In March 2026, the Federal Court handed down judgment in proceedings by ASIC against former directors and executives of Star Entertainment. It found that the CEO and the Chief Legal & Risk Officer had breached their directors' duties by failing to act on repeated warnings about serious regulatory and reputational risks in relation to the business's anti-money laundering operations.

Background

Star Entertainment is a major operator of casinos across Australia. The proceedings concerned the conduct of adequacy of Star's anti-money laundering controls and due diligence in the period from 2016 to 2020, in particular as related to its business dealings with the Suncity junket and the use of UnionPay cards at its venues.

ASIC alleged that eleven directors and executives of Star Entertainment breached their statutory duty to exercise reasonable care and diligence under s 180(1) of the Corporations Act 2001 (Cth).

Summary of Findings

The Court found that:

• The CEO had breached his duties by: (a) failing to ensure that compliance, risk management, and regulatory obligations were met; and (b) failing to inform the board of directors of the risks to the business about which he had received unambiguous warnings.
• The General Counsel (Chief Legal & Risk Officer) had breached her duties by: (a) downplaying the seriousness of information received; and (b) failing to escalate issues to the board of directors in a timely manner.
• The NEDs had not breached their duties because the evidence of unacceptable risk and management issues were "buried" in lengthy board packs, to which management failed to draw their attention. However, the Court emphasised that notwithstanding the fact that the NEDs were not liable in this case, NEDs generally cannot rely on management in place of forming their own judgment and must take reasonable steps to put themselves in a position to guide and monitor the management of the company.

Key Takeaways

1. There are heightened expectations for director knowledge and engagement: Directors must actively interrogate information, understand key risks, and ensure they are sufficiently informed to oversee management.
2. Executives face stricter accountability: Due to their enhanced knowledge by way of their operational duties within the company, executives are likely to face higher standards when compared to their NED counterparts. However, the extent of any such difference ultimately depends on the specific context.
3. Executives must escalate issues to the board: Executives must maintain channels of communication with the board of directors and escalate any issues or irregularities. 
4. Duties apply to all responsibilities: the duties owed by a director apply to all their responsibilities, not just those resulting from their directorship. This is particularly important for General Counsels and Company Secretaries, who may have wider responsibilities within the business which would not in and of themselves bring them within the scope of directors' duties.
5. Reliance on management must be reasonable: Whilst NEDs are not expected to be involved in the operational detail of the company, reliance on management is no substitute for the exercise of a director's own judgment. The extent to which a NED can rely on management will be greatly reduced if there are irregularities in the information provided or indicators of dishonesty or incompetence. In that scenario, NEDs have a duty to make enquiries into that matter to allow them to make an informed assessment.
6. The Chair is not a superior director: Whilst the Chair role carries procedural and administrative responsibilities, the law does not generally impose higher substantive duties on it. However, that can be displaced by specific circumstances or provisions relating to a particular company.
7. Volume of information is not an excuse: NEDs cannot rely on the inability to cope with the volume of information they receive as a reason for failing to discharge their duties. As technology allows management to provide ever more detailed papers to its board, the principled and transparent use of technology may provide the solution for NEDs overwhelmed by an overload of information.
8. Usage of AI requires caution: Whilst AI may assist directors in reviewing a deluge of information, it must not replace directors’ own judgment or scrutiny. Any use of AI by directors should be transparent and governed by formal policies.