When exactly is a director being a reasonable (man)**?

Posts over the last 2 weeks have looked at various aspects of the business judgment rule, leveraging the lessons explained in the decision of ASIC v Mariner Corporation Ltd [2015] FCA 589.

This case also explains when a director will be held to have acted reasonably as part of relying on the business judgment rule.

In particular, the court confirmed that the reasonableness of a director's belief should be assessed by reference to the:

1. importance of the business judgment to be made;
2. time available for obtaining information;
3. costs related to obtaining information;
4. director or officer’s confidence in those exploring the matter;
5. state of the company’s business at that time and the nature of competing demands on the board’s attention;
6. evidence available as to whether or not material information is reasonably available to the director.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the National song ‘Reasonable Man’.

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Avoid being on your own** (A safe Harbour in the Mariner, Part II)

Last week’s post summarised the leading Corporations Act case of ASIC v Mariner Corporation Ltd [2015] FCA 589. This post further considers the business judgment rule in more detail.

While the key principles in relation to the business judgment rule have remained largely constant for many years, ASIC v Mariner was the first case where the rule would have been successfully relied upon if the directors had been found to have breached their directors’ duties.

The business judgment rule, under section 180(2) of the Corporations Act 2001 (Cth) provides that a director will discharge their duties whenever a decision is made in good faith, for a proper purpose, after a director fully informs themselves that the decision is reasonable and rational.

Importantly, pursuant to section 189 of the Corporations Act, a director may rely on information provided by a co-director, if they do so in good faith, after having made an independent assessment of it

At a practical level, the ability of a director to rely on the business judgment rule will depend largely on the records kept in relation to a decision. This means comprehensive meeting and diary notes in relation to board decisions are critical.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Blur song ‘On your own’.

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Happy** to be a safe Harbour in the Mariner?

Today's post considers the decision in ASIC v Mariner Corporation Ltd [2015] FCA 589.

The case is particularly important because it highlights the interaction between directors’ duty and liability where a company breaches a Corporations Act 2001 (Cth).

ASIC brought the case against Mariner and three of its directors alleging the directors had breached their directors’ duties of care and diligence by failing to comply with the takeover provisions under the Corporations Act. ASIC also argued the directors breached their duties regardless of whether the company itself had breached the Corporations Act.

ASIC argued the directors’ primary breach was in relation to their duty of care and diligence, under section 180 of the Corporations Act.

The court held that directors owe their duties to the company. As such, the key issue is whether actions taken by the directors jeopardised the company’s interests.

Here the evidence showed that the directors had considered the risk to the company of their decision and reasonably concluded that the benefit outweighed the risks. This meant there was no breach of section 180 of the Corporations Act.

The case is also important because it was the first time that the so-called ‘business judgment rule’ would have been successfully relied upon if the directors had been found to have breached their directors’ duties.

Next week’s post will explore the key issues in relation to the business judgment rule.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Ned’s Atomic Dustbin song ‘Happy’.

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