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20-060MR High Court of Australia rules in favour of ASIC in finding Group CEO was an ‘officer’ of subsidiary
Earlier today, the High Court of Australia published its reasons for judgment allowing ASIC’s appeal from the Supreme Court of Queensland on the question of whether Michael Christodoulou King, the former CEO and executive director of MFS Ltd (also known as Octaviar Ltd), was an “officer” as defined in s 9 of the Corporations Act 2001 (Cth) of MFS Investment Management Pty Ltd (MFSIM).
At the relevant time, MFS Ltd was the parent company of the MFS Group of companies (MFS Group). MFSIM was a subsidiary in the MFS Group and acted as a responsible entity for several registered managed investment schemes, the largest of which was the Premium Income Fund (PIF).
The court unanimously held that Mr King was an “officer” as defined by s 9(b)(ii) of the Act because the provision is not limited to those who hold or occupy a named office in a corporation or a recognised position with rights and duties attached to it. The factual findings of the primary judge that Mr King acted as the “overall boss of the MFS Group” and assumed “overall responsibility for MFSIM” were sufficient to establish that Mr King had the capacity to affect significantly the financial standing of MFSIM.
ASIC Commissioner John Price said, ‘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,’ Commissioner Price said.
‘The finding that Mr King was an officer of the subsidiary MFSIM, marks the conclusion of long-running litigation which commenced in 2009 and demonstrates ASIC's commitment to pursuing difficult, long-running actions in the public interest.’
The appeal arose from civil penalty proceedings commenced by ASIC against officers and a fund manager of MFSIM in connection with the misappropriation of $147.5 million held by PIF on behalf of unit holders. The misappropriated funds were used to pay debts owed by other entities in the MFS Group.
The appeal was unanimously allowed by Kiefel CJ, Gageler, Keane, Nettle and Gordon JJ. In the joint judgment handed down by Kiefel CJ, Gageler and Keane JJ, their Honours stated:
“If the CEO of the parent company of a group of companies is allowed to act in relation to other companies in the group untrammelled by the duties that attach to officers of each of the other companies in the group, shareholders and creditors would be left exposed to an obvious risk. It would be an extraordinary state of affairs if those who actually determine the course of a company's financial affairs could avoid responsibility for their conduct by the simple expedient of deliberately eschewing any formal designation of their responsibilities. This is especially so in the present case,… to provide protection to members of managed investment schemes by imposing duties and responsibilities on the officers of responsible entities.”
Download High Court of Australia decision
Download High Court of Australia summary of decision https://cdn.hcourt.gov.au/assets/publications/judgment-summaries/2020/hca-4-2020-03-11.pdf
For further background, details of the prosecution of this matter and links to previous decisions refer to 18-385MR.
On 24 April 2020, the High Court of Australia (Bell and Nettle JJ) dismissed Mr King’s application for special leave to appeal from a judgment of the Court of Appeal of the Supreme Court of Queensland and ordered that he pay ASIC’s costs of his application. In its decision, their Honours stated that Mr King’s grounds in support of his intended appeal were “entirely unpersuasive”. Read the transcript of the High Court’s decision here.