Company Director duty of care and diligence

Company directors have a duty to exercise care and diligence while carrying out their role. A recent decision by Justice Banks-Smith of the Federal Court of Australia found that this duty of diligence applied to announcements of sales contracts and therefore requiring company directors to name counterparties in these contracts so as to allow investors to effectively assess the likelihood of contract completion and its potential value.

Alternatively, if a counterparty cannot be named for any reason, companies must provide enough information on due diligence conducted to assess the capacity of a counterparty to pay and the prospects of contract completion.


Justice Banks-Smith’s decision in ASIC v Big Star Energy late last year was in response to Antares CEO James Cruickshank breaching s 180(1) of the Corporations Act 2001 (Cth). The breach was in 2015 by failing to disclose the name of a proposed buyer, Wade Energy, of two oil assets, Northern Star and Big Star projects, which were to be sold for US$149 million and US$105 million, respectively.

Another finding was that Mr. Cruickshank breached his director’s duties by failing to disclose relevant information, including Wade’ Energy’s inability to make the purchase and lack of funding approval necessary to complete the purchase of the assets.’

Mr. Cruickshank’s contraventions resulted in Justice Banks-Smith ordering his disqualification of managing a corporation for four years and paying 90 per cent of the plaintiff’s costs.

Justice Banks-Smith emphasised the gravity of violating the duty of care and diligence as a company director:

“The contravention must be taken seriously, given Mr Cruickshank’s position within Antares, the degree of departure from the requisite standards of care and diligence required, and the consequences (actual or potential) of the contraventions,” she said.

“In my view, the contravention of s 180(1) by Mr Cruikshank was serious, and not trivial or minor.”


The impact of this decision is notable, mainly regarding directors duties and their continuous obligation to disclose information. However, it is crucial to understand why disclosing counterparty information is crucial within sales contracts.

In the context of the present case, once the deals for the two oil assets was announced on the ASX in September 2015, Mr Cruickshank refused to name the prospective buyers. In turn, the deals caused Antares share prices to rise as well as its trading volumes. However, as the deals eventually fell through, it was discovered that Antares failed to verify Wade’ Energy’s funding approvals and ability to complete the contracts.

Essentially, Antares’ failure to disclose impacted the ability for investors to assess and make informed decisions.

Cathie Armour, ASIC Commissioner, highlighted that the change in ASX guidance rules and requirement for continuous disclosure of the information is absolutely relevant, allowing investors to assess the value and prospects of sales contracts.


The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.

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