James Hardie Asbestos Fund Scandals
The High Court of Australia recently ruled that seven directors of James Hardie Industries SE breached their duty to their shareholders. That ruling overturned an appeal court opinion that the failure to call James Hardie’s solicitor as a witness at trial did not create an unfairness to James Hardie. James Hardie Industries SE is an industrial building materials company. Beginning in the 1920s, they were deeply involved in asbestos mining and the manufacturing of asbestos-related building products. Many of those products caused people to develop asbestos-related diseases, including mesothelioma, a rare but terminal form of cancer. James Hardie Industries SE has since phased out all use of asbestos in their products, which was completed in 1986. In 2001, James Hardie Industries SE decided to move their business location to the Netherlands, a move designed to remove itself from its subsidiaries associated with the manufacturing of asbestos products. The move was important to the company because they felt that investors and debt providers were reluctant to invest in them if they continued to have asbestos liabilities on the company’s balance sheets. Prior to making the move, James Hardie Industries SE had to assure the Australian courts that it could meet their future liabilities for asbestos claims. In order to do that, James Hardie Industries SE created a unit called Medical Research and Compensation to manage payments of present and future asbestos related claims against the company in Australia. The directors that comprised the board released a statement that it was “fully funded” to handle all future claims. However, in 2009, James Hardie indicated that the Medical Research and Compensation unit was running out of money and might be unable to pay claims within two years. This admission resulted in the directors being charged with breaches of the Corporation Act 2001 by the Australian Securities and Investment Commission. They charged that the directors made fraudulent statements designed to mislead the stock exchange, shareholders, and the public concerning their ability to meet asbestos-related claims filed against them. In a separate ruling, the High Court held that James Hardie Industries SE secretary and general counsel at that time, Peter Shafron, failed to advise the directors that an asbestos-related liabilities study he had ordered was not complete. This ruling is important because it dictates that all executive directors and officers of a company have a duty to inform and advise a board regarding relevant matters. Reference:
- Schneider, Joe. (May 2, 2012). “James Hardie Misled Investors on Asbestos Fund, Court Rules.” Retrieved on May 7, 2012, from Bloomberg Business Week.