Australian Securities and Investments Commission v King

MFS was a group spanning tourism, travel and financial services. Its Premium Income Fund was the flagship managed investment scheme, with about $787 million under management from retail investors at 31 October 2007. MFS Investment Management was the fund's responsible entity.

The responsible entity had a $200 million Royal Bank of Scotland facility that could be used only for the fund. In November 2007 the group needed $103 million to extend another company's debt to Fortress. Money drawn for the fund was routed through the group treasury company and used to meet that obligation.

Mr King was chief executive and an executive director of the listed parent. He was not formally a director of the responsible entity when the $130 million disbursement occurred. The evidence nevertheless described him as the group's 'overall boss' with overall responsibility for the responsible entity.

He approved and authorised the payment knowing that no benefit or consideration would pass to the fund. There was no evident promise that the money would be returned, let alone properly secured repayment. Those practical facts placed him at the centre of a decision capable of materially affecting the responsible entity.

The Queensland Court of Appeal had treated the word 'officer' as requiring a recognised position with attached rights and duties. The High Court rejected that extra limitation.

Section 9 of the Corporations Act expressly reaches a person who has the capacity to affect significantly the corporation's financial standing. The focus is functional. A title may be evidence of authority, but it is not the gateway to liability. The Court allowed ASIC's appeal and held that Mr King was an officer of the responsible entity.

Growing groups often centralise cash, finance and executive authority. That can be efficient, but it creates legal risk when the decision process ignores which company owns the money and whose interests its officers must consider.

Boards should know which people outside the formal director group can direct payments, approve funding or determine strategy. Those people need appropriate briefings, conflict controls and written delegations. The company should also record the commercial basis, benefit and repayment protections for any related-party transaction.