A reminder – Directors’ duties and investigating red flags

The Managing Director and Chief Legal Officer of Star Entertainment were each found to have breached their statutory of duty care and diligence under the Corporations Act 2001 (ASIC v Bekier & Ors [2026] FCA 196). ASIC was unsuccessful in their action against the seven non-executive directors. The decision is important for how directors, officers and management approach risk and governance.

Background

The proceedings arose out of ASIC’s case against the Managing Director, non-executive directors and the Chief Legal Officer of The Star Entertainment Group (Star Entertainment). ASIC alleged that the directors breached their duty of care and diligence by facilitating arrangements with junket operators despite the presence of significant ‘red flags’ – particularly in relation to anti-money laundering risks.

A key argument in ASIC’s case was that the defendants failed to adequately respond to information suggesting that junket operators posed significant regulatory risks. Relevantly, the Court found the Managing Director contravened the Corporations Act by failing to inform the board of key matters, including serious money laundering risks.

The Court found that the non-executive directors did not breach their statutory duties and that non-executive directors are generally entitled to rely on management to identify and communicate material matters and risks. The Court noted, however, that directors cannot rely on management where they know, or ought reasonably to know, facts that call the information into question. The Court also made some important comments in connection with non-executive director responsibilities.

Key takeaways

• Ask questions – Directors and officers need to ask questions and engage with board materials. A passive approach is unlikely to discharge a directors’ duties under the Corporations Act.

• Act on red flags – If information suggests legal, regulatory or commercial risks, directors must respond with timely and appropriate inquiry.

• Role – The duty of care and diligence depends on the officer’s actual role and responsibilities. For example, legal and risk officers are expected to act independently, give clear advice and raise issues promptly.
• Reliance – Reliance on management is permissible, but only where there is no reason to doubt the information provided. Directors must remain alert to information that warrant further inquiry.

• Records –Board minutes and materials should record and reflect consideration of issues, including questions asked and challenges made.

This case is a stark reminder of how the duty of care and diligence operates in practice. It confirms directors should strike a careful balance: be informed and engaged in oversight of the company with an enquiring mind. The case also highlights that regulators and the Courts are focusing on systems through which information is generated for directors and how board decisions are made and recorded.