11 April 2024

Federal Court decision pierces the corporate veil for breach of director duties

Holding Redlich


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Regulators such as ASIC are willing to use the personal liability of directors as a tool in their deterrence efforts.
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The recent case of Australian Securities and Investments Commission v Holista Colltech Ltd [2024] FCA 244 is a good example of the willingness of regulators such as ASIC to use personal liability of directors as a powerful tool in their deterrence efforts.

The Federal Court pierced the corporate veil by holding both the company and its director personally liable for making misleading representations and participating in conduct which led to breaches of the company's continuous disclosure obligations under the Corporations Act 2001 (Cth) (Act).


Holista Colltech Limited (Holista) is a Western Australian biotech company and distributer of a sanitiser spray product called 'NatShield'.

On 9 April 2020, Holista announced to the Australian Securities Exchange (ASX) that it had received a $3.8 million order of 415,000 bottles of NatShield placed by Health Therapies LLC (Health Therapies) which was to be delivered over the next two months (9 April 2020 ASX announcement). At the time of the announcement, no such order had been placed.

On 9 July 2020, Holista further announced to the ASX that the targeted sales revenue of $3.8 million from Health Therapies, as stated in the 9 April 2020 ASX announcement, had been scaled back and/or delayed by the purchasing parties. Holista said it now only expected a revenue of $500,000 for the sale of NatShield globally, with approximately a third of those sales coming from Health Therapies.

Separately, NatShield utilises an active ingredient called 'Path-Away' which is a proprietary formula owned or otherwise held by Global Infection Control Consultants LLC (GICC). There were discussions between Holista and GICC concerning Holista's Path-Away distribution rights, product development and other ancillary matters. This resulted in a draft Binding Collaboration Term Sheet (BCTS) being prepared. Two letters dated 17 and 20 April 2020 were provided to the ASX in which Holista represented the BCTS had been executed between Holista and GICC at a certain time when in fact the BCTS had not been executed by GICC by that particular date.

On 4 August 2021, the Australian Securities and Investments Commission (ASIC) commenced proceedings against Holista and its Managing Director and Chief Executive Officer, Dr Rajendran Marnickavasagar, seeking declaratory relief and pecuniary penalties.


Justice Sarah Derrington of the Federal Court found in favour of ASIC and ordered Holista to pay a penalty of $1.8 million. The Court held Holista breached its continuous disclosure obligations under the Act by failing to notify the ASX that it had not placed orders for, nor was it likely to receive orders for 415,000 bottles of NatShield totalling $3.8 million in revenue from Health Therapies for delivery between April and June 2020. Further, Holista had engaged in misleading conduct by representing such a statement in its 9 April 2020 ASX announcement.

The Court also held Dr Marnickavasagar personally liable for a breach of section 180 of the Act by failing to discharge his duties to Holista with the requisite degree of care and diligence expected of a director in his position. Dr Marnickavasagar's actions considered by the Court as contravening section 180 include making or alternatively authorising or permitting Holista to make or give:

  • the 9 April 2020 ASX announcement, with misleading representations made regarding the NatShield sales
  • the information in the letter dated 17 April 2020 to the ASX, being false and misleading in relation to when the BCTS was executed
  • the information in the letter dated 20 April 2020 to the ASX, being false and misleading in relation to when the BCTS was executed.

Dr Marnickavasagar breached his director duties by failing to take all necessary steps to ensure that any announcement or other document he approved for submission to the ASX was not misleading and failed to withdraw or correct existing announcements or documents made to the ASX so that it was not misleading.

The Court found that Dr Marnickavasagar's actions permitted Holista to contravene its continuous disclosure obligations, make misleading representations to the ASX and consequently, expose Holista to the risk of legal proceedings being initiated against them by ASIC.

For breaching his duties as director, Dr Marnickavasagar was ordered to pay $200,000 towards ASIC's costs of the proceedings and was disqualified from managing a corporation for four years.

Key takeaways

In general, directors are not personally liable for actions taken on behalf of the company they direct. However, in some circumstances the corporate veil may be lifted and directors can be held personally liable for a company's actions. One situation in which this may occur is where there has been a breach of a director's duties such as in this case, where ASIC has chosen to take enforcement action against not just the company itself but also the Managing Director and Chief Executive Officer for breach of their duties.

The decision in this case highlights the importance of company directors knowing and understanding their duties under the Act, the legal obligations and situations which could give rise to personal liability and how to mitigate against such risks. In addition, ASIC Chair Mr Joe Longo highlighted in a recent speech, "Being a director isn't meant to be easy", that it is important that directors act honestly, have a good understanding of all aspects of the company's business and challenge management to ensure they receive appropriate advice.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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