ASIC v Adler [2002] NSWSC 171: Breach of Directors' Duties

Business Law
ASIC v Adler [2002] NSWSC 171

Table of Contents
Introduction......................................................................................................................................................2
Facts of the case (Inappropriate behaviour of Adler).......................................................................................2
Duties breach by Adler.....................................................................................................................................2
Judgement of the Court....................................................................................................................................3
Lesson from this case.......................................................................................................................................4
Observations from the case..............................................................................................................................4
Conclusion........................................................................................................................................................5
References........................................................................................................................................................6
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Introduction
ASIC v Adler [2002] NSWSC 171 deals with a number of issues regarding breach of directors’ duties.
It is considered as one of the most significant cases in the Australian law. This report will focus on analysing
the facts of this case to evaluate the inappropriate behaviour which was displayed by Adler while acting as
an officer of HIH. This report will evaluate the actions of Adler to understand how they contravene the
provisions of the Corporations Act 2001 (Cth) (the Act). The punishment given to the Adler and the lessons
which are indicated in the case will be discussed as well. Furthermore, observations regarding this case will
be included in the report.
Facts of the case (Inappropriate behaviour of Adler)
HIH was the second largest insurance company in Australia and it was liquidates in 2001. In June 2000,
an unsecured and undocumented loan of $10 million was given by Casualty and General Insurance Co Ltd
(HIHC), which was a subsidiary of HIH, to Pacific Eagle Equity (PEE). Adler was acting as a non-executive
director of HIH. PEE was controlled by Adler, and he provided illegal financial assistance in the transaction.
The money was arranged without any knowledge of HIH’s directors and the transferred was performed by
Dominic Fodera (Adams, 2011). After the transaction, PEE becomes the trustee of Australian Equities Unit
Trust (AEUT). Adler and his wife were the only directors and shareholder in Adler Corporation which control
AEUT. AEUT issued units of a value of $10 million to HIHC, however, the trust which was managed by PEE
valued less than $10 million (Austlii, 2018). After receiving the loan, PEE used it in following transactions:
 The corporation purchased share of HIH with approximately $4 million from the stock market. Adler
wanted to create a false impression in stock market he wanted to help HIH’s falling share. The
purpose of this false impression was to increase the share price of the company or at least prevent
the share price of HIH from reducing on the stock market dramatically. Shortly after, shares of HIH
were sold by PEE at a loss of $2 million (Golding, 2012).
 PEE used approximately $4 million for purchasing the unlisted share from Adler Corporation which
it owed in unlisted technology and internet companies (Hargovan, 2009). Adler Corporation
suffered a total loss on the investments which it made in unlisted technology and internet
companies.
 The rest $2 million were given as a lent to Adler and others who have an interest in the transaction.
PEE did not properly document this transaction, and it was an unsecured loan as well.
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