On 11 March 2020 the High Court of Australia handed down judgment in the case of Australian Securities and Investments Commission v King  HCA 4, with the judgment providing a long-awaited clear definition of what an 'officer' means under section 9 of the Corporations Act 2001 (Cth) (the Act).
The High Court's unanimous judgment, which was favourable to ASIC, determined that Mr King was an 'officer' as defined in section 9(b)(ii) of the Act, as the provision is not only confined to those who hold or occupy a named office in a corporation or a recognised position with rights and duties attached to it.
Mr Michael King was the Chief Executive Officer (CEO of) and an executive director MFS Ltd, which was the parent company of the MFS group of companies (MFS Group). MFS Investment Management Pty Ltd (MFSIM) was a subsidiary in the MFS Group and acted as a responsible entity for a handful of registered managed investment schemes, the largest being the Premium Income Fund (PIF).
On 29 June 2007, MFSIM entered into a $200 million facility with the Royal Bank of Scotland (RBS), with this facility to be used by MFSIM for the PIF's purposes. MFSIM then arranged for $103 million of this facility to be used to pay the debt of another company within the MFS Group (MFS Administration Pty Ltd). In the process of the funds being drawn down from the facility, there was no consideration, agreement or security in place, meaning that there was no guarantee that moneys belonging to PIF would be restored.
The MFS Group consequently collapsed, leaving the investors of PIF with significant financial losses.
In 2009, ASIC commenced enforcement proceedings against senior executives of the MFS Group, including Mr King. In these proceedings, ASIC alleged that there had been breaches of the Act on the basis that Mr King was an 'officer' of MFSIM, as he fell within the definition of 'officer of a corporation' under section 9(b)(ii) of the Act.
Section 9 of the Act defines the term 'officer of a corporation' in part as follows:
'officer' of a corporation means:
- a director or secretary of the corporation; or
- a person:
- who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
- who has the capacity to affect significantly the corporation's financial standing; or
- in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation); or
Supreme Court of Queensland
The case first came before Douglas J in the Supreme Court of Queensland, where his Honour found in favour of ASIC, as his Honour was satisfied that ASIC had shown that Mr King was an 'officer' of MFSIM as he had capacity to significantly affect MFSIM's financial standing. This decision was subsequently appealed to the Queensland Court of Appeal.
The Court of Appeal
In the Queensland Court of Appeal, the decision substantially favoured ASIC, however, the Court of Appeal found that in relation to the definition of an officer, Mr King was not an officer of MFSIM at the time of the breach as he was merely acting in his capacity as CEO of the MFS Group, rather than acting in a position or office within MFSIM.
ASIC then appealed this point to the High Court of Australia.
The High Court of Australia
ASIC were ultimately successful in their appeal to the High Court, with all five judges who heard the case ruling in favour of ASIC and overturning the Queensland Court of Appeal's narrower interpretation of what constitutes an 'officer' under section 9 of the Act.
The Court (Kiefel CJ, Gageler, Keane, Nettle and Gordon JJ) held unanimously that paragraph (b)(ii) of the section 9 definition of an 'officer of a corporation' was not limited to individuals who hold or occupy a named office or a recognised position in a corporation with rights and duties attached to it.
This approach by the High Court clarified that the purpose of section 9(b)(ii) of the Act was to extend the meaning of 'officer' beyond a person who merely held an office formally recognised within the corporation.
The High Court made it clear that the relevant test will be a matter of fact and circumstance considered in order to deter whether a person has the required capacity to significantly affect the financial standing of a company. In this case, the fact that Mr King had been acting as the overall boss of the MFS Group and that he had assumed overall responsibility for MFSIM was sufficient for the High Court to determine that Mr King was an 'officer' of MFSIM, due to his capacity to significantly affect the financial standing of MFSIM.
The significance of this decision was aptly summarised by ASIC Commissioner John Price on the day the judgment was handed down when he noted that:
'ASIC notes today's High Court decision, which sends a clear signal to anyone running a company – in name or in effect – that they should be responsible and held accountable for their actions.'
'It provides clear guidance on who is an "officer" of a corporation and establishes that the duties and responsibilities to a company, its creditors and shareholders under the Act will apply to individuals who have the capacity to significantly affect the financial standing of a company'.
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