An Australian Securities Exchange (ASX) shareholder has notified the exchange that it intends to seek Federal Court approval to bring a statutory derivative action against former ASX officers and directors over alleged breaches of duty connected to the abandoned blockchain-based overhaul of CHESS, Australia's core clearing and settlement system.
On Wednesday, ASX said Rosherville Pty Ltd had formally notified the exchange of its proposal to apply for leave to commence proceedings under sections 236 and 237 of Australia's Corporations Act. If the court grants leave, Rosherville would bring the action on behalf of ASX itself, effectively stepping into the shoes of the company to pursue former leaders. ASX stated that there are no allegations against ASX itself, but it did not identify the former officials targeted, specify the alleged breaches in detail, or disclose the remedies Rosherville intends to seek. The Federal Court has not yet assessed whether the proposed case can proceed.
The planned lawsuit is the latest fallout from one of Australia's most expensive financial technology failures. CHESS is a vital piece of national market infrastructure, handling the settlement of every equity trade on Australia's main securities exchange. For decades it operated reliably, but ASX decided in the mid-2010s to replace it with a system based on distributed ledger technology, or blockchain. In 2016, ASX began exploring a replacement. In December 2017, it selected a system developed with New York-based Digital Asset, and market expectations were high that ASX would become the first securities exchange in the world to run its core clearing and settlement services on blockchain.
Derivative action and legal framework
Under Australian corporate law, a statutory derivative action allows a shareholder or other eligible applicant to bring proceedings on behalf of a company when the company itself is unwilling or unable to act. The court must grant leave, and the applicant must demonstrate that the action is in the best interests of the company, that there is a serious question to be tried, and that the shareholder is acting in good faith. These actions are relatively uncommon, and the bar is deliberately high to prevent shareholders from interfering in ordinary corporate governance. However, courts have recognized that derivative actions can be an important accountability mechanism when directors or officers are alleged to have breached their duties and the board is conflicted.
Rosherville's notification is only the first step. The proposed proceedings will require the Federal Court to consider whether the applicant has a proper basis to sue on behalf of ASX. If leave is granted, the substantive case will examine the conduct of former directors and officers in detail. If leave is refused, the matter will end before reaching trial.
Inside the failed CHESS replacement
The CHESS blockchain project was once regarded as a global innovation. ASX began exploring a replacement for its Clearing House Electronic Subregister System in 2016 and selected a distributed-ledger system developed with Digital Asset in December 2017. At that time, ASX was expected to become the first securities exchange in the world to use blockchain for its core services. The intended launch was repeatedly postponed, however. In November 2022, ASX paused the project after an Accenture review found significant problems with the system's design and its ability to meet the exchange's requirements. In May 2023, ASX formally abandoned blockchain for the replacement and said it would consider more conventional technology options instead.
The collapse of the project triggered intense scrutiny. The Australian Securities and Investments Commission, known as ASIC, sued ASX in August 2024. ASIC alleged that ASX lacked a reasonable basis for telling the market in February 2022 that the project was 'progressing well' and on track for an April 2023 launch. At the time, ASIC described the episode as a collective failure by ASX's board and senior executives. The regulator's case centered on whether the exchange had breached continuous disclosure obligations by painting an overly optimistic picture of a project that was already troubled.
Regulatory penalty and admission
In June 2026, ASX admitted to misleading conduct linked to the blockchain replacement project. On July 3, 2026, the Federal Court ordered ASX to pay A$14.4 million in penalties and A$2.1 million toward ASIC's costs. Those orders closed the regulator's enforcement action just weeks before Rosherville notified ASX of its proposed derivative action against former officials.
The penalties paid to ASIC go to the public purse and reflect the harm to the market from misleading disclosures. A derivative action, by contrast, seeks to recover losses suffered by ASX itself. If Rosherville is successful, any damages recovered would be paid to ASX, which could benefit all shareholders. This structural distinction could matter for how the case unfolds.
Accountability questions
The proposed proceedings could test whether shareholders can hold former ASX leaders accountable for their oversight of a project that was central to the exchange's strategy. The CHESS replacement was not a peripheral initiative; it was a key part of ASX's modernization agenda. The selection of a blockchain-based system was a bold and widely publicized decision. ASX executives and directors at the time presented the project as transformative and praised the capabilities of distributed ledger technology. Yet the project ultimately failed after hundreds of millions of dollars were spent over several years.
The case also raises questions about the level of due diligence exercised by ASX's board. According to ASIC, ASX made public statements in early 2022 that were not supported by the information available to the company at the time. The Accenture review, completed later that year, found significant design flaws and unmet requirements. If the board was relying on optimistic internal assessments without robust independent verification, shareholders may argue that directors failed to exercise reasonable care and diligence.
Another issue is the distinction between directorial duties and managerial failures. Under Australian law, directors owe duties to the company, including a duty to act with care and diligence. The duty does not require directors to micromanage day-to-day operations, but it does require them to make informed decisions and to monitor the company's affairs appropriately. The CHESS project was a high-profile, strategically important undertaking, so the standard of care expected of those overseeing it is likely to be higher than for routine projects.
Broader implications
Beyond the immediate parties, the case has broader implications for corporate governance in Australia. Derivative actions are rare, partly because litigation is costly and risky. Shareholders must fund the proceedings and can be ordered to pay the company's costs if the claim fails. However, high-profile failures at major companies can encourage shareholders to test the limits of derivative actions. If Rosherville obtains leave, the case may lead to more scrutiny of how boards oversee complex technology projects.
The failed CHESS replacement also continues to affect ASX operationally. The exchange has been working on a revised solution using conventional technology, but the process takes time. In the interim, ASX still relies on the legacy CHESS system, which remains functional but increasingly dated. The market has long called for a reliable long-term upgrade, and the failure of the blockchain project has created uncertainty for brokers, settlement participants, and technology vendors.
There are also policy questions about the use of blockchain in critical financial infrastructure. Proponents argue that distributed ledger technology can reduce costs, increase transparency, and improve resilience. Skeptics point to the CHESS project as a cautionary tale, noting that the technology was not mature enough for such a demanding application. The Australian experience has been cited in other countries considering similar upgrades, though the details of each project differ.
Next steps in the legal process
The legal process will likely take months, if not longer. Rosherville must first convince the Federal Court that it has a legitimate case and that the proposed derivative action is in the best interests of ASX. The former directors and officers will likely oppose the application, possibly arguing that the decision to abandon the blockchain project was a reasonable business judgment or that the claims are speculative. The court may order a preliminary hearing to consider whether the evidence supports the allegations.
If leave is granted, the substantive trial would examine the conduct of the former leaders in depth. That trial could involve extensive discovery, expert testimony on technology and corporate governance, and scrutiny of minutes, emails, and reports. The damages claimed could be substantial, representing the money spent on the failed project, the costs of the regulatory penalty, and other losses allegedly caused by the defendants' conduct.
ASX's admission of misleading conduct is a key development. The company has not disclosed the terms of that admission, but it effectively acknowledged that its statements to the market in 2022 were inaccurate. This admission could support Rosherville's argument that former leaders were responsible for or aware of the misleading communications. However, admission by the company does not automatically establish liability of individual officers, who may argue that they relied on information provided by others.
The proposed action also highlights the role of litigation funders in Australian corporate law. Derivative actions are expensive, and shareholders often seek external funding. While Rosherville has not disclosed its funding arrangements, the involvement of a professional funder is possible given the scale of the claim. Funders typically take a share of any recovery, which can be controversial but has helped finance many corporate governance cases.
For now, the public knows only that Rosherville has given notice of its intention. No application has been filed, and no allegations have been tested. The response from ASX has been measured, and the former officials have not commented. The coming weeks will reveal whether Rosherville follows through with its application and what specific claims it will make.
The deeper lesson is that ambitious technology projects require rigorous governance, realistic public communication, and careful board oversight. The CHESS blockchain project was once seen as a global innovation; it ended as a case study in failure. The pending legal action could ensure that the full costs and accountability for that failure are examined.
The Federal Court will decide in due course whether Rosherville can pursue the case on ASX's behalf. That decision will turn on the evidence presented and the legal criteria set out in the Corporations Act. The outcome will be watched closely not just in Australia, but in financial markets worldwide.
Source:Cointelegraph News