The Court of Appeal handed down its judgment yesterday, imposing penalties and disqualification periods on the former directors, and general counsel and company secretary of James Hardie for breaches of the Corporations Act 2001 found by the High Court. Subject to any further submissions on costs, the Court of Appeal's judgment marks the conclusion of the James Hardie proceedings, which were commenced by the Australian Securities and Investments Commission (ASIC) in 2007.
In May of this year, the High Court unanimously found the seven former non-executive directors of James Hardie to be in breach of the Corporations Act 2001 in approving a misleading draft ASX announcement in relation to the initial asbestos compensation fund established.
In doing so, the High Court reinstated the findings of contravention against the former directors in relation to their role in approving the misleading draft ASX announcement in 2001, and the finding of contraventions against the former general counsel and company secretary in relation to his failure to advise the board of the misleading nature of the draft ASX announcement (in addition to two other contraventions relating to his failure to advise). The implications of the High Court's findings were outlined in our previous eAlerts on 8th May James Hardie: High Court issues warning to boards - minutes will bind you" and on 7th May 2012 James Hardie: High Court's decision poses new risks for company secretaries and general counsel".
Following the High Court's findings, the issue of penalty was remitted to the Court of Appeal, which convened a hearing last August to hear submissions from all parties.
Court of Appeal's orders on penalty and costs
In summary, the Court of Appeal ordered that the:
- former Australian directors:
- pay a pecuniary penalty of A$25,000 (reduced from A$30,000);
- be disqualified from managing a corporation for a total period of two years and three months (reduced from five years and accounting for the fact that for about one year and four months after the Court of Appeal decision in 2010, no disqualification period was in force), which will end on 30 April 2013 (although Mr Willcox's disqualification period will end on 31 March 2013, accounting for the fact that his period of disqualification commenced approximately one month before the other Australian directors); and
- former US directors:
- pay a pecuniary penalty of A$20,000 (reduced from A$30,000);
- be disqualified for a total period of one year and 11 months (reduced from five years and accounting for the fact that for about one year and four months after the Court of Appeal decision in 2010, no disqualification period was in force), which will end on 31 December 2012.
Consistent with joint submissions made by ASIC and the former general counsel and company secretary, the Court of Appeal ordered that the former general counsel and company secretary pay a pecuniary penalty of A$75,000 and be disqualified for seven years.
All parties were ordered to pay one ninth of ASIC's costs in relation to approval of the draft ASX announcement issues in the 2010 Court of Appeal proceedings.
The judgment reinforces the importance of accurate continuous disclosure by listed companies. It also makes some useful observations about issues of corporate governance and company procedure, especially in relation to:
- the procedure in which decision-making by a board of directors should be undertaken;
- participation in board meetings by telephone, audio-visual link or other like means of communication; and
- the distinction (in terms of the penalties imposed) between directors who are physically present at board meetings and overseas directors who attend board meetings via telephone.
The Court of Appeal's observations provide useful guidance for corporate governance and boardroom procedures.
Murray Deakin, Sylvia Ng and Joni Jacobs of Middletons acted for the former general counsel and company secretary in the James Hardie proceedings.
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