On 27 March 2020, the Federal Court handed down its decision in Cassimatis v Australian Securities and Investments Commission  FCAFC 52 and held the principals of Storm Financial (Storm), Emmanuel and Julie Cassimatis, had breached their director’s duties. The Federal Court concluded that the pair breached their duties by failing to prevent their company from providing inappropriate advice to vulnerable investors. The case is an important reminder for directors to be mindful of their responsibilities under the Corporations Act 2001 (Cth) (the Act).
Emmanuel and Julie Cassimatis were the founders, shareholders and directors of Storm. The company provided clients with investment advice under the “Storm model” – a one-size-fits-all approach which encouraged clients to take out home and margin loans to invest units in index funds.
ASIC alleged that Storm investors were advised to use this “double gearing” model, and as a result advice was given inappropriately to unsuitable investors without consideration to their personal circumstances. In 2007, Storm urged approximately 3,000 investors to increase their investments. However, most of these investors were planning for retirement, or had limited income, and were unlikely to recover from a significant loss. When the market fell in 2008, many clients suffered as they did not have the means to rebuild their financial position and were left in negative equity positions.
As Emmanuel and Julie Cassimatis were directors of Storm, ASIC submitted they were responsible for the significant decisions and day-to-day management of the company. ASIC alleged they failed to take reasonable steps to prevent the company giving inappropriate advice and did not exercise their duties as directors with the care and diligence of a reasonable person.
A two to one majority of the Federal Court dismissed the appeal and confirmed the Cassimatis’ were in breach of sections 945A and 180 of the Act. Both received fines of $70,000 and a 7-year disqualification from managing a company because they failed to ensure their company was providing accurate, honest and fair advice under their Australian Financial Services Licence.
This case demonstrates the consequences of breaching duties under the Corporations Act. Directors should always be mindful of their duty to:
- Exercise duties with the care and diligence that a reasonable person would
- Exercise duties in good faith in the best interests of the company
- Not to improperly use position to cause detriment to the company, or gain personal advantage
- Not to improperly use information to cause detriment to the company, or gain personal advantage
If you would like further information about your duties as a director, please contact a member of the Cheney Suthers team.