The Supreme Court of New South Wales has delivered significant findings of penalty in the civil action brought by ASIC against various former executives and directors of asbestos manufacturer, James Hardie.
The civil action related to a press release approved by the James Hardie board in February 2001 which wrongfully claimed that an asbestos trust setup to compensate victims was “fully funded” and “provided certainty for both claimants and shareholders”. It was later determined that the Trust established by Hardie was underfunded by $1.8 billion.
The harshest penalty was handed to former chief executive, Peter Macdonald, who was banned from serving as a director for 15 years and fined $350,000. The disqualification was close to ASIC’s request of a 16-year ban (MacDonald’s counsel had earlier argued that a five to seven year prohibition was appropriate). When he departed from James Hardie in 2004, Macdonald received an $8.24 million termination payment, which in light of the recent decision of the NSW Supreme Court, represents a low watermark for corporate governance in this country. Ultimately, Macdonald’s fine amounted to less than five percent of his final payment from Hardie.
Other James Hardie executives to receive civil penalties included former general counsel, Peter Shafran ($75,000 fine and seven-year ban) and former chief financial officer, Philip Morley ($35,000 fine and five year ban).
Justice Ian Gzell also imposed significant fines for the non-executive directors of James Hardie who were found to have breached section 180(1) of the Corporations Act (the duty to act with due care and diligence) when they approved the infamous press release in February 2001.
The former directors, including former chairwoman Meredith Hellicar, along with Michael Brown, Michael Gillfillan, Martin Koffel, Dan O’Brien, Greg Terry and Peter Willcox, received fines of $30,000 each and have been disqualified from acting as company directors for five years. ASIC had been seeking a five year disqualification and fines of between $120,000 and $130,000. Despite glowing character references, Justice Gzell imposed a significant penalty on the non-executive directors after being especially critical of Hellicar in his early finding, stating that she was “a most unsatisfactory witness” and 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.”
ASIC had earlier argued that the breached committed by Hardie directors were “a culmination of planning over a long period” and “one of the most significant decisions in the company’s history.”
The disqualifications and judgment effectively end the corporate careers of the Hardie directors. Hellicar had already resigned from the blue-chip boards of AMP and Amalgamated Holdings, while Willcox departed the Telstra board earlier this year.
The disqualifications and fines will do little to appease asbestos victims, with James Hardie stating in May that due to the global financial downturn and tax debts associated with its relocation to the Netherlands, it would be unable to make a contribution to the asbestos compensation fund during 2009/10 and would have difficulties in making promised compensation payments over the coming three years.
Such pessimism appears to have been short-lived however, or perhaps convenient. On Tuesday, James Hardie shares rose 22% (its biggest spike in forty years) after the company released positive profit figures and CEO, Louis Gries, stated that the US residential construction slump was “nearing the bottom”.