In Australian Securities and Investments Commission v King [2020] HCA 4, the High Court of Australia recently examined the scope of the definition of the term “officer of a corporation” in section 9 of the Corporations Act 2001 (Cth). The Court unanimously held that there is no requirement that a person be a named officer of the corporation to be captured by the definition. The test to establish whether a specific individual is an officer is whether they have the capacity to “significantly affect the financial standing of the company”.

Case Facts

Mr King, was the CEO and executive director of MFS Ltd, the parent company of the MFS Group of companies. The MFS Group was involved in funds management and financial services.

The Premium Income Fund (PIF) was a managed investment scheme operated by the MFS Group with an entity known as MFS Investment Management Pty Ltd (MFSIM) acting as the responsible entity. In June 2007, MFSIM entered into a $200 million loan facility with the Royal Bank of Scotland to be applied solely to the PIF. On 27 November 2007, MFSIM and senior personnel in the MFS Group arranged for $150 million to be drawn down from the loan facility. $147.5 million was disbursed by MFSIM to pay the debts of other companies in the MFS Group.

While two disbursements were made, only one was ultimately relevant to the High Court. A disbursement of $130 million was made on 30 November 2007 to an entity known as MFS Administration that acted as the treasury company of the MFS Group. On the same day the funds were received, MFS Administration paid $103 million to Fortress Credit Corporation (Australia) II Pty Ltd (Fortress). This money was paid in satisfaction of a short-term loan made to another MFS Group entity that was due to be repaid on that same date.

This series of events culminated in ASIC bringing enforcement proceedings against MFSIM and several of its officers for breaches of the Corporations Act. MFSIM was held to have contravened subsections 601FC(1) and (5) in relation to its duties as the responsible entity of PIF, and had breached section 208(1) by providing a financial benefit to a related party. Ay trial and on appeal to the Queensland Court of Appeal, Mr King was found to been knowingly involved in MFSIM’s contraventions and by consequence of section 79(c), was also held to have contravened sections 601FC(5) and 209(2).

Legal Issues

ASIC further contended Mr King was liable under s 601FC as an officer of MFSIM despite the fact he had ceased being a director on 27 February 2007 some nine months prior to the events. The Queensland Court of Appeal had held that Mr King was not an officer in the sense of having capacity to “affect significantly the corporation’s financial standing”. The Court deemed it was necessary for AISC to show Mr King had acted in an office of MFSIM in order to fall within the definition of s 9(b)(ii). ASIC appealed this finding contending that the Court had misconstrued the definition of “officer” by requiring ASIC

High Court Findings

The High Court unanimously found that the Court of Appeal erred in ruling that ASIC was required to prove Mr King had acted in an office of MFSIM in the sense of being in a ‘recognised position with rights and duties attached to it’. The Court adopted a literal interpretation of s 9, stating that subsection (b)(ii) required an inquiry into the role the person in question plays in the corporation. Such an inquiry is made on a case by case basis, considering the entire facts and circumstances of the individual and corporation including: the role of a person; what they did or not do to fulfil that role; and the relationship between their actions or inaction and the financial standing of the corporation.

Mr King was involved in the management of MSFIM and had not only the capacity to affect the financial standing of the entity, but actively intervened in its management. Accordingly, Mr King was held to be an officer of MSFIM despite not holding a formal executive role at the time of transaction.

JCL Comment

Importantly this decision makes it clear that individuals who hold a named office in a corporation will be captured by paragraph (a) of the s 9 definition, individuals who do not hold a named office may be captured by paragraph (b). This reasoning is consistent with the ‘shadow director’ regime which similarly provides that individuals that do not hold the office of director may still be considered a director where they have the capacity and custom of being able to affect the company.

This case is also important as it was made in the context of a group of companies. The Court expressly noted that corporate structure would not assist in avoiding liability for breaches of statutory prohibitions.