Why Passive Directors Are Now a Thing of the Past: Governance Lessons from ASIC v Bekier

Introduction

A Federal Court of Australia judgment on 5 March 2026 sent a clear message to company directors: the era of passive corporate governance is over. The ruling in Australian Securities and Investments Commission v Bekier (Liability Judgment) [2026] FCA 196, also known as the Star Entertainment case, reinforced that directors cannot discharge their duties through passive reliance on management alone. The judgment makes indifferent and passive board members a thing of the past.

This article examines the director’s duty of care and diligence under Australian law, using the governance failures at Star Entertainment as a key case study. It outlines the legal requirements for directors and provides practical lessons from the court’s findings on liability for both executive and non-executive officers.

The Star Entertainment Case: A New Benchmark for Director Accountability

What Went Wrong at Star Entertainment

The case against Star Entertainment Group’s executives and directors centred on significant corporate governance failures that exposed the company to major legal, operational, and reputational risks. The core issues involved a lack of appropriate action in response to clear warning signs of misconduct.

Specific failures by senior management included:

• Ignoring money laundering risks: The company continued its business relationship with Asian gambling junket operator Suncity, despite being aware of reports linking the group to criminal activity.
• Dismissing auditor warnings: A 2018 report from KPMG identified serious deficiencies in Star’s anti-money laundering and counter-terrorism financing (AML/CTF) processes, yet these warnings were not adequately addressed.
• Misleading a major bank: Star provided misleading statements to National Australia Bank (NAB) regarding the use of China UnionPay (CUP) cards on its premises. Furthermore, the company disguised the fact that over $900 million in CUP card transactions were used for gambling, which was prohibited by the card issuer.
• Failing to escalate critical issues: Management did not inform the board about the money laundering red flags, the misleading communications with NAB, or the full extent of the compliance risks identified by auditors.

Legal Action Brought by ASIC

In response to these governance failures, the Australian Securities and Investments Commission (ASIC) initiated legal action in 2022. As a result, ASIC commenced civil penalty proceedings against 11 of Star’s current and former directors and senior officers.

The legal action alleged that these individuals breached their statutory duty to exercise their powers with the degree of care and diligence that a reasonable person would exercise. Specifically, ASIC claimed they contravened Section 180(1) of the Corporations Act 2001 (Cth) (Corporations Act) by failing to properly respond to the serious risks facing the company.

Understanding the Director’s Duty of Care & Diligence in Australian Law

What Section 180(1) of the Corporations Act Requires

Under Section 180(1) of the Corporations Act (Cth), a director or officer has an obligation to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise in their position. However, this standard is not a one-size-fits-all rule. The law assesses what a reasonable person would do by looking at several factors, as follows:

• The specific circumstances of the corporate entity;
• The office held by the director; and
• The particular responsibilities that person had within the organisation.

Court’s Stance on Passive and Indifferent Directors

The judgment in ASIC v Bekier delivered a clear message that the law expects significantly more from a director than passive attendance. Justice Lee stated that indifferent and passive directors are a “thing of the past.” As a result, simply accepting management reports without question is no longer a sufficient way to discharge the duty of care and diligence.

While the law permits non-executive directors to rely on management for operational matters, this reliance is not absolute. Ultimately, a director cannot be disengaged, and they are required to actively fulfil their obligations by:

• Applying independent human judgment;
• Reviewing information carefully; and
• Engaging in sustained scrutiny by asking questions, particularly when risks to the corporate entity are obvious.

Court’s Verdict Differentiating Executive and Non-Executive Director Liability

Why Executive Directors Breached Their Duty

The Federal Court found that Star Entertainment’s former CEO and its former General Counsel breached their duty of care and diligence under Section 180(1) of the Corporations Act (Cth). Their failures were considered active, as the evidence showed they possessed critical information about serious risks but failed to act appropriately or inform the board.

The CEO, Mr. Bekier, was found to have contravened his duty by:

• Addressing a KPMG report: failing to properly address a report that identified significant deficiencies in the company’s AML/CTF compliance risk processes;
• Managing Suncity risks: not adequately managing the risks associated with the gambling junket Suncity, even after becoming aware of media reports alleging criminal connections; and
• Escalating CUP card issues: failing to manage and escalate issues to the board concerning the prohibited use of CUP cards for gambling transactions.

Similarly, the General Counsel, Ms. Martin, breached her duties through her involvement in:

• Suncity dealings: failing to properly inform the board about the risks arising from Star’s dealings with Suncity;
• Misleading statements: participating in providing misleading statements to NAB regarding the use of CUP cards; and
• Failing to escalate: leaving the board uninformed of significant legal, regulatory, and reputational risks by not escalating these critical matters.

Ultimately, the court determined that these executive officers could not delegate their core responsibilities. Therefore, they had a personal obligation to act on the information they received and ensure the board was aware of material issues affecting the company.

Why Non-Executive Directors Were Not Found Liable

In contrast, the court dismissed the claims against the seven non-executive directors. The central reason for this outcome was the failure of senior management to escalate material information to the board.

The court found that, in the circumstances of this case, the non-executive directors were entitled to rely on information and reporting provided by senior management. They could reasonably assume that management would manage operational risks and bring any substantial issues to their attention. Because the CEO and General Counsel failed in this duty to escalate, the court found that the non-executive directors did not have sufficient information to act.

As a result, ASIC could not prove that a reasonable non-executive director, with the information they were given, would have taken the steps the regulator alleged they should have.

While some relevant details were present in board packs, they were sometimes understated in reports or buried within appendices. Without a clear trigger to question management’s competence or honesty, their reliance on the executive team was considered reasonable in the circumstances.

Key Corporate Governance Lessons for Your Board of Directors

Be an Active Director, Not a Passive Board Member

The judgment in ASIC v Bekier confirms that the era of passive board members is over. Directors are required to do more than simply attend meetings and read reports; they must apply an inquiring mind to the information presented by management. This active approach involves a willingness to:

• Challenge executives: interrogate and probe management, especially when risks to the corporate entity are obvious;
• Diligently review information: ask difficult questions, which is an obligation for all directors, including non-executives; and
• Speak up: ensure the matter is addressed if a director identifies an issue or senses something is wrong.

Using Technology as a Tool, Not a Substitute for Personal Judgment

While technology like Artificial Intelligence (AI) can be a useful tool for managing large volumes of data, it cannot replace the personal human judgment required of a director. The duty of care and diligence under Section 180(1) of the Corporations Act (Cth) is a personal obligation that cannot be delegated to an algorithm.

A summary generated by AI is not a substitute for a director’s own review and critical thinking.

Understanding the Limits of Relying on Management

Non-executive directors are generally entitled to rely on the information and advice provided by senior management. This allows them to guide and monitor the company without being involved in day-to-day operational matters. However, this reliance is not absolute and does not permit a director to be disengaged.

A director’s ability to rely on management is lost if they know, or should have known, facts that would deny that reliance. This includes:

• Suspicious circumstances: any situations that might awaken the suspicion of a prudent director regarding management’s competence or honesty; and
• Doubtful information: when a director has reason to doubt the information being provided, their duty requires them to take a more active role in verifying it.

Multiple Roles Mean Multiple Responsibilities

Directors who hold multiple officer roles, such as General Counsel and Company Secretary, cannot compartmentalise their duties to avoid liability. The court affirmed that the statutory duty of care and diligence applies to all responsibilities a person holds within the corporation.

Therefore, an officer cannot claim they were acting in one capacity, such as a lawyer, and not another, like a director, to excuse a failure.

Duty to Escalate All Material Issues to the Board

A central lesson from the Star case is the critical importance of escalating material risks to the board. Senior executives have an ongoing obligation to ensure the board is fully informed about serious issues that could expose the company to legal, regulatory, or reputational harm. Furthermore, this duty cannot be delegated, and executives should not substitute their judgment for that of the board on key matters.

Documenting that escalation has occurred is also a vital step. While the non-executive directors in the Star case were not found liable because management failed to escalate key information, relying on this as a defence strategy is not advisable. Ultimately, all officers have a responsibility to ensure significant problems are brought to the board’s attention.

Conclusion

The judgment in ASIC v Bekier serves as a critical reminder that the era of passive corporate governance is over, establishing that all directors must be actively engaged in their oversight responsibilities. This case underscores the personal nature of the duty of care and diligence, highlighting the obligation for executives to escalate material risks and for non-executive directors to apply an inquiring mind.

Navigating these director’s duties requires clear and informed guidance to ensure compliance with the law. If you need to clarify your obligations or strengthen your corporate governance framework, contact Click Legal’s expert corporate and commercial lawyers to secure your position.

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