Australian Securities and Investments Commission v Healey

The Australian Securities and Investments Commission (ASIC) brought proceedings against Healey in the Federal Court of Australia, asserting that he failed to fulfil his obligations as a non-executive director of a company, resulting in financial losses for the company and its shareholders. The dispute primarily revolved around the duties and responsibilities of a non-executive director, specifically the extent to which he could rely on the expertise of management and the necessity for him to maintain a general understanding of the company's business and its financial status.

The central legal issues in the case were the scope and standard of the duty of care and diligence that a non-executive director must exercise, and whether such a director could validly rely on the company's management and external experts without personally reviewing the company's financial statements. The court was also tasked with determining whether Healey's reliance on internal and external processes absolved him from his directorial duties, and if his actions constituted negligence rather than a mere mistake.

The Federal Court examined the statutory duties under the Corporations Act 2001 (Cth), particularly sections 180 and 344, which mandate that directors and officers act with the care and diligence of a reasonable person and avoid reckless trading, respectively. The court referenced previous cases such as AWA Ltd v Daniels and Deputy Commissioner of Taxation v Clark to clarify the nature of the duty of care, emphasising the necessity for directors to possess at least a general understanding of the company's business and its financial health. The court held that while directors need not audit corporate books, they must maintain familiarity with the financial status through regular review of financial statements and be prepared to inquire further when anomalies are detected. The court further determined that the duty of care was not merely subjective but included an objective test of competence and diligence, particularly in cases where the directorial role involved special skills.

Based on the evidence presented, the court found that Healey did not meet the required standard of care and diligence as a non-executive director. His failure to review the company's financial statements and his over-reliance on management and external experts constituted a breach of his directorial duties. Consequently, the court ruled in favour of ASIC, holding Healey liable for his negligence in failing to ensure the company's compliance with its financial obligations.