The NSW Court of Appeal recently clarified the position where the true directors of a company become aware of a situation where a rogue has fraudulently altered the ASIC register. The company was the trustee of a property owning unit trust.
The rogue in this case changed the ASIC register to represent that he was the sole director of the company. The true directors became aware of this fraud but did nothing to correct the register until nearly three months after they learned of it. In the meantime, the rogue had the company enter into a Deed with an innocent 3rd party to transfer units in the trust. The 3rd party paid a substantial sum for the units, but they were not transferred.
The innocent directors tried to defend an action by the 3rd party to specifically perform the agreement to transfer the units. The Court of Appeal held that the directors had a duty to take immediate action on learning of the fraud to correct the register. In sitting idle for 3 months, they did nothing to correct the presumption that the 3rd party was entitled to rely upon that the rogue had the authority to bind the company.