so, what might the implications of this be to CER?
The Australian 28th June: FEDERAL court judge John Middleton has ruled that Centro's directors needed only questioning minds -- not "infinite knowledge or ability" -- to spot billion-dollar mistakes in the company's financial statements.
"The directors were intelligent and experienced men in the corporate world," Justice Middleton said in his judgment handed down yesterday. "The basic concepts and financial literacy required by the directors to be in a position to properly question the apparent errors in the financial statements were not complicated.
"All the directors failed to see the obvious errors because they all took the same approach in relying exclusively upon those processes and advisers. No director stood back . . . and looked at and considered for himself the financial statements."
The eight current and former Centro directors sued by ASIC had board and executive experience, and were familiar with the company's debt position when they approved the erroneous 2007-08 financial statements. Justice Middleton said the omission of more than $2 billion of debt from the accounts could have been identified "without difficulty", but the task required "critical and detailed attention and not just going through the motions or sole reliance on others, no matter how competent or trustworthy they may appear to be".
The directors must have known Centro's loans were due shortly, or would have realised because of negotiations to refinance or extend the debt, he said.
"This is all that they needed to know, along with a general or basic understanding of the classification requirement, to raise the question as to the appropriateness of the classification," Justice Middleton said.
However, he accepted that the non-executive directors reasonably expected the statements would meet accounting standards or if they didn't, PricewaterhouseCoopers or Centro accounting staff would identify errors.
He also accepted the directors' defence that PwC had assured them it would check accounts to ensure compliance.
"There is no evidence in this proceeding that PwC did raise any concerns regarding the accounts or the capability or diligence of management in the private sessions which management did not attend," he said.
CER Price at posting:
33.5¢ Sentiment: Buy Disclosure: Held
