruity between the Centro liability decision, which has been criticized for its stringency, and the subsequent penalty decision ('Centro penalty decision'), which some have considered far too lenient.
This article argues that, rather than signifying inconsistency, the Centro liability and penalty decisions form vital complementary parts, which reflect an underlying tension in the area of directors’ duties between legal rules and aspirational standards. The same tension also underpins the law in this area in the United States. The article examines the Centro litigation through a comparative law lens, contrasting it with some leading US case law on directors’ duties, including Smith v Van Gorkom, In re Caremark International Inc. Derivative Litigation, and the Disney litigation.
Number of Pages in PDF File: 20
Keywords: global financial crisis, corporate governance, directors, boards, monitoring, directors’ duties, directors’ liability, duty of care, business judgment rule, duty of oversight, Centro litigation, financial disclosure
JEL Classification: G18, G28, G30, G32, G38, K20, K22, O16
Date posted: September 13, 2012 ; Last revised: October 23, 2014