Australian Securities and Investments Commission v Cassimatis (No 8)

Facts

Emmanuel and Julie Cassimatis were the sole directors and shareholders of Storm Financial Limited, a financial planning company. ASIC alleged that the Cassimatises breached their duty of care and diligence under s 180(1) of the Corporations Act 2001 (Cth) by causing or permitting Storm to provide financial advice that was inappropriate for vulnerable clients, including retirees and near-retirees, who were advised to take on leveraged investments in index funds. When markets fell sharply in 2008, those clients suffered severe financial losses.

Issues

1. Whether a director can breach s 180(1) of the Corporations Act 2001 (Cth) by causing or permitting the company itself to contravene the Act (specifically the financial services provisions in Ch 7). 2. Whether the Cassimatises, as sole directors and shareholders, breached their duty of care and diligence in the circumstances.

Holding

Edelman J held that the Cassimatises breached their duty of care and diligence under s 180(1) of the Corporations Act 2001 (Cth) by causing Storm to contravene its financial services obligations, finding that a director can breach s 180(1) by causing or permitting the company to contravene the Act even where the director and company interests are effectively identical.

Ratio decidendi

A director breaches the duty of care and diligence in s 180(1) of the Corporations Act 2001 (Cth) where, by their conduct, they cause or permit the company to contravene the Act in a way that a reasonable person in the director's position would not have done; the fact that a director is also the sole shareholder does not prevent such a finding because the duty is owed to the company as a legal entity distinct from its members, and the risk of harm to the company (including regulatory consequences and liability to third parties) is sufficient to engage the duty.

Obiter dicta

Edelman J observed that the content of the duty of care in s 180(1) is informed by objective standards and that the business judgment rule in s 180(2) was unavailable where the impugned conduct consisted not of a business judgment but of causing the company to engage in systemic contraventions of the law.

Significance

Cassimatis (No 8) is a leading Federal Court authority establishing that directors of closely held companies — including sole director-shareholders — are not immune from liability under s 180(1) of the Corporations Act 2001 (Cth) when they cause their company to contravene statutory obligations, and it has significantly shaped ASIC's enforcement approach to director accountability for corporate misconduct in the financial services sector.

Key authorities

• ASIC v Adler (2002) 41 ACSR 72applied
• AWA Ltd v Daniels (1992) 7 ACSR 759considered
• Vrisakis v Australian Securities Commission (1993) 9 WAR 395considered
• Daniels v Anderson (1995) 37 NSWLR 438applied
• Rich v ASIC (2004) 220 CLR 129considered
• Shafron v ASIC (2012) 247 CLR 465applied