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Centro and the Monitoring Board – Legal Duties Versus Aspirational Ideals in Corporate Governance

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

20 Pages Posted: 13 Sep 2012 Last revised: 23 Oct 2014

Jennifer G. Hill

The University of Sydney Law School ; European Corporate Governance Institute (ECGI)

Date Written: 2012

Abstract

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.

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

Suggested Citation

Hill, Jennifer G., Centro and the Monitoring Board – Legal Duties Versus Aspirational Ideals in Corporate Governance (2012). 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. Available at SSRN: https://ssrn.com/abstract=2145717

Jennifer G. Hill (Contact Author)

The University of Sydney Law School ( email )

New Law Building, F10
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9351 0280 (Phone)
+61 2 9351 0200 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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