Background
ASIC brought civil-penalty proceedings against Bryn Elwyn Jones and four other defendants concerning companies that operated funeral funds marketed predominantly to Indigenous communities. Jones became CEO of Aboriginal Community Benefit Fund No 2 Pty Ltd, ACBF Funeral Plans Pty Ltd and Community Funeral Plans Pty Ltd in October 2017 and was subsequently appointed a director of each. The Court found that he was an “officer” under the Corporations Act 2001 (Cth) from the beginning of the relevant period, 5 October 2017 to 30 November 2018, even before his director appointments.
The entities’ trust deed or plan rules required them to maintain insurance covering member benefits. They chose Crown Insurance Services Ltd, a Vanuatu insurer owned through the same broader corporate structure and associated with directors Ron Pattenden and Peter Law. Crown could vary premiums on three months’ notice. In September 2017, Crown requested a 100% increase in the premium paid by ACBF 2, effective from August 2017, and ACBF 2 made 13 payments at the increased rate during the relevant period. Crown did not increase the other two entities’ premiums during that period.
ASIC alleged that Jones failed to assess the increased premium’s effect on ACBF 2, the other entities’ exposure to similar increases, and alternatives to continuing with Crown. ASIC also alleged that Jones failed to manage Pattenden’s and Law’s conflicts arising from their roles in both the ACBF entities and Crown. Jones denied knowing during the relevant period that ACBF 2’s premium had doubled and disputed the alleged contraventions.
The Court’s Holding
Justice Kennett found that Jones knew by early November 2017 that Crown had doubled ACBF 2’s premium. Even if he lacked actual knowledge, his failure to discover the increase would itself have reflected a failure to understand a fundamental aspect of ACBF 2’s business. The increase exposed ACBF 2 to a substantial risk of insolvency within about four years, yet Jones did not properly investigate its financial effect or consider possible responses, including renegotiation, alternative insurance, self-insurance, reduced administration fees, increased contributions or winding up.
The Court held that Jones contravened s 180(1) in relation to all three entities. For ACBF Plans and ACBF Community, his knowledge of ACBF 2’s premium increase made the risk posed by Crown’s discretionary power to increase their premiums obvious. A reasonably prudent CEO or director would have investigated and sought to mitigate that risk.
Jones also contravened s 181(1) by consciously failing to initiate any response to Pattenden’s and Law’s conflicts after the issue had been squarely brought to his attention. That failure was not in good faith, in the entities’ best interests or for a proper purpose. The Court was not satisfied, however, that Jones improperly used his position for a prohibited purpose under s 182(1). It declared the s 180(1) and s 181(1) contraventions and reserved penalties, disqualification, costs and other remaining issues for later determination.
Key Takeaways
- A CEO may be an “officer” subject to statutory duties before being formally appointed as a director when the role involves participation in decisions affecting the whole or a substantial part of the business.
- Directors and officers must understand major recurring expenses and investigate obvious threats to solvency; competing business problems do not excuse inaction.
- Knowing inaction in the face of an identified conflict can breach the duty of good faith even where the evidence does not establish improper use of position under s 182(1).
Why It Matters
The decision distinguishes negligent failure to investigate, which may breach s 180, from the conscious exercise or non-exercise of powers required for liability under ss 181 and 182. It also shows that the same course of conduct may satisfy the good-faith provision without proving the specific improper-use elements of s 182.
For directors and senior executives overseeing related-party arrangements, the judgment underscores the need to examine financial dependence on affiliated service providers and to address overlapping ownership and board roles through active, documented governance measures.