What directors and officers need to know about ASIC's Court result against Star's former board and executives

The recent Federal Court decision in ASIC v Bekier provides critical lessons for both directors and officers about their duties under the Corporations Act. The case highlights the importance of informed decision-making, robust governance practices, and the personal responsibilities of directors and officers in managing corporate risks. By taking proactive steps to address these issues, boards can better navigate the complexities of modern directorship and protect themselves from regulatory scrutiny.

What happened in ASIC v Bekier?

ASIC brought claims against the former CEO, Group General Counsel (also the Company Secretary and Chief Legal and Risk Officer) and non-executive directors of Star Entertainment Group Limited for breaching their duty of care and diligence under s180(1) of the Corporations Act. ASIC alleged they failed to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would have exercised if they were a director or officer of Star in Star’s circumstances, and occupied the office held by, and had the same responsibilities within Star as, the director or officer.

The claims included concerns about:

• Star's business relationship with Suncity (a "junket" operator) over suspicious conduct;

• the use of CUP (UnionPay) cards for gambling purposes and allegedly misleading correspondence to Star's lender that such cards were only used for non-gambling expenses;

• concerns related to an exclusive gaming room at Star's casinos partially run by Suncity.

Star was allegedly warned about these issues including in a KPMG report on deficiencies in the AML/CTF processes and a "World Check Report" which raised concerns about a person with whom Star had a business association.

ASIC's case centred around the CEO and General Counsel who it claimed "manifestly let Star's Board down" by failing to inform the directors of issues that could affect Star's suitability to hold casino licences, though ASIC concurrently maintained that those failures did not excuse the non-executive directors from liability.

ASIC proved contraventions against the CEO and General Counsel but was wholly unsuccessful against the non-executive directors. Justice Lee noted that ASIC's case against the CEO and General Counsel was premised, at least in part, on proving that key risks had not been communicated to the board.

While the CEO and General Counsel gave evidence, the non-executive directors did not. In these circumstances, the Court noted that fact-finding was necessarily limited to what could be ascertained from the available and admissible evidence (or its absence) – namely minutes and other contemporaneous documents, including emails. What occurred and what could be proven were not always the same thing – and some aspects of what occurred remained obscure. In these circumstances, the Court found that ASIC has not proven its case against the non-executive directors because it could not establish a reasonable non-executive director, knowing what they knew at the time, would have taken the action ASIC alleged they should have taken

Penalties against the CEO and General Counsel will be decided separately, although ASIC has already flagged that it will seek financial penalties and disqualification orders. For context, two former executives who settled with ASIC about 12 months ago – the Chief Casino Officer and Chief Financial Officer – incurred penalties of $180,000 and $60,000 and were disqualified for 18 months and nine months, respectively. While unrelated and based on its own facts, in 2023, the former CEO of GetSwift Limited incurred a penalty of $2,000,000 and was disqualified for 15 years plus ordered to pay a significant part of ASIC's costs – illustrating the severity of penalties that can be imposed on directors and officers.

Below is a very broad executive summary of the defences and the result:

CEO

Defence: The CEO's defence centred on the limits of his own knowledge compared with what others at Star knew at the time. He argued that he had been given repeated assurances that the AML/CTF program was effective and compliant, that he had relied on others to implement KPMG's recommendations, and that he had otherwise acted reasonably in not appreciating that Star had engaged in misconduct, despite correspondence regarding the CUP and Suncity issues.

Result: Contraventions proven against the CEO because the documentary trail showed that he possessed critical information about serious risks and failed to act on it or inform the board. The Court found his reliance on subordinates was not independently assessed, and the business judgment rule was unavailable because no formal decision was ever put to the board or recorded in the minutes.

General Counsel

Defence: The General Counsel's defence focused on her being relatively detached from Star's decision making, arguing that her roles did not include making decisions about business associations maintained with the casinos. She argued that she generally attended board meetings in her capacity as Company Secretary for taking minutes and relied on distinctions in her roles of Group General Counsel, Company Secretary, and Chief Legal and Risk Officer. She maintained that the CEO determined what matters were brought before the board. She also argued deficiencies in the way that ASIC pleaded and ran its case.

Result: Contraventions proven against the General Counsel because her own evidence confirmed she was the officer responsible for raising material legal and compliance risks with the board. She could not compartmentalise her duties across her multiple roles, nor could she rely on other officers' knowledge to dilute her responsibility. She also failed to intervene when misleading communications were sent to NAB. The Court held her duty was to inform and advise even if she lacked the decision-making power herself.

Non-executive directors

Defence: Broadly, the non-executive directors' defence focused on management's failure to provide them with requisite information and that key details were buried within lengthy board packs. They argued they were entitled to rely on management's assurances, including that KPMG's concerns were being addressed and that Star's compliance standards were "generally positive".

Result: ASIC failed against the board because the Court distinguished between management failure and board failure. The non-executive directors were entitled to rely on the CEO and General Counsel to escalate material risks, and neither did so. Although some relevant information appeared in the board packs, it was sometimes buried in appendices or understated in CEO reports. ASIC could not bridge the gap between what the non-executive directors were told and what they should independently have discovered, particularly in the absence of any trigger that would have denied reliance on management.

The judgment emphasised the Court's role was to determine whether ASIC had established the specific contraventions it had alleged – and not to conduct a general review of corporate governance. However, Justice Lee expressed disappointment and noted the contemporaneous minutes disclosed little by way of sustained scrutiny or insistence upon explanation from management in circumstances where risks were obvious.

Why did ASIC win/lose?

While the case was deeply dependent on its facts, there are themes in the reasoning that contributed to the result of general relevance to all boards:

• Board minutes matter – The Court treated board minutes (and other contemporaneous documents) as the best evidence of what directors knew and decided, relying on the statutory presumptions in sections 251A(6) and 1305 of the Corporations Act – particularly in circumstances where the non-executive directors did not give evidence. The CEO's business judgment rule defence failed in part because the minutes did not record any decision to continue dealing with Suncity. Think about "where would the records show that I thought about this risk carefully?"

• The type of business matters – Section 180(1) requires directors and officers to exercise the care and diligence that a reasonable person would in the corporation's "particular circumstances". For Star, this included operating in a highly regulated industry with known vulnerabilities. So consider: if you are a hypothetical reasonable director placed in the shoes of a director of this company – operating in this industry, with these specific regulatory and reputational risk exposures – what are the questions you would have asked to understand the risks. Even if you are not in a highly regulated industry like gaming, your industry will have known risks for which you must be vigilant.

• Your role matters – The Court discussed the distinction between the roles and expectations of executive and non-executive officers, noting that where there are allegations against both concurrently, it is especially important to distinguish between failures of management and failures of oversight. While non-executive directors were required to take reasonable steps to place themselves in a position to guide and monitor and company, this requirement was to be addressed contextually and cognisant of the different roles held by executive and non-executive officers.

• Your inbox can be your knowledge – Important documents were sometimes forwarded with nothing more than "FYI" or "FYI as discussed". The Court treated some receipts as sufficient to fix the recipient with knowledge of the contents, or at least to trigger an obligation to read and act. Directors and officers should assume that material sent to them, however casually, will be treated as material they knew or ought to have known. Consider the risks if you are routinely copied on emails or forwarded documents that you never or rarely read.

• Your duty is your duty – The General Counsel argued that she need not escalate information because others also possessed it. The Court rejected this, holding that an officer cannot "abdicate her duties and responsibilities merely because someone else … may also have knowledge". It also rejected her attempt to compartmentalise obligations across her roles as Company Secretary, GC, and CLRO. The duty is personal.

• Ask the hard questions – Although the claims against the non-executive directors were dismissed, the Court expressed "a sense of disquiet", noting the evidence was "not a portrait of directors actively pressing management with difficult questions". It stated it expected directors to engage actively and that the role can require a willingness to interrogate, to probe and, where necessary, to challenge. One director's request to interrogate the credit evaluation process was noted as "exceptional" precisely because it was the exception. Foster a culture of inquiry and ensure your board is actively engaging with management on critical issues.

• Reasonable reliance: While directors are required to take reasonable steps to place themselves in a position to guide and monitor management, directors are entitled to rely without verification on the judgment, information and advice of management and other officers, at least except where they know, or by the exercise of ordinary care should have known, facts that would deny reliance. However, directors are expected to take a diligent and intelligent interest, understand the information presented to them and apply and independent and inquiring mind.

Why should directors and officers care?

The case is the most current and comprehensive judicial guidance on directors' and officers' duties to act with care and diligence. ASIC's partial success will add to the pressures on boards and management who report to them.

The judgment also reveals some of the challenges of modern directorship, including:

• Information overload – the board packs (as with many boards) comprised hundreds of pages. On this, the Court was critical of both management for failing to synthesise information and boards for not controlling the volume of materials they receive. It was also noted that, on at least one occasion, important board papers were made available only moments before the day's meetings commenced.

• Board use of AI – relatedly, the Judge noted the inevitable use of AI in a directors' role but observed that, while AI technology might legitimately assist directors, a director's duties under section 180 of the Corporations Act remain personal and require informed, human judgment. The decision also considered "prudent" the open discussion of AI use and formal policies rather than informal "shadow use".

• How deep to dig – the duty of care and diligence is described as taking "reasonable steps to place themselves in a position to guide and monitor the management of the company". Non-executive directors are not required to be involved "at the operational level" and can rely on management to a greater extent than an executive director at least until they know or ought to know facts that would deny reliance, including where something has "awoken their suspicion" or would have awoken the suspicion of a prudent director, even in areas outside their expertise. It highlights the importance of being inquisitive and following through on any suspicions to properly understand whether there are any risks.

• Corporate governance risks are real – the case took over four years, involved dozens of lawyers, and was at significant time and cost to the company and its people. Although this might be a worst-case scenario for your board, it is one to bear carefully in mind when deciding on your investments into governance. It is also worth reviewing your D&O insurance and any deeds of indemnity, insurance and access with the directors to understand where the liabilities lie and who would be responsible for the legal costs of prolonged ASIC action.