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

Company and Securities Law Journal, Vol. 36, No. 6, pp. 497-521, 2019

U of Melbourne Legal Studies Research Paper No. 845

27 Pages Posted: 6 Mar 2019 Last revised: 8 Oct 2019

See all articles by Ian Ramsay

Ian Ramsay

Melbourne Law School - University of Melbourne

Benjamin Saunders

Deakin University, Geelong, Australia - Deakin Law School

Date Written: August 1, 2018

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

Suggested Citation

Ramsay, Ian and Saunders, Benjamin, An Analysis of the Enforcement of the Statutory Duty of Care by the Australian Securities and Investments Commission (August 1, 2018). Company and Securities Law Journal, Vol. 36, No. 6, pp. 497-521, 2019; U of Melbourne Legal Studies Research Paper No. 845. Available at SSRN: https://ssrn.com/abstract=3334694

Ian Ramsay (Contact Author)

Melbourne Law School - University of Melbourne ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
+61 3 8344 5332 (Phone)

HOME PAGE: http://law.unimelb.edu.au/about/staff/ian-ramsay

Benjamin Saunders

Deakin University, Geelong, Australia - Deakin Law School ( email )

221 Burwood Highway
Burwood
Burwood, Victoria 3125, Victoria 3125
Australia

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