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ASIC hands up a mixed report card on D&O prosecutions in 2020

  • Legal Development 08 December 2020 08 December 2020
  • Asia Pacific

  • Insurance & Reinsurance

2020 was a year in which ASIC had mixed success in its prosecution of individual directors and officers.

In October this year, the New South Wales Court of appeal quashed a 2018 criminal conviction of ex-Leighton Holdings CFO Peter Gregg for falsifying Leighton's books, contrary to section 1307(1) of the Corporations Act.

ASIC concluded its investigation into former AMP chairwoman Catherine Brenner and is also understood to have dropped its investigation into Commonwealth Bank directors in the wake of the AUSTRAC scandal.

That said, judgments have been handed down in a number of decisions against directors and officers. These decisions, whilst not necessarily containing principles of law, provide a snapshot of how the Courts are treating actions by ASIC and are likely to shape how ASIC approaches future prosecutions. In this article, we briefly examine three key decisions from 2020.

Australian Securities and Investment Commission v Mitchell (No 3) [2020] FCA 1604

One of the more controversial cases of 2020 involved two former directors of Tennis Australia, Harold Mitchell and Stephen Healy, and a decision on 20 May 2013 to award the television broadcast rights for the Australian Open tennis tournament to the Seven Network. 

ASIC, which brought the civil penalties case in November 2018, alleged that Mitchell and Healy had breached section 180(1) of the Corporations Act by failing to act with reasonable care and diligence in their role as directors. ASIC also claimed that Mitchell had breached sections 182(1) and 183(1) of the Act by using his position as director to gain an advantage for the Seven Network and by improperly using information obtained by him in his position as a director to further benefit the network.

In a judgment delivered on 31 July 2020, Justice Beach of the Federal Court of Australia dismissed ASIC's case against Healy and only narrowly ruled in the regulator's favour against Mitchell, stating that he had breached his duties as a director on only three occasions. Justice Beach dismissed the brunt of ASIC's case (41 out of 44 claims) in a scathing judgment that said the regulator floated 'various cover-up and conspiracy theories' that ultimately lacked substance and displayed confirmation bias.

On 4 November 2020, Mitchell was fined AUD90,000 for the three breaches, falling well short of the maximum penalty available of AUD600,000.

ASIC welcomed the court’s findings in acknowledgement of the message it sends about the important obligations of company officers in discharging their duties. However, the case was largely seen as a loss for ASIC, causing some to (again) question ASIC's judgment in choosing which cases to prosecute.

R v Wong [2020] NSWDC 382

The former CEO and director of biotech company Sirtex Medical, Gilman Wong, was charged with one count of insider trading in September 2018. ASIC alleged that Wong had inside information concerning Sirtex's sales when he sold 74,698 shares (more than a quarter of his holding) in the company on 26 October 2016. The company's stock dropped significantly in December 2016 after the company released a Trading Update downgrading its growth forecasts for the 2017 financial year in light of its sales in the year to date.

Shortly after the share sale, Sirtex issued a statement from Wong clarifying that the reason for the transaction was to cover the tax incurred in relation to a recently vested tranche of rights, and that this was in line with his normal practice over the past three years.

In July 2019, Wong pleaded guilty to one count of insider trading. He faced a maximum penalty of up to ten years in prison for one count of insider trading.

Appearing before His Honour Judge Bennett SC on 4 June 2020, Wong was sentenced to one year and six months' imprisonment, but released immediately on a three-year good behaviour bond on a AUD10,000 surety. By reason of his conviction, Wong was also disqualified from managing corporations for a period of five years.

Judge Bennett considered Wong had low risk of reoffending and took into account his age of 69 years and a number of medical conditions. His Honour also commented, "I'm dealing with a person who was negligent in his duties, rather than reckless".

R v Young [2020] QCA 3

A former director of the Kleenmaid group of companies, Andrew Young, was sentenced to nine years’ imprisonment on 7 February 2020 after being found guilty by a District Court jury of 19 offences (two counts of fraud and 17 counts of criminal insolvent trading) arising out of the collapse of the national whitegoods distributor.

In passing sentence, His Honour Judge Devereaux SC (now Chief Judge of the District Court of Queensland) said that “people in the commercial community must be put on notice that dishonesty will bring commensurate punishment.

The sentence for Young came after 11 years after the Kleenmaid group collapsed owing AUD100 million. It was the first prosecution of a shadow director for criminal insolvent trading.

In a subsequent media release, ASIC Commissioner John Price noted the sentencing of Young concluded ASIC’s criminal proceedings against the Kleenmaid directors. Mr Price said, ‘Mr Young’s lengthy imprisonment reflects the seriousness of this matter and should serve as a strong warning to company directors of the consequences where misconduct is established.’

An appeal of Young's sentence was heard by the Supreme Court of Queensland on 20 and 21 August 2020. At the time of writing, the Court's decision on the appeal was reserved.

Looking forward to 2021

ASIC's Corporate Plan for 2020-2024 reaffirms its commitment to be guided by its ‘Why not litigate?’ discipline. This approach, which is part of a broader trend towards punitive rather than protective measures, seeks to address the community's expectation that unlawful conduct should be punished and publicly denounced through the courts.

ASIC's stated priorities over the next four years include misconduct by individuals, in particular criminal conduct or governance failures at a board or executive level.

On that basis, and despite its mixed report card for prosecutions in 2020, ASIC is expected to continue to pursue high profile litigation and court-based outcomes against directors and officers in 2021. In cases where ASIC previously would have negotiated a settlement or accepted an enforceable undertaking, individuals can expect the trend towards punitive measures, including more court sentences and visible consequences, to continue.


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