The Defendants in Centro included the CFO and Directors of companies within the Centro Properties Group and the Centro Retail Group. Justice Middleton held that every Defendant had breached his duties when they approved erroneous financial statements which had:

• understated the group's short-term liabilities by approximately $2b as they misclassified short-term liabilities as non-current liabilities; and
• failed to disclose guarantees occurring after the balance date of approximately $1.75b.

It was not until early 2008 that the company revealed the errors, however each Director was aware of the short-term liabilities and the guarantee at the time they had approved the accounts.

The Court held that:

• each Director was required to have adequate knowledge of conventional accounting practice and terminology (for instance, the classification of liabilities and disclosure of certain events occurring after the balance date);
• the Directors were required to carefully read and understand the content of the statements in order to reveal information known to them, and to make further enquiries if necessary;
• Directors cannot abdicate their responsibility to approve financial statements by substituting their own examination with reliance on specialist advice;
• each Director failed to make enquires when presented with the discrepancies; and
• the volume of information was no excuse.

The decision is a stern reminder of the need for all Directors to read, understand and if appropriate query the financial statements put before them for approval. Although each case will turn on its own facts, the judge acknowledged that this was a case in which the errors were so obvious that the ruling was inescapable.

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