Federal Court finds Centro executives broke Corporations Act A Centro property in the Sydney suburb of Bankstown. IN a landmark decision, the Federal Court has found that executives and directors of troubled property group Centro breached the Corporations Act by signing off on financial reports that failed to disclose billions of dollars of short-term debt. The ruling in Melbourne today comes as a significant win for the Australian Securities and Investments Commission, which poured considerable resources into the case following a string of high-profile losses. Handing down his decision, Justice John Middleton said the directors failed to apply their minds to the financial statements, otherwise they would have picked up the errors. After reading a summary of the judgment, Justice Middleton warned ASIC to consider its next step "very carefully" as the watchdog prepares its case for penalties. The decision is likely to have repercussions for company directors around the country, potentially increasing the onus on them to scrutinise accounts as part of their due care and diligence. Centro nearly collapsed in December 2007 when it revealed it could not refinance $3.9 billion of debt. ASIC alleged Centro wrongly classified more than $2bn of debt as non-current in its accounts, and that it failed to disclose a $2.8bn debt guarantee used to buy a US shopping-centre portfolio. The case centred on whether the directors paid enough attention to erroneous financial accounts before approving them, and if they breached their duties. Opening the case in April, ASIC's barrister, Mark Derham QC, said the directors held ultimate responsibility for the accounts "in a way that they cannot delegate." "It is the duty of every director to read the financial statements carefully and consider whether what they disclose is consistent with the directors' own knowledge of the company's affairs," he said. The directors argued that they took reasonable steps to guard against error, largely relying on auditors PricewaterhouseCoopers to ensure the accounts were correct. PwC is facing a separate class action from Centro shareholders over their investment losses. Counsel for the non-executive directors Alan Archibald QC told the court this was not a case where the board or company audit committee were "asleep at the wheel," and a decision against them would have severe consequences. "It would be to impose upon every individual member of the board an obligation that is really incapable of being discharged by any single individual," Mr Archibald said. Frankly it's an intolerable burden, which no individual can discharge. The boardrooms of Australia will empty overnight if this is the intention and rigour to be imposed on them.