Centro Case 2007
On 27 June 2011, Federal Court of Australia handed down a landmark decision regarding corporate governance in Australia which seven directors and a CFO of Centro properties Group breached the Corporations Act which failed to disclose US$1.5 billion of short-term debts by classifying them to non-current liabilities and failed to disclose US$1.75 billion worth of guarantees of short-term debts of an associated company after the balance date.
Australian Securities and investments Committee (ASIC) was seeking penalties against the directors of Centro Properties Group for not taking all reasonable steps to secure compliance with s295A of the Act and their breach of s180 (1)(directors’ duty to exercise care and diligence), s344 (1) (failure to comply with financial recording and financial reporting obligations) and s601FD (3)(duties of officers of responsible entity) of the Corporations Act 2001.
The main issue of the Centro case was whether the directors could rely on others, including management or external auditor (Pricewaterhouse Cooper). However, Justice Middleton stated that this was not a case concerning the need to verify information or to scrutinize data of a type outside each director’s own knowledge, but that each director was expected to focus on matters brought before him and to seriously consider such matters, give it critical attention. In other words, directors must carefully read and understand financial statement before they form the opinions that are expressed in the declaration and this required them to consider whether the financial statement was consistent with their own knowledge of the company’s real financial position, rather than simply go through the financial reports or just rely on other people.
In addition, in this case, the external auditor (PwC) admitted negligence and it should have considered more carefully the classification of debt between current and non-current liabilities.
Finally, the Centro and auditor PwC agreed to a record
Australian Securities and investments Committee (ASIC) was seeking penalties against the directors of Centro Properties Group for not taking all reasonable steps to secure compliance with s295A of the Act and their breach of s180 (1)(directors’ duty to exercise care and diligence), s344 (1) (failure to comply with financial recording and financial reporting obligations) and s601FD (3)(duties of officers of responsible entity) of the Corporations Act 2001.
The main issue of the Centro case was whether the directors could rely on others, including management or external auditor (Pricewaterhouse Cooper). However, Justice Middleton stated that this was not a case concerning the need to verify information or to scrutinize data of a type outside each director’s own knowledge, but that each director was expected to focus on matters brought before him and to seriously consider such matters, give it critical attention. In other words, directors must carefully read and understand financial statement before they form the opinions that are expressed in the declaration and this required them to consider whether the financial statement was consistent with their own knowledge of the company’s real financial position, rather than simply go through the financial reports or just rely on other people.
In addition, in this case, the external auditor (PwC) admitted negligence and it should have considered more carefully the classification of debt between current and non-current liabilities.
Finally, the Centro and auditor PwC agreed to a record