An Analysis of the Enforcement of the Statutory Duty of Care by the Australian Securities and Investments Commission

Abstract

One of the most important and widely discussed duties imposed on company directors and officers is the duty in s 180(1) of the Australian Corporations Act 2001 to act with reasonable care and diligence. It is a duty that can be enforced by both private plaintiffs and the Australian Securities and Investments Commission (ASIC). The authors undertake an empirical study of all cases brought by ASIC for breach of the duty to act with care and diligence during the 25-year period 1993–2017 in order to assess the extent to which ASIC is changing governance standards through litigation. We find that ASIC has been ambitious in pushing the boundaries of s 180(1) and has had a strong success rate, proving a contravention in 83% of cases brought, and in a wide range of factual situations. The most common category of case in which a breach was proven was causing the company to breach the law, failing to prevent the company from breaching the law or committing acts which were inherently likely to constitute a breach of the law. There is a strong public interest focus in s 180(1) litigation, given that the main penalty sought by ASIC, and ordered by the courts, is disqualification from managing companies, which is a remedy that has as its primary objective the protection of the public. The high success rate, combined with the wide range of factual scenarios in which ASIC has established a breach, indicates that ASIC has had a significant impact on governance standards applicable to directors and officers of companies.

Keywords: Directors’ Duties, Directors’ Duty of Care, Enforcement, Governance Standards, Australian Securities and Investments Commission