“But we had obtained professional/legal advice!”. The disclosure conundrum and directors' dilemma
| DOI | https://doi.org/10.1108/JFC-03-2013-0015 |
| Pages | 312-323 |
| Published date | 12 July 2013 |
| Date | 12 July 2013 |
| Author | Aiman Nariman Mohd‐Sulaiman |
| Subject Matter | Accounting & finance |
“But we had obtained
professional/legal advice!”
The disclosure conundrum and directors’
dilemma
Aiman Nariman Mohd-Sulaiman
Faculty of Law (Ahmad Ibrahim Kulliyyah of Laws),
International Islamic University Malaysia, Kuala Lumpur, Malaysia
Abstract
Purpose – In recent enforcement actions by several capital market regulators in some common law
jurisdictions, the issue of directors’ reliance on legal advice in relation to compliance with their
statutory duties has been raised. This paper aims to discuss the dilemma faced by directors and
regulators in assessing the extent to which reliance on legal advice can provide sufficient protection
against allegation of breach of directors’ duties and the disclosure obligation.
Design/methodology/approach – This paper discusses recent case studies that highlight the often
conflicting regulatory stance.
Findings – These cases indicate that the disclosure conundrum is a real challenge to regulators and
directors alike. These enforcement activities have resulted in mixed views as to whether these
decisions have rightly upheld the standard of care expected to be exercised by directors or are unduly
burdensome and not pragmatic for honest and well-meaning directors.
Research limitations/implications – The legal position is still evolving in view of the numerous
regulatory actions in various jurisdictions regarding financial reporting and disclosure obligation of
directors and corporations.
Originality/value – Given the numerous disclosure and reporting obligations that a listed company
must comply with and the regulatory enforcement actions that may be taken against the directors, it is
important for directors to understand the implication of this case and similar enforcement activities on
directors’ oversight duty.
Keywords Duty of care, Skilland diligence, Reliance on legal advice,Business judgment rule,
Disclosure obligation, Legal advice,Disclosure
Paper type Research paper
1. Introduction
In recent months, a flurry of cases have been initiated, litigated or appealed involving
directors’ oversight responsibilities for the reporting obligation of listed companies in
several common law countries such as Australia, Singapore and New Zealand. The
regulatory authorities have alleged that these companies have contravened their
disclosure obligation by not disclosing material information or disclosing information
which were false or misleading. Directors have also been implicated for failing to
ensure that the company complies with its disclosure obligation. The most recent
litigation in Australia involving Fortescue Metals Group Ltd and its CEO, Andrew
Forrest is the latest in a line of cases where important questions relating to directors’
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
The research is part of wider research undertaken by the author funded by International Islamic
University Malaysia (IIUM).
Journal of Financial Crime
Vol. 20 No. 3, 2013
pp. 312-323
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-03-2013-0015
JFC
20,3
312
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