Indemnity Arrangements For Directors And Officers: Implications Of ASIC v King

In Short

The Situation: The High Court of Australia has allowed an appeal brought by the Australian corporate regulator, confirming that the definition of 'officer' under Australia's corporations legislation includes any person "who has the capacity to affect significantly the corporation's financial standing", even in circumstances where the person does not occupy a named office in the corporation with recognised duties and rights attached to it.

The Judgment: In Australian Securities and Investments Commission v King [2020] HCA 4, the Court unanimously held that the Court of Appeal of the Supreme Court of Queensland erred in concluding that, despite Mr King acting as the "overall boss" of the MFS Group of companies, he was not an 'officer' of the relevant subsidiary as he did not occupy a formal office within that entity. The Court ruled that the capacity of a person to affect significantly the financial standing of the corporation is to be determined by reference to the facts and circumstances of the relationship between the individual and the corporation. While a person's occupation of a recognised office of power within the corporation is one factor to be considered in that assessment, it is not an essential factor.

Looking Ahead: Corporations and individuals need to be aware that individuals who exercise a degree of control over a corporation such that they have the capacity to affect significantly the corporation's financial standing are officers, even where they do not hold a formal position within the corporation. Immediate implications include concerns about the sufficiency of Directors & Officers Insurance and employment indemnities for senior officers of group holding companies. These arrangements require swift review. This case effectively creates 'shadow officers' and continues the erosion of the 'corporate veil' within corporate...