Officers of a parent company may be found officers despite not having an official position or title in the subsidiary

In brief 4 min read

On 11 March 2020, the High Court of Australia (HCA) handed-down its decision in ASIC v King [2020] HCA 4 (ASIC v King), which considered the extended meaning of 'officer' under the Corporations Act 2001 (Cth) (Corporations Act).

In this case, a director and Chief Executive Officer of a parent company was found to be an officer of a subsidiary despite not holding any official title in relation to the subsidiary. His degree of influence over the subsidiary was sufficient to make him an officer of that company, who therefore held onerous legal duties in respect of that company and its operations.

How does it affect you

• Any director, executive and other senior manager of a parent company may be an officer of a subsidiary if they exercise the requisite degree of influence and control with respect to the subsidiary. This can be the case even though the individual may not hold a recognised position (to which rights and duties attach) with respect to the subsidiary.
• Individual stakeholders may (unknowingly) be officers of company group subsidiaries and, therefore, hold onerous duties and/or potential liabilities under applicable work health and safety (WHS) legislation (WHS Laws).

Meaning of 'officer'

The Corporations Act defines an 'officer' of a corporation to include its directors and company secretary, and persons:

• that make, or participate in making, decisions that affect the whole, or a substantial part, of the business of a corporation;
• that have the capacity to significantly affect a corporation’s financial standing; or
• in accordance with whose instructions or wishes, the directors of a corporation are accustomed to act.

ASIC v King

King held the position of director and CEO of the parent company of the MFS group of companies. MFSIM, a group subsidiary, entered into a $200 million loan for the purpose of assisting another company in the group. Subsequently, $150 million of those funds were paid to a separate company within the group without any agreement providing MFSIM with consideration, security or promise of repayment.

ASIC alleged that King, although he did then not hold a recognised position at MFSIM, was an officer because he had the capacity to significantly affect MFSIM's financial standing. The evidence demonstrated that King acted as 'the overall boss of the MFS Group' with 'overall responsibility for MFSIM'.

In deciding that King was an officer of MFSIM, the HCA confirmed (as a matter of law) that the meaning of 'officer' under the Corporations Act is not limited to persons that occupy a named office or a recognised position with respect to a company.

Is this decision relevant to the WHS Laws?

The harmonised WHS Laws (applicable in all jurisdictions except Victoria and Western Australia) impose a duty on officers of corporations requiring them to exercise 'due diligence' and by taking 'reasonable steps' to ensure the company complies with its duties under those laws (Due Diligence Duty). The meaning of 'officer' under the WHS Laws is the same as under the Corporations Act.

Accordingly, ASIC v King confirms that individuals who have the requisite capacity to influence or control a subsidiary to make them an officer of that group company will hold a Due Diligence Duty with respect to the subsidiary under the harmonised WHS Laws. The Due Diligence Duty requires officers to exercise due diligence by taking reasonable steps that include:

• acquiring and keeping up-to-date knowledge of WHS matters;
• gaining an understanding of the nature of the operations of the subsidiary, and generally of the WHS hazards and risks associated with those operations;
• ensuring that the subsidiary has available for use, and uses, appropriate resources and processes to eliminate or minimise WHS risks arising from work carried out as part of the subsidiary's operations;
• ensuring that the subsidiary has appropriate processes for receiving and considering information regarding WHS incidents, hazards and risks and responding in a timely way to that information;
• ensuring that the subsidiary has, and implements, processes for complying with any duty or obligation of the subsidiary under the harmonised WHS Laws; and
• verifying the provision and use of the resources and processes mentioned in paragraphs (c) to (e).

A breach of the Due Diligence Duty is a criminal offence that can result in imprisonment.