High Court sets precedent on company officers’ accountability

The High Court of Australia has set a precedent on the definition of a company’s “officer” whereby it has established that the former chief executive and executive director of MFS Ltd (also known as Octaviar), Michael Christodoulou King, was also an “officer” of its subsidiary.

The court said King was an officer as defined in the Corporations Act 2001 (Cth) of MFS Investment Management (MFSIM). MFS was the parent company of the MFS Group of companies and MFSIM was a subsidiary in the MFS Group and acted as a responsible entity for several registered managed investment schemes, the largest was the Premium Income Fund (PIF).

The court unanimously said King was defined as an officer because the provision was not limited to those who held or occupy a named office in a corporation or a recognised position with rights and duties attached.

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An announcement by the Australian Securities and Investments Commission (ASIC), said the factual findings of the primary judge that 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 the decision sent a clear message 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,” he said.

“The finding that 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 court said: “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.”

King’s appeal arose from civil penalty proceedings against officers and a fund manager of MFSIM in connection with misappropriated funds used to pay debts owned by other entities in the MFS Group.

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