Australian Securities and Investments Commission v King [2020] HCA 4

What the court decided

Mr King was the chief executive and an executive director of MFS Ltd, the parent company of the MFS Group [2]. MFS Investment Management Pty Ltd (MFSIM), a group company, was the responsible entity of a registered managed investment scheme and held a loan facility that could be used only for the scheme's purposes [2]–[3]. In November 2007, MFSIM drew down $150 million under that facility and disbursed $130 million of it to pay debts of other group companies [4]. MFSIM paid the $130 million to the group's treasury company, which paid $103 million of it to Fortress the same day [5]. MFSIM received no agreed consideration for the payment [7]. The Court of Appeal of the Supreme Court of Queensland found that Mr King "approved and authorised" that use of the funds [15].

At trial before Douglas J, and on appeal, Mr King was held knowingly concerned in MFSIM's contraventions [8]. The High Court appeal related to ASIC's second case, that he was liable as an officer of MFSIM under section 601FD [9]. Mr King had ceased to be a director of MFSIM on 27 February 2007 [132]. ASIC's case was that he remained an officer until 21 January 2008 as a person "who has the capacity to affect significantly the corporation's financial standing" [10]. The primary judge found that he had that capacity and so was an officer [13]. The Court of Appeal held that ASIC also had to prove that he acted in an office of MFSIM, in the sense of "a recognised position with rights and duties attached to it" [16]. The High Court's joint reasons read its statement that ASIC had not proved the capacity as not a finding of fact that he lacked it [20]–[21].

The joint reasons of Kiefel CJ, Gageler and Keane JJ held that the Court of Appeal erred [1]. Paragraph (a) captures holders of a named office, while paragraph (b) captures those who hold no such office, by reference to the facts of their relationship with the corporation [24]. Their Honours relied on what was said about paragraph (b)(i) in Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465, 478–479 [25] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) [25]. The words "of a corporation" require that a person within paragraph (b) be engaged, in fact, in the management of the corporation's affairs or property [39]. An officer of a holding company who in fact has the capacity to affect significantly a subsidiary's financial standing falls within paragraph (b)(ii), and a formal position in the holding company is no reason to deny that capacity [47]. The Court of Appeal had relied on the Full Federal Court's decision in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 [19]. The joint reasons held that Grimaldi did not support that approach [58].

The joint reasons declined to remit the matter, because what had succeeded below was a legal challenge only and the findings about Mr King's conduct stood [64]–[66]. They restored the orders of the primary judge [66]. The Court allowed ASIC's appeal, brought by special leave, from the Court of Appeal's decision [60], [67]. It set aside paragraphs 1, 2 and 7 of the Court of Appeal's order of 18 December 2018 and dismissed the appeal to that court [68]. Under a further grant of special leave, the High Court also set aside the Court of Appeal's later penalty and costs order [60]–[61], [69]. Mr King was ordered to pay ASIC's costs in the Court of Appeal and in the High Court [69]–[70].

Nettle and Gordon JJ agreed with the orders and wrote separate concurring reasons [71]. Their Honours said that, in a corporate group, too much emphasis on the words "of a corporation" tends wrongly to suggest that a person's overall position of influence in the group's affairs may be ignored [73]. Reassessing ASIC's examples, their Honours held that the facts compelled the conclusion that Mr King was an officer of MFSIM [125], [186].

Why it matters

The joint reasons looked to what a putative officer does or has the ability to do in relation to the company [25]. In my view, group executives who in fact direct a subsidiary's affairs should not assume that resigning a directorship ends their duties as officers. On third parties, the joint reasons held that the definition captures those who manage the corporation or its property, not those who affect it only by exercising rights as a counterparty [40]. A counterparty who inveigles itself into the company's decision-making may still be caught, but that depends on its control of, or capacity to control, that decision-making as management, not on its legal rights [41]. They added that advice is of no consequence unless the adviser is in fact involved in management and thereby able to ensure it is implemented [42]. Nettle and Gordon JJ added, on a question that did not arise directly, that lenders managing how a company attempts to work its way out of financial distress may present real issues about the application of these provisions [96]. The Act applies in Victoria, but readers should check its current text.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.