Financial Directors’ and responsible officers’ duties Services 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 Focus 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 be: • 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 recklessly: • fail to act in good faith • use their position, or • use any information gained from being in their position 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. Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. 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