In an echo of events emanating from Australia’s last major economic downturn, the Global Financial Crisis, the full Federal Court has confirmed that the directors of Storm Financial, Emmanuel and Julie Cassimatis, breached their duties as directors.
The proceedings were an appeal against the original judgement handed down in August 2016, as the Australian Securities and Investments Commission (ASIC) sought to dismiss the appeal with costs.
In the 150-page judgement, the full Federal Court by a majority of two to one, dismissed the appeal.
Since around 1994, Storm Financial operated a system in which ‘one-size-fits-all’ investment advice was recommended to clients.
This required clients to invest substantial amount in index funds, as well as taking out a home loan and margin loan to purchase units in an index fund.
By the time of Storm’s collapse in early 2009, many of Storm’s clients were in negative equity positions, sustaining heavy losses.
ASIC alleged the pair were responsible for significant decisions day-to-day and exercised a high degree of control over its systems and processes.
Their failure to prevent Storm Financial from giving this inappropriate advice meant they did not exercise their powers as directors with the degree of care and diligence a reasonable person would have exercised in that position.
John Price, ASIC Commissioner, said: “This important decision reaffirms ASIC’s view of the importance of directors’ duties and the obligations on financial services licensees. We hope that, with this decision, the aftermath of the Storm Financial collapse is now at an end.”