The Federal Court's landmark ASIC v Bekier decision puts executives on notice: ignorance is no defence when red flags are in plain sight
A 500-page Federal Court judgment handed down has sent a sharp reminder to boardrooms across Australia: senior executives who sit on material risk rather than escalate it do so at their legal peril.
In March, Justice Lee of the Federal Court delivered the decision in ASIC v Bekier & Ors – a landmark case brought by ASIC alleging breach of duty by the CEO, General Counsel, CFO, chief casino officer, the chair of the board, and all non-executive directors of Star Entertainment Group Limited.
The Court found that former CEO Matthias Bekier and former Chief Legal and Risk Officer Paula Martin contravened section 180 of the Corporations Act 2001 by breaching their duties to Star. ASIC's case against the seven former non-executive directors was dismissed.
For Holding Redlich partner Jessica Tilbury and special counsel Daniel Fullerton, the decision is significant not because it breaks new legal ground, but because of what it demonstrates in practice.
The pair noted that while the case did not alter the existing legal standard, it powerfully illustrated how that standard applies to directors of companies operating in high-risk industries.
The duty to inform – and to escalate
At the heart of the judgment is an unambiguous finding about the obligations of executive directors. As the most senior member of executive management, Bekier had a direct reporting line to the board and bore a heightened responsibility to ensure it was informed of matters exposing Star to legal, financial or reputational risk.
Tilbury and Fullerton noted that the Court reaffirmed this duty in stark terms. Where an executive director is aware that information presented to the board is incomplete or downplays the seriousness of a risk, they are obligated under section 180(1) to ensure the board receives a full and accurate account of that risk.
The practical lesson for CEOs and executive directors is massive. If they possess information material to the company's regulatory compliance, legal risks or commercial position, they must ensure that information reaches the board.
Withholding or understating such information – even if management believes it can be handled operationally – is not a reasonable exercise of the duty of care.
For leaders navigating governance obligations in complex organisations, Fullerton and Tilbury make the point plainly: any information that touches on a company's legal exposure, regulatory standing or commercial position can amount to a red flag that a director is required to escalate once it comes to their attention.
In the Star case, those red flags were numerous. The Court identified reports highlighting weaknesses in anti-money laundering processes, internal communications acknowledging an unacceptable level of risk, negative media coverage, and correspondence suggesting the company may have misled third parties.
Fullerton and Tilbury also said that the judgment makes clear a director cannot dismiss material information simply because it was passed on informally or without comment.
Reliance has limits
The ruling drew a careful distinction between executive and non-executive director obligations – one that offers important guidance for board composition and culture.
Non-executive directors were found to have reasonably relied on management to bring all relevant information and risks about Star's junket relationships to the board's attention.
Justice Lee rejected ASIC's argument that non-executive directors should have recognised deficiencies in the information provided to them, noting a conceptual tension in ASIC's case: executives were alleged to have failed to disclose information to the board, while directors were simultaneously alleged to have failed to discover that undisclosed information.
But Tilbury and Fullerton cautioned that the entitlement to rely on management is not unconditional. A director who is aware – or ought reasonably to have been aware – of facts that undermine the reliability of management's account cannot simply defer to it.
The relevant question, they explained, is whether the information available to directors was enough to arouse suspicion and, in doing so, trigger a duty to make further enquiries.
For HR leaders shaping executive accountability frameworks, the Court's language is worth noting. Justice Lee made clear that non-executive director positions are not ceremonial titles, and that the role demands genuine engagement – including a readiness to question, probe and push back on the material put before the board.
Governance culture starts at the top
The judgment has practical implications that extend well beyond the legal liability of individual executives. For executives and control functions, it is a reminder that escalation must be timely, candid and usable – not buried in process or softened in tone.
For organisations generally, it reinforces that governance is not just about frameworks and committee structures; it is about whether the right people get the right information, clearly enough and early enough, to act on it.
Tilbury and Fullerton identified several warning signs boards should be alert to. A board culture in which directors routinely defer to management on substantive decisions, rather than forming independent views, should be treated as a serious concern. Where information provided by management fails to adequately explain or quantify a risk, a director acting with genuine independence is expected to ask questions and press for more.
Board meeting practices also warrant attention. The pair warned that a pattern of management delivering large volumes of material to directors at the last moment is problematic, and that boards must take control of both the quantity and quality of the information they receive to ensure it is complete, accurate and delivered in time to be properly considered. Directors should ensure board records genuinely reflect their engagement with the material rather than passive attendance.
ASIC Chair Joe Longo said the regulator will continue to require directors and executives to meet the highest standards of corporate governance, noting there is nothing in the judgment that would be considered a "relaxation". The penalty phase – including potential pecuniary penalties and disqualification orders for Bekier and Martin – is yet to be determined.
For those building governance-ready leadership pipelines, the Star case is a timely prompt: the bar for what it means to be an informed, engaged director has been clearly – and very publicly – reaffirmed.
