ASIC Win In High Court Means Broad Definition Of Company 'Officer'

In a recent decision, the High Court of Australia has provided important clarification about the meaning of the term 'officer' within s.9 of the Corporations Act.

In Australian Securities and Investment Commission v King & Anor [2020] HCA 4, the High Court unanimously allowed an appeal from the Queensland Court of Appeal (QCA), which had determined that the respondent, Mr King, was not an 'officer' under the Corporations Act (the Act) as he had not held an office, in the sense that he did not have "a recognised position with rights and duties attached to it" within the particular company ASIC was investigating.

The decision will have consequences particularly for the oversight and corporate governance of large corporate groups as well as to provide some clarification for the interpretation of Directors' and Officers' Liability Insurance.

Background

Mr King was the Chief Executive Officer and an executive director of MFS Ltd, the parent company of the MFS Group of companies (MFS Group). The MFS Group provided funds management and financial services, including managed investment schemes. Premium Income Fund (PIF) was the largest registered managed investment scheme in the MFS Group, and MFS Investment Management Pty Ltd (MFSIM) was its responsible entity. In that capacity, MFSIM entered into a $200 million loan facility with the Royal Bank of Scotland on 29 June 2007 (RBS loan facility). The RBS loan facility was to be used solely for the purposes of PIF, and not for the use of other companies in the MFS Group.

On 27 November 2007, MFSIM and senior personnel in the MFS Group, including Mr King, approved a drawdown of $150 million under the RBS loan facility. Of these funds, $130 million was paid to MFS Administration Pty Ltd (MFS Administration), the treasury company for the MFS Group. MFS Administration used $103 million of those funds to pay an outstanding debt of MFS Castle Pty Ltd, a wholly-owned subsidiary of MFS Ltd, which was due to be repaid by 30 November 2017. PIF received nothing in exchange for the payment from the RBS loan facility. There was no evidence of any promise of repayment, let alone one that was properly secured. As a result, PIF and its investors were at risk that the funds withdrawn would not be restored to PIF.

At trial, ASIC established that MFSIM breached its duties as responsible entity under s601FC(1) of the Act by reason of its misuse of PIF's money. ASIC also alleged that Mr. King:

had been knowingly concerned...