SYDNEY, Australia—Australian securities regulators have begun legal proceedings against several former and current executives of James Hardie Industries N.V. related to the company's asbestos compensation fund.

Building materials company James Hardie, which formerly was based in Australia and now is incorporated in the Netherlands, set up a fund in 2001—the Medical Research & Compensation Foundation—to compensate people who contracted asbestos-related diseases from contact with it products.

The Australian Securities & Investments Commission said Feb. 15 that it had initiated civil proceedings in the New South Wales Supreme Court related to disclosures made by the company about the adequacy of the fund. ASIC seeks both financial penalties against the individual defendants and an order barring them from acting as company directors.

ASIC alleges that some executives of the company did not act with the requisite care and diligence when making certain statements about the adequacy of the MRCF, and ongoing asbestos-related liabilities faced by the company.

When it was established, the MRCF, provided $293 million Australian ($154 million) to pay all claims related to its former asbestos producing subsidiaries. Citing actuarial assessments, the company attested to regulators that the fund was adequate to cover its liabilities. However, amid public criticism, the trust was later found to face a significant funding shortfall.

The company and the New South Wales government eventually reached a $3.4 billion, 40-year compensation package for asbestos sufferers (BI, Dec. 12, 2005).

While that deal shielded James Hardie officers from being sued individually, it did not grant immunity from actions by securities regulators.

Among the defendants facing various allegations from ASIC are James Hardie Industries Ltd. and former James Hardie Chief Executive Peter Macdonald, according to ASIC's statement of claim, which was filed in the Supreme Court of New South Wales. Also named are several former James Hardie directors, including Michael Brown, Michael Gillfillan and Meredith Hellicar, the company's former chairman.

Those three individuals resigned from James Hardie's board last week.

In a statement, acting James Hardie Chairman John Barr said: "The Board acknowledges that these three directors have put the best interests of the company ahead of their own personal circumstances in deciding to remove any conflict of interest by bringing forward their resignations."