International Law

When is a director not fit and proper?

By David Jacobson

APRA has the power to disqualify directors of entities it regulates if it determines they are not fit and proper.

In Gardener and Australian Prudential Regulation Authority [2009] AATA 990 the Administrative Appeals Tribunal of Australia decided that it was not satisfied that it had been established that Mr Gardener is not a fit and proper person to be a director or senior manager of a general insurance company and set aside his disqualification by APRA.

Mr Gardener was a non-executive director of HIH Insurance Ltd. He was disqualified by APRA following the HIH Royal Commission.

In setting aside his disqualification, the Tribunal looked at the meaning of “fit and proper”, Mr Gardener’s conduct at HIH and his conduct since.

It concluded that:

we are satisfied that Mr Gardener was conscientious and diligent in undertaking his duties as a non-executive director. Certainly, in hindsight, his actions are in some instances open to criticism, but we are satisfied that in all the circumstances he acted reasonably at the time. In our view, Mr Gardener?s reliance on information provided to him by the management and auditors was by the standards of the time and in all the circumstances not unreasonable. However, his misplaced reliance on the auditors and his lack of enquiry into the important area of the work of the actuaries, the adequacy of provisioning and the lack of a prudential margin are disappointing. On the other hand, we note that at various times, he did ask appropriate questions, seek further information, and support action being taken to try and rectify a deteriorating financial situation.

the Tribunal must take into account all relevant evidence at the time of making its decision. In Mr Gardener?s case, this includes his work as a non-executive director of a number of public and private companies and not-for-profit organisations.

it is to be reasonably expected that where a person?s conduct is subjected to detailed scrutiny over a number of years, this will serve to focus the person?s attention on the performance of their duties as the director of a company for the future. This is not to suggest that in Mr Gardener?s case, he would not have done so in any event, but it may have provided an additional focus on those aspects of his work where he was criticised by APRA in relation to his conduct as a director of HIH. This in turn is likely to lessen the possibility of any contravention of his obligations in the future.

In terms of whether Mr Gardener is a fit and proper person to be a director or senior manager of a general insurance company at the time of our making a decision in this matter, as stated above, the Tribunal must consider both whether he exercised sufficient diligence in performing his work as a non-executive director of HIH as could be expected of a person of his background and experience at the time, and his conduct in the period since. Thus, we must make an overall assessment of his fitness and propriety.

The Tribunal has stated above that despite the significance of HIH?s collapse and its deleterious effects, we are not satisfied that Mr Gardener?s conduct while a director of HIH establishes that he is not a fit and proper person. Moreover, in terms of his other conduct, the evidence attests to his competence and diligence. Thus, our overall assessment is that we are not satisfied that it has been established that Mr Gardener is not a fit and proper person to be a director or senior manager of a general insurance company.

Full post as published by Australian Regulatory Compliance Review on January 11, 2010 (boomark / email).