While the former directors of James Hardie await their fate to be determined by the New South Wales Supreme Court, a serious issue has remained unanswered: Will the disgraced directors, especially former chairperson, Meredith Hellicar, be required by Hardie to repay their legal and directors’ fees after being found to have breached the civil penalty provisions from the Corporations Act?
On 23 April 2009, NSW Supreme Court judge Ian Gzell found that all ten former James Hardie directors had breached section 180(1) of the Corporations Act , which requires directors to exercise their duties with due care and diligence. The civil breach, which carries penalty provisions of up to a $200,000 fine and being banned from acting as a director, resulted from James Hardie directors approving a press release which wrongfully claimed that an asbestos trust was “fully funded” and said it “provided certainty for both claimants and shareholders”. (Former CEO, Peter MacDonald faces harsher sanctions, with ASIC seeking a $1.81 million fine, and the former executive being banned from acting as a company director for 16 years for more serious breaches of the directors’ duty provisions.)
Gzell was especially critical of Hellicar’s testimony, claiming that the former coal industry lobbyist (and one-time CEO of law firm, Corrs Chambers Westgarth) was “a most unsatisfactory witness” who at one stage “feigned shock” when she was shown a document in the witness box. Gzell also found that “there was a dogmatism in [Hellicar’s] testimony that I do not accept. She was proved to be inaccurate on a number (of) occasions.”
Shortly after the damning verdict was delivered, Hellicar resigned from her other board roles at AMP and Amalgamated Holdings, while fellow director, Peter Willcox, departed the board of Telstra.
Since the verdict was delivered in April, there has been hushed silence as to whether Hellicar and her fellow directors will be required to repay the extensive legal fees and significant directors’ fees which flowed their way from James Hardie coffers.
In February 2007, Hellicar (along with other directors, Michael Brown and Michael Gillfillan) resigned from the board of James Hardie. At the time, new Hardie chair, John Barr, stated that “the Board acknowledges that these three directors have put the best interests of the company ahead of their own personal circumstances in deciding to remove any conflict of interest by bringing forward their resignations.”
However, Crikey understands that there was a considerable amount of internal conflict in the Hardie boardroom, especially with regards to a 2007 payment to Hellicar of US$833,979 in retirement benefits. In total, Hellicar collected $1.07 million in 2007 — an extraordinary sum for a non-executive Chairman, especially one who was at the time being prosecuted by ASIC for a serious breach of directors’ duties.
James Hardie’s 2007 Annual Report noted that “the company discontinued a retirement plan that entitled some of our Supervisory Board Directors to receive upon their termination for any reason other than misconduct an amount equal to five times their average annual fees for the three year period prior to their retirement.”
Fortunately for Hellicar, she reigned from her role, rather than being terminated for misconduct — allowing her to retain more than US$1 million in directors’ fees. However, given that Hellicar has subsequently been found to have breached her duties to James Hardie, it would appear that the company would have an arguable case for return of the “golden handshake” provided to Hellicar.
A similar question has arisen with regards to the millions of dollars in legal fees incurred in the defence of the former directors. While those costs have so far been borne by James Hardie, the Corporations Act prohibits companies from indemnifying directors who are found to have breached their director duties in such a manner. In this regard, it would be expected that all defendants be legally required to not only repay the costs incurred in their defense, but also be pay a substantial proportion of ASIC’s legal costs.
James Hardie’s 2008 Annual Report stated:
Claims for payments of expenses incurred have been received from certain former directors and officers in relation to the ASIC investigation … the Company has and will continue to incur further costs under these indemnities which may be significant.
…currently, a portion of the defence costs of former directors are being advanced by third parties, with the Company paying the balance. Based upon the information available to it presently, the Company expects this to continue absent any finding of dishonesty against any former director or officer.
The Report continued:
Other recoveries may be available…including either as a result of a costs order being made against ASIC or, if ASIC is successful in securing civil penalty declarations, as a result of repayments by former directors and officers in accordance with the terms of their indemnities.
The Age reported earlier this year that James Hardie itself, which was also a defendant in the ASIC case, had disclosed more than $23 million in expenses already incurred.
Crikey contacted James Hardie to determine whether the company was taking active steps to recover the legal fees already incurred and the ‘golden handshake’ paid to Hellicar. A spokesperson for the company noted that he was not in a position comment on any potential recovery from the former directors, pending the final outcome of the Supreme Court matter.