Who is an Officer of a Company?

Author: Katrecia March, Special Counsel, Corporate Commercial and M&A*

The High Court recently provided some important clarification around the definition of “officer” in section 9 of the Corporations Act 2001 (Cth) (Corporations Act) in its decision in Australian Securities and Investments Commission v King [2020] HCA 4 (ASIC v King).

What has changed?

Section 9 of the Corporations Act defines an “officer” to include a person “who has the capacity to affect significantly the corporation’s financial standing” (paragraph (b)(ii)) [emphasis added]. In considering this limb of the definition, the High Court unanimously decided that it is not limited to people who hold or occupy a named office in a corporation or a recognised position with rights and duties attached to it. As the High Court noted: “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” (per Kiefel CJ Gageler J Keane J at [46]).

What does this mean?

ASIC v King brings the Corporations Act definition of “officer” into line with that of “director” in section 9, the latter of which already explicitly recognises a person can be a director without being formally appointed to the role (commonly referred to as a ‘shadow director’).

With so much focus on directors, it is easy to overlook the fact that the Corporations Act imposes duties on officers as well. The key provisions (sections 180-183 – duty of care and diligence, duty of good faith and duty not to improperly use one’s position or knowledge) apply to both directors and “other officers”. Section 601FD of the Corporations Act also sets out similar duties in relation to officers of the responsible entity of a registered scheme.

What do I have to do?

ASIC v King will give further confidence to ASIC in bringing proceedings against persons who have had significant influence over an entity notwithstanding their lack of official role or title. As such, those who are involved in the management of a company need to be conscious of the relationship between their actions (or inaction) and the financial standing of the relevant company. This is especially important within corporate groups where, for example, the CEO or a board member of a parent company could be involved in a subsidiary’s finances (e.g. by being required to approve their financial arrangements), potentially making them an officer even if they hold no official role at that level.

To minimise the risks associated with having unintended officers, we recommend that boards:

  • Examine the influence that directors and other officers of upstream entities have to ensure they are aware of all possible officeholders;
  • Clarify any delegations of power (including via powers of attorney, board resolutions and/or delegation policies) which could potentially expose a person to liability as an officer. Ideally, if someone has the powers of an officer, they should be formally appointed to the role.
  • Consider their company’s directors and officers (D&O) liability insurance to determine how broad its coverage is and whether anyone who may be a considered an officer could be left exposed.

Ash St. Can Help You
The Ash St. Corporate Commercial and M&A team are highly experienced professionals who pride themselves on providing clients with practical business solutions. If you require assistance, please contact us on +61 2 8651 8700 or email info@ashstreet.com.au

The information set out above is general guidance only and is not intended to be relied on as a substitute for legal advice. Liability limited by a scheme approved under Professional Standards Legislation.

* The author would like to acknowledge the contribution of Daniel Gallagher, Lawyer, Ash St. for his assistance
in producing this article