Directors and responsible officers duties

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					Financial      Directors’ and responsible officers’ duties
4 March 2010   Directors, officers and responsible managers of          • exercise their powers and discharge their duties
               responsible entities of registered managed                 with reasonable care and diligence
               investment schemes owe duties to both the                • exercise their powers and discharge their duties
               responsible entity and members of the scheme.              in good faith in the best interests of the
               These duties arise under the Corporations Act 2001         responsible entity and for a proper purpose
               (Cth) (Corporations Act) and generally, a director
               or officer, who is also a responsible officer of a       • not improperly use their position to gain an
               scheme, must discharge their duties to the                 advantage or cause detriment to the responsible
               members of the scheme in priority to their duties          entity, or
               to the responsible entity.                               • not improperly use information gained as a
                                                                          director or officer to gain an advantage or cause
               Who are directors and officers?                            detriment to the responsible entity.

               Directors and officers                                   Responsible officers specific duties
               For the purposes of the Corporations Act, those          In addition to the general duties owed under
               considered as Directors are not limited to individuals   sections 180-184, responsible officers owe specific
               officially appointed to the board of a company. Also     duties under section 601FD Corporations Act. In
               defined as Directors are persons who act as              order to discharge these duties, responsible officers
               directors and persons in accordance with whose           must:
               directions a company is accustomed to act.               • act honestly
               Officers are defined in section 9 of the                 • exercise the degree of care and diligence that a
               Corporations Act as any person who:                        reasonable person would exercise if they were in
               • makes, or participates in making, decisions that         the responsible officer’s position
                 affect the whole or a potential part of the            • act in the best interests of members and if there
                 business of the company                                  is a conflict between the members’ interests and
               • has the capacity to affect significantly the             the interests of the responsible entity, to give
                 company’s financial standing, or                         priority to the members’ interests
               • in accordance with whose instructions the              • not make use of information acquired from
                 directors of the company are accustomed to act.          being an officer of the responsible entity in order
                                                                          to gain an improper advantage for the officer or

                                                                          another person or cause detriment to the
               Responsible officers
                                                                          members of the scheme
               Responsible officers are defined in the
               Corporations Act to include officers of the              • not make improper use of their position as an
               company who perform duties in connection with              officer of the responsible entity to gain, directly
               the holding of the responsible entity’s Australian         or indirectly, an advantage for themselves or for
               Financial Services Licence (AFSL).                         any other person or to cause detriment to the
                                                                          members of the scheme, and
               Responsible managers                                     • take all steps that a reasonable person would
               Responsible managers is a term created by ASIC             take if they were in the officer’s position to
               with no basis in the Corporations Act. In ASIC             ensure that the responsible entity complies with
               Regulatory Guide, ASIC have advised whereas they           the Corporations Act, the AFSL licence
               previously used the term responsible officer to            conditions, constitution and the compliance plan.
               identify the category of people when assessing
               organisational competence. ASIC are now using            What if there is a clash between the
               the term responsible manager to clarify that the         duties owed to the responsible entity
               people ASIC look at for organisational competence        and the duties owed to the members of
               purposes do not need to be officers of the body
                                                                        the scheme?
               corporate or responsible officers as defined in
               section 9 of the Corporations Act                        Section 601FD states that the duties owed by
                                                                        responsible officers to members of the scheme
                                                                        override the duties owed to the responsible entity
               Duties owed                                              under sections 180-184. Because the duties
                                                                        responsible officers owe to scheme members are
               Directors’ and officers’ general duties                  paramount, responsible officers are unlikely to be
               Directors and officers owe general duties under          liable to shareholders of the responsible entity
               sections 180-184 Corporations Act. In order to           where they have discharged their duties in
               discharge these duties, directors and officers must:     preference to the scheme members.
Consequences for breach of duties
A breach of section 601FD or sections 180-183
could expose the responsible entity, directors,
officers and responsible officers involved to the civil
penalty regime. Enforced either by ASIC or the
responsible entity under section 1317J Corporations
Act, the director, officer or responsible officer may
• required to pay a pecuniary penalty
• disqualified from managing a corporation or
  being a director, and
• required to pay compensation.
Criminal liability may also attach where a
responsible officer is intentionally or recklessly
involved in a contravention of section 601FD.
Similarly, directors or officers who intentionally or
• fail to act in good faith
• use their position, or
• use any information gained from being in their
will also be criminally liable.
In addition, breaches of sections 180-184 and
601FD may result in the director, officer or
responsible officer being banned from providing
financial services or managing corporations either
permanently or for a specified period.
For further assistance or enquiries, please contact:
Financial Services Group
Sean Robertson on 07 3233 8860
Tony Stumm on 07 3233 8885
Tim Wiedman on 07 3233 8716.

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