Federal Court: ASIC v Pattenden CEO Breached Duty, Founder Banned 15 Years

• The Federal Court banned funeral fund founder Ronald Pattenden for 15 years and imposed a $250,000 penalty for prioritizing his interests in an insurer over the funeral fund companies.
• The founder's co-owned insurer, Crown Insurance Services Limited, doubled premiums, creating a substantial insolvency risk for one of the funeral funds.
• The chief executive, Bryn Jones, also a director, was found to have breached his duty of care and diligence (s. 180(1)) and good faith (s. 181(1)) due to his inaction regarding the premium increase and known conflict of interest.
• Despite knowing about the premium hike and the founder's stake in the insurer, the CEO failed to analyze the impact or initiate discussions with other directors.
• The court rejected ASIC's improper-use claim against the CEO, stating his inaction did not constitute a 'use' of his position, with penalties yet to be determined.

This Federal Court decision clarifies that a director's inaction, even without active misuse of position, can constitute a breach of the duty of care and diligence (s. 180(1)) and good faith (s. 181(1)) under the Corporations Act 2001 (Cth), particularly when aware of conflicts or risks.

The Federal Court has issued significant rulings against the founder and chief executive of a group of companies operating funeral funds, primarily serving Indigenous communities. These decisions, handed down on October 30, 2026, in cases including *Australian Securities and Investments Commission v Pattenden (Liability and Penalty – Pattenden)* [2026] FCA 1616 and *Australian Securities and Investments Commission v Pattenden (Liability – Jones)* [2026] FCA 1617, address breaches of corporate duties related to an arrangement with a Vanuatu-based insurer.

The court imposed a 15-year ban on the founder, Ronald Pattenden, from managing companies and ordered him to pay a $250,000 penalty, along with $50,000 towards ASIC's legal costs. Mr. Pattenden admitted to prioritizing his personal interests and those of Crown Insurance Services Limited, an insurer he co-owned, over the interests of the funeral fund companies. This admission followed the court's finding that he had, for many years, tied the companies to an insurer in which he held a substantial personal stake. The penalty, while substantial, was positioned at the lower end of the permissible range.

The core issue stemmed from Crown Insurance Services Limited doubling its monthly premiums for one of the funeral funds on September 4, 2017. This increase was found to create a substantial risk that the affected company would face insolvency within approximately four years, potentially leaving its members without coverage. The founder acknowledged his failure to assess the implications of these arrangements or explore alternative solutions.

In a separate but related judgment, the Federal Court found that the chief executive, Bryn Jones, who later also served as a director, breached his statutory duties. This finding in the *ASIC v Pattenden CEO breach duty* case highlights the critical importance of proactive engagement from company leadership. Mr. Jones was aware of the premium increase by early November 2017 but failed to initiate or request any analysis regarding its potential impact on the company.

His inaction was deemed a breach of his duty of care and diligence under section 180(1) of the Corporations Act 2001 (Cth) across all three companies. Furthermore, the court determined that the chief executive knew the founder had an interest in Crown Insurance Services Limited. By April 2018, he was also informed by NSW Fair Trading of concerns that one company and Crown might not be dealing at arm's length. Despite this knowledge, he took no steps, failing to even initiate a discussion with other directors about the board's composition or decision-making processes, which his duties required.

The court concluded that the most plausible reason for his passivity was a desire not to act against the founder, whose business he harbored intentions of acquiring. This led to a finding that he breached his duty to act in good faith and for a proper purpose under section 181(1) of the Corporations Act 2001 (Cth). However, the court rejected ASIC's claim of improper use of position, clarifying that his inaction did not amount to a 'use' of his role. Penalties and costs against the chief executive are yet to be determined.

This Federal Court decision clarifies that a director's inaction, even without active misuse of position, can constitute a breach of the duty of care and diligence (s. 180(1)) and good faith (s. 181(1)) under the Corporations Act 2001 (Cth), particularly when aware of conflicts or risks. The ruling underscores that directors have an affirmative obligation to address potential conflicts of interest and significant risks, rather than merely observing them. The court's emphasis on the chief executive's failure to initiate discussion, despite his knowledge of the founder's conflict and the financial risk, sets a clear precedent.

This outcome reinforces the proactive nature of director duties, emphasizing that awareness of a problem or conflict necessitates action, even if that action is simply to raise the issue with the board. The finding of a director good faith duty breach, stemming from a failure to act against a conflicted party, serves as a crucial reminder for corporate governance. It highlights the need for directors to understand their obligations to initiate discussions and act in the company's best interest, especially when faced with circumstances that could compromise the entity's financial stability or ethical standing.

This Federal Court decision clarifies that a director's inaction, even without active misuse of position, can constitute a breach of the duty of care and diligence (s. 180(1)) and good faith (s. 181(1)) under the Corporations Act 2001 (Cth), particularly when aware of conflicts or risks. Lawyers should advise clients on the proactive nature of director duties, emphasizing the need to address potential conflicts of interest and significant risks, and review corporate governance to ensure directors understand their obligations to initiate discussions and act in the company's best interest.

Source: Original reporting via Australasian Lawyer