Missing the red flag: Lessons from the Bekier judgment for directors

Parliament has determined that corporate compliance is better served if there is potential for directors and officers to become personally liable for the contraventions committed by the company they serve.

A range of statutory schemes expose Australian company directors to personal liability in areas such as environmental protection, anti-money laundering, industrial law, and work health and safety.

The key to directors keeping out of trouble can be summarised by two words: due diligence.

Due diligence

Due diligence has two elements:

Acquiring a requisite state of knowledge.
Taking active steps to ensure you are guiding and monitoring the way the company is managed.

For example, directors outside Victoria must exercise ‘due diligence’ to make sure their company meets its work health and safety obligations.

This requires them to know the basics of safety law, and the hazards and risks in the business of their company. That’s the first element.

The second element is making sure the company has a system for identifying and controlling those safety risks, that it is in place, has the resources it needs to operate and is working. Directors don’t need to get involved in the operation of that system; they just need to know it’s working. They can rely on management in that regard.

Personal liability

The overarching obligation on directors that can attract significant personal liability is section 180(1) of the Corporations Act 2002 (Cth). This requires that when directors are exercising their powers, they exercise the degree of care and diligence expected of a reasonable director.

In Australian Securities and Investments Commission (ASIC) v Bekier & Ors (2025), the Federal Court handed down the liability judgment in the prosecution of the directors and senior officers of the Star Casino for allegedly contravening this obligation.

ASIC alleged the directors had information available to them that junket providers were not good people – they should have pushed back on management on this – instead they approved measures to allow them to cash more cheques.

The directors argued in their defence that the red flags were buried in an appendix to an internal audit report at the back of a 235-page board pack. Management hadn’t drawn it to their attention. The front of the pack was a management presentation asserting that reputational risk factors had been assessed and everything was okay. In relation to the draft resolution seeking to give them more credit, the Board paper supporting this resolution didn’t red flag it.

The Court rejected that defence and ruled directors must take reasonable steps to place themselves in a position to guide and monitor the management of the company.

If board packs are too much to absorb, then directors need to tell management to make the packs more accessible or concise.

Directors can rely on the advice and information provided by management and external advisers. The standard varies according to the corporation’s circumstances, i.e. size, competence of management and advisers, distribution of the work and responsibilities between the board and other officers, listed or unlisted entity, under the general supervision of the parent.

Directors can rely without verification on the judgement, information and advice of management and other officers, but not if they know the officer is incompetent or not trustworthy.

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