Australia: A Storm Warning – Directors duties in tightly held companies

Last Updated: 16 September 2016
Article by Gina Bozinovski

In Part 1 of our Storm Warning series, we examine ASIC v Cassimatis (No 8)1 (Storm 8) for its salutary warning on directors duties, particularly in closely held companies.

In a judgment spanning 218 pages and 838 paragraphs, Justice Edelman ultimately found that Mr and Mrs Cassimatis breached their duties under section 180(1) of the Corporations Act (Act) not just for the actions they took but for the actions they failed to take.

Storm Warning

Storm 8 is important as it issues a clear warning to directors regarding section 180(1) and reaffirms that the obligations of care and diligence turn on the facts and circumstances of each case. The case also emphasises the obligations of directors in closely held companies and how the actions of directors in closely held companies can lead a director to breach section 180(1) of the Act.

When considering whether a director has breached his or her obligations under section 180(1), the courts will look at the actual level of control and the extent of the responsibilities in determining whether a reasonable person, placed in the same position as the director in the director's business, would have acted in the same way as that director did, or would they have taken a different approach (in all of the circumstances).

This is particularly relevant in closely held companies, where the director's level of control is usually more "intimate" than in widely held and larger businesses.

In the latest Storm Financial Ltd (Storm) saga, the Federal Court held that Mr and Mrs Cassimatis breached their duties of "care and diligence" under the Corporations Act by exercising their powers in a way which caused inappropriate advice to investors.

Section 180(1)

In order to understand Justice Edelman's decision, we must first examine section 180(1).

Directors (and other officers) owe several duties towards their companies. One of the main duties is the duty to exercise due care and diligence in discharging duties.

Section 180(1) of the Act states that:

A director is required to exercise their powers and discharge their duties which a reasonable person would exercise if they:

  1. were a director of a company in the company's circumstances;
  2. occupied the office within the company held by the director and had the same responsibilities within the company as a director.

A director or officer must exercise the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a company in the company's circumstances and occupied the office held by, and had the same responsibilities within the company as, the director or officer.

In considering whether a director has met their duties in exercising care and diligence, various circumstances may be considered including the type of company, the size and nature of its business, the composition of its board and the distribution of the work between the board.

Breaching section 180(1)

In Storm 8, Justice Edelman examined the particular actions of the Cassimatis' in determining whether they had breach their duty of care and diligence.

The court found that Mr and Mrs Cassimatis had exercised their powers as directors:

  1. to impose significant control over Storm and its financial affairs;
  2. to specifically develop education workshops which were presented to potential clients and involved strong promotion of the benefits of leveraging high levels of debt (the Storm Model) as means for wealth creation;
  3. were intimately familiar with the Storm Model, its promotion and its application, more than anyone else in the business; and
  4. to create an environment where almost all clients were advised to use the Storm Model.

In determining whether a breach of section 180(1) occurred, the court considered what a reasonable director, in the Cassimatis' circumstances, would do.

Justice Edelman concluded that a reasonable director in the Cassimatis' position would have or should have been aware that if they exercised their powers in the way that the Cassimatis' did, there was a strong likelihood of contravention of the Corporations Act and therefore a breach of section 180(1). This was primarily because the Cassimatis' had caused or permitted clients to invest in the Storm Model in circumstances where those clients should not have been eligible to do so, thereby breaching the relevant provisions of the Corporations Act.

The fact that Mr and Mrs Cassimatis failed to act to prevent or prohibit the use of the Storm Model from being applied in indiscriminate circumstances, led to the court finding that Mr and Mrs Cassimatis breached section 180(1) of the Corporations Act.

In other words, the directors should have taken precautions to prevent the giving of inappropriate advice to investors who were the most vulnerable of Storm's clients.

What this means for you?

In tightly held companies, such as family companies and companies with few shareholders who may also be directors, it is common for directors to exercise a high degree of control over the business and influence the business activities intimately.

Storm 8 makes it clear that the more involved a director is in the business and controls the activities of the business, the more consciously they will need to act to ensure they observe their obligations of due care and diligence, including (amongst other things) taking positive steps to prevent the company being in breach or likely to breach of the Corporations Act.

These positive obligations require consideration of not just the duties and obligations of a director, but also an understanding of the Corporations Act more generally in order to be alert to any likely breaches. A director should also be cognisant of how their actions may be viewed by the "reasonable director" and consider whether their actions are reasonable in that context.

Knowing your obligations and duties is one thing.

Knowing what do to and how to fulfil them is entirely another.

Storm 8 provides a timely warning regarding directors duties in tightly held companies. For more information about your obligations as a director contact our corporate and commercial specialist: Gina Bozinovski.

It remains to be seen whether the Cassimatis' will appeal the judgment. Based on the history of these proceedings, we anticipate an appeal is more likely than not.

Stay tuned for further Storm Warnings.


1Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Gina Bozinovski
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.