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Selected cases

Federal Court of Australia · [2011] FCA 717

ASIC v Healey

A Federal Court director duties case about financial reports, board attention and directors' responsibilities.

Federal Court of Australia27 June 2011

Plain-English explainers, not legal advice. Check the linked official source before you rely on a specific section, and get advice for your situation.

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Quick read

  • Directors need enough financial literacy and attention to company accounts to spot obvious problems.
  • A Federal Court director duties case about financial reports, board attention and directors' responsibilities.

Use this to check

  • Directors need a real understanding of company finances.
  • Reliance on advisers has limits where obvious issues should be noticed.
  • Board approvals should record questions, assumptions and financial information considered.

Decision snapshot

  1. 1

    What happened

    • ASIC brought proceedings against directors and officers of the Centro group after financial reports failed to properly disclose major matters that should have been apparent to the board.
    • The reports incorrectly classified significant short-term liabilities as non-current and failed to disclose guarantees given after balance date, issues that went directly to solvency, liquidity and how investors would understand the company's position.
  2. 2

    What the court had to decide

    • The Court had to decide whether the directors breached duties of care and diligence, and financial reporting duties, by approving accounts that failed to disclose liabilities and guarantees that were material to the companies' financial position.
  3. 3

    What the court decided

    • The Federal Court found the directors had breached their duties.
    • The decision made clear that directors are expected to understand the business's financial position well enough to identify obvious errors and ask further questions before approving financial reports.

Practical impact

Practical read

  • Directors need enough financial literacy and attention to company accounts to spot obvious problems.
  • Signing reports or approvals without understanding them is not a defence.

Useful next steps

  • Directors need a real understanding of company finances.
  • Reliance on advisers has limits where obvious issues should be noticed.
  • Board approvals should record questions, assumptions and financial information considered.
  • Read financial reports before approval and ask about unusual or large items.
  • Keep board minutes that show the basis for material decisions.

Practical read

ASIC v Healey, usually called Centro, is the director-duty case that says a board cannot approve accounts with eyes half shut. The missing or misclassified liabilities were not obscure accounting tricks. They were large, obvious matters that directors with knowledge of the business should have noticed before approving the reports.

For small-company directors, the scale may be different but the discipline is the same: read the financial information, ask questions about debt and cash flow, and do not treat adviser involvement as a substitute for your own attention.

Checks to run

Key points

  • Read financial reports before approval and ask about unusual or large items.
  • Keep board minutes that show the basis for material decisions.
  • Escalate solvency, debt and cash-flow concerns early.
  • Do not treat accountant or CFO involvement as a complete shield.

Key takeaways

  • Directors need a real understanding of company finances.
  • Reliance on advisers has limits where obvious issues should be noticed.
  • Board approvals should record questions, assumptions and financial information considered.

Related topics

Companies & StartupsFinance, Payments & Security

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