Directors’ duties: Courts expect active participation

In this article, we address a recent decision from the Federal Court concerning statutory duties owed by executive directors and non-executive directors under the Corporations Act.

Background

This month, the Federal Court released its judgment in a landmark case brought by the Australian Securities and Investments Commission (ASIC) against all directors and some executive officers of the Star Entertainment Group (Star), which operates Star Casino.

In short, the case concerned:

• Star’s business dealings with Suncity, the operator of a casino “junket” (defined by AUSTRAC as an “arrangement between a casino and a junket tour operator to facilitate a period of gambling by one or a group, of high wealth players at a casino”);
• Star permitting Suncity junket participants to use China UnionPay (CUP) cards for gambling;
• Star issuing misleading correspondence to the National Australia Bank, as Star’s lender, that the CUP cards were used by participants to make non-gambling related transactions; and
• Suncity operating an exclusive gambling space called Salon 95 at Star’s casinos and concerns relating to its operations.

What findings did the court make?

The judgment ran for over 500 pages and covered a range of complex factual matters involving the conduct of Star’s directors and executives in response to alleged money laundering activities.

In short, the Federal Court found that Star’s former CEO and former Chief Legal and Risk Officer (being executive officers of Star) had breached their duties of care and diligence under section 180(1) of the Corporations Act 2001 (Cth) (Corporations Act). Specifically, the court found that both had failed: (a) to properly inform Star’s Board about material risks that Star faced in relation to the money laundering issues; and (b) to take reasonable steps to address those risks which they in fact knew about. Critically, the CEO was found to have breached his duty by failing to properly address a KPMG report which had identified certain deficiencies in Star’s systems and processes for managing Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) risks.

Notably, ASIC’s claims against the non-executive directors (i.e. Star’s Board) failed. In simple terms, the information which the executive directors made available to the Board at the time did not enliven their duties to make further enquiries.

Key highlights for company directors

The court’s judgment is lengthy, however, the following practical points can be distilled:

• CEO’s role: The court made clear that CEOs must actively and frankly inform the Board about key risks facing the company, including escalating matters that require immediate attention. In this case, despite numerous risks associated with Suncity’s operations at Star, the CEO failed to inform the Board about matters relevant to whether it should terminate its commercial dealings with Suncity – instead the board paper on this topic lacked proper substance and effectively misinformed the Board. While the role is demanding, CEOs must also inform themselves about the company’s processes and procedures to manage risks. This necessarily involves getting across a significant volume of information and keeping updated on the latest developments relating to risks that might impact the company.
• Chief Legal and Risk Officer (and company officers with multiple roles): Where an officer holds dual roles (e.g., as employed legal counsel and as company secretary), they cannot separate their responsibilities to avoid liability for breach of the statutory duty of care and diligence – the statutory duty covers all duties they perform. Put simply, you cannot pigeon-hole responsibilities to avoid advising the Board about risks within your knowledge as both a legal advisor and company secretary. Specifically, as Chief Legal Officer, your duties apply to the client company. It is not enough to report information (as a mere conduit) to the CEO. With a direct line to the Board (especially as company secretary), information about critical risks affecting the company should be independently and actively reported to the Board.
• Role of a director is active, not passive: The court made clear that directors have a fundamental duty to actively guide, monitor, and enquire into company affairs – this applies equally to executive and non-executive directors. Additionally, it stressed that the statutory duty of care and diligence requires personal discipline – the use of technology to summarise information (including with AI) cannot displace the need for well-informed, human judgment.
• Board: While boards are expected to rely on information from management, it is important for a board to actively challenge and test the information it receives. Although modern board packs are regularly voluminous, this does not displace the requirement that non-executive directors understand and test the information presented to them. In this case, the court made clear that directors – whether executive or non-executive – “cannot rely on an inability to cope with the volume of information they receive” and must instead “take reasonable steps to place themselves in a position to guide and monitor the management of the company.” This includes controlling the information a board receives by taking an active role in managing how information is put to them. Where there are ‘red flags’ or information appears incomplete, non-executive directors must inquire into those matters with management.

The judgment serves as a reminder that directorship requires active participation in the affairs of the company.

What’s next?

The case against Star began over three years ago, and the court is yet to determine what penalty should be imposed on the executive officers personally. We will provide a further update on that topic when the court delivers its next judgment. Neither party is yet to appeal the decision.

Judgment: Securities and Investments Commission v Bekier (Liability Judgment) [2026] FCA 196