9 Aug 2023While it may be tempting for company directors to somewhat exaggerate their company’s assets and abilities when promoting their firm overseas to garner fresh business investment, it is important to note that directors duties still apply.
Dangers of breaching directors duties while abroad
A company director might, for instance, tell prospective foreign investors that their company already has financial backing to build a new factory or expand into new ventures, when in reality it may be in the pipeline but isn’t quite there yet.
Or they could brag to possible foreign business partners that their mine has discovered gold, diamonds or whatever when it hasn’t.
If a director did this while in Australia, it would breach their duties as a director to provide accurate information and comply with continuous disclosure laws.
But as a recent court case brought by the Australian Securities & Investments Commission demonstrated, directors have the same duty when they are overseas. (Please see Australian Securities and Investments Commission v Australian Mines Limited [2023] FCA 9.)
Directors duties include acting with care and diligence
A former managing director of Australian Mines was fined $70,000 and disqualified from managing corporations for two years in the Federal Court for breaching his duties as a director. He also had to pay ASIC’s legal costs. Australian Mines was fined $450,000. (Please see Former Australian Mines managing director fined $70,000, disqualified for two years.)
The director admitted he failed to act with the care and diligence required of a director when he falsely told investment conferences in Hong Kong and London that his company had secured funding to construct a plant and misleadingly stated its value.
The care and diligence requirements of directors are spelled out in section 180 of the Corporations Act.
Directors duties and continuous disclosure obligations
ASIC Deputy Chair Sarah Court said the director of Australian Mines had an obligation to provide accurate information about his company’s dealings and to make sure it complied with continuous disclosure laws.
“Continuous disclosure obligations are fundamental principles of fairness and transparency that sit at the heart of Australia’s financial markets,” she said.
“When directors fail in their obligations, they undermine these core principles and ASIC will look to take action.”
It is a reminder for ASX-listed companies attending overseas conferences that compliance with Australian company law is expected and enforceable.
Penalties for not complying with disclosure obligations
Section 674 of the Corporations Act imposes strict obligations on companies to disclose certain material events relating to a company’s operation or financial position which are likely to affect the price or value of the firm’s securities.
The penalty could have been harsher. Company directors face fines up to $200,000 and companies up to $1 million for each contravention.
However, in this case the mining company admitted it had breached the Act and took steps to correct the information to the stock exchange.
