The case of ASIC v Rich provides us all with some valuable commentary on directors duties and the potential application of the business judgment rule.

ASIC alleged that the directors had breached their statutory duty of care of diligence. This duty imposes the obligation to take reasonable care and perform the necessary due diligence when executing a business decision. ASIC did not point to specific conduct that constituted the breaches of duty. The regulator instead pointed to the general conduct of withholding financial information.

The judgment provides an excellent examination of directors duties. His Honour referred to his previous rulings in Vines v ASIC where he had stated that the statutory duty of care originated from torts law. In particular, Justice Austin extrapolated:

• that a ‘company’s circumstances’ requires consideration to be given to the type of company, the size, and the industry it is involved in, its constitution, the composition of the board and the distribution of work between corporate officers;
• a reference to the same responsibilities within the company is not limited to specific tasks delegated to the officer via formal means;
• that there must be a distinction between a breach of the duty of care contained in the Corporations Act 2001 and mere errors or mistakes.

Justice Austin also delved into the largely unexplored realms of the business judgment rule. The business judgment rule provides a defence for directors who may have breached the duty of care if they made the judgment in good faith, for a proper purpose, did not have a material personal interest, appropriately informed themselves about the subject matter, and rationally believed that the decision was in the best interests of the company.

Further details are available at cgw.com.au