Centro decision

I think there is an interesting question emerging for directors and officer from the decision in Centro.

What is the nature of the "certification" obligations? Is 295(4), 344(1) different from other Corporations Act requirements?

How does this impact on takeover documents, prospectuses etc. What are the effective limitations of "reasonable reliance"?

It seems that as regards the accounts they could not delegate or "abdicate" that responsibility to others. Middleton J said that:
…directors cannot substitute reliance upon the advice of management for their own attention and examination of an important matter that falls specifically within the Board’s responsibilities as with the reporting obligations.

In Middleton J's view:
the whole purpose of the directors’ involvement in the adoption and approval of the accounts is to have the directors involved in the process at a level and responsibility commensurate with their role.

In other words, a reasonable step would be to delegate various tasks to others, but this does not discharge the entire obligation upon the directors.

A further step is required, which involves the directors taking upon themselves the responsibility of reading and understanding the financial statements in light of an understanding of basic accounting concepts.

The same reasoning applied in respect of reliance by directors on the audit committee. Middleton J held that whilst an audit committee has an important role in monitoring and oversight, this cannot be to the exclusion of the role of a director to consider the financial accounts.