A directors duty to comprehend financial statements

I recently briefly read a case about a director trying to claim in the witness box that he couldn’t read a cash flow report prepared by his bookkeeper and therefore couldn’t speak to its accuracy. This being despite the director running a significantly successful business for decades.

The Court didn’t believe him.

I can’t for the life of me find the case again, but instead it reminded me of the ASIC v Healey case on a directors duty to exercise a reasonable degree of care and diligence in comprehending financial statements.

Here are the quotes or “minimal steps”:

1. “… take a diligent and intelligent interest in the information available …, to understand that information, and apply an enquiring mind.”

2. “directors are [not] required to have infinite knowledge or ability. Directors are entitled to delegate … the preparation of books and accounts.”

3. “a director should … personally read and consider the financial statements before … approv[al].

4. “… reading … is not merely undertaken [by] correcting typographical or grammatical … [or] immaterial errors … [rather it is] … to ensure, as far as possible and reasonable, that the information … is accurate.”

#SVVoidables #directorsandofficers #corporategovernance

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