What duties do the company secretary and general counsel have? Implications of the James Hardie litigation

Date: May 14, 2014
Document Type: Article

Even if you are not a director of a company, you may still have to comply with the some of the same duties. Most of the statutory director’s duties also extend to ‘officers’ of the corporation, such as the company secretary. In Shafron v ASIC [2012] HCA 18 the High Court considered the scope of the duty for company officers, in particular those with a dual function which is not an officer.

Facts

In this case, the board of James Hardie made an inaccurate statement to ASX regarding the sufficiency of the foundation set up to meet all further asbestosis compensation claims. The directors of James Hardie and the company’s general counsel/company secretary, Mr Shafron, who were responsible for the statement, were found to have breached their duty of due care and skill by approving a false and misleading statement by the company to the ASX.

Mr Shafron, argued that in carrying out his role in this instance, he was acting in his capacity as general counsel by providing (inadequate) legal advice and not as company secretary. Thus, he argued, as he was not acting an ‘officer’, he was not subject to the duty due care and skill.

Decision

The court found it was not possible in this case to separate Mr Shafron’s role of general counsel and company secretary. The duties were found to be indivisible and therefore applied to all of Mr Shafron’s actions.

Thus, the failures in Mr Shafron’s legal advice to the board also breached his duty as an officer of the company to exercise due care and diligence.

The court also noted that even if Mr Shafron was only general counsel, he could still be classified as an ‘officer’ since he participated in making decisions that affected the whole or a substantial part of the business, even if he did not personally make the decision in the end.   

Implications

If you are employed in a designated officer position such as company secretary and in another non-officer capacity, you may be required to perform all responsibilities in accordance with your statutory duties as an officer, unless there is a clear separation of functions and no overlap of responsibilities.

If you participate actively in substantial decision making of the company, even if you do not make the final decision, you may be considered to be an officer and thus be liable for breach of statutory duties.

If you require advice in assessing your roles and duties within a company, please do not hesitate to contact us.

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