ASIC v Australian Property Custodian Holdings Limited (No 3) [2013] FCA 1342

The ASIC v Australian Property Custodian Holdings Limited (No 3) is a recent case in which issues regarding breach of director duties were raised. The case highlighted the importance of compliance with duties for the responsible entities (REs) operating in Australia. The case also emphasis on the importance of director duties. The facts, duties breached and decision of this case will be evaluated along with its relevance on corporations operating in Australia.

Corporations
Law
ASIC V AUSTRALIAN PROPERTY CUSTODIAN
HOLDINGS LIMITED (NO 3) [2013] FCA 1342

Introduction
 The ASIC v Australian Property Custodian
Holdings Limited (No 3) is a recent case in
which issues regarding breach of director duties
were raised.
 The case highlighted the importance of
compliance with duties for the responsible
entities (REs) operating in Australia.
 The case also emphasis on the importance of
director duties.

Introduction
 The legal issues in this case raised due to
amendments in the Constitution of the
company which were made without prior
approval of members.
 Directors misused their position and acted
unfair to gain personal benefits.
 The facts, duties breached and decision of this
case will be evaluated along with its relevance
on corporations operating in Australia.

Case Background
 In July 2006, the directors of the RE made
changes in the Constitution of the company.
 These amendments introduced two new fees
which include listing and removal fees.
 The calculations of these fees were conducted
by determining 2.5 percent the gross assets
value of the company whereas previously it was
calculated by evaluating the price of the units
(Austlii, 2013).

Case Background
 The directors did not made asked for prior
approval of the members while making these
changes.
 The lawyer of the company provided that
changes can be made without approval in case
the rights of members are not affected.
 However, the directors did not take the prior
permission of the members.

Case Background
 The deed in which the amendments were
introduced were not dated until August 2006.
 This decision was taken so that the amended
constitution and supplementary PDS could be
lodged to the ASIC (Jade, 2013).
 A listing fee was paid by the directors in 2007
regarding the changes which are made in the
constitution.

Case Background
 Based on these changes, the company and one
director, Mr Lewski gained substantial profits.
 Mr Lewski owned all the equity in the company
along with his family members.
 The fees imposed by the company was
triggered multiple times after the amendments
were made.

Duties breached
 Section 180 of the Corporations Act 2001 (Cth)
provides that directors should maintain care
and diligence.
 They have to ensure that a standard is
maintained by them which a reasonable person
will maintain in the position (AICD, 2017).
 Section 181 provides that they should act in
good faith.

Duties breached
 Directors owe a fiduciary duty to focus on the
interest of the company rather than fulfilling
their personal benefits.
 Section 182 provides that they should not use
their position improperly.
 The directors operate at the highest position in
a company based on which they have immense
powers to take decisions.

Duties breached
 They should avoid misusing their position by
taking business decisions which could be
detrimental for the company and its members.
 Section 601FC imposes duty on a reasonable
entity to act honestly while maintaining a
degree of care and diligence.
 Section 601FD imposes same duties on the
officers of a RE. Subsection 1 (b) requires them
to maintain a standard of care and diligence
(Austlii, 2018).

Duties breached
 Prior approval of members is necessary while
making amendments in the constitution of a
company as given under section 601GC.
 The prior approval is also necessary when
parties are gaining financial benefits from
related parties transactions as given under
section 208.
 All these duties were violated by the company
and its directors in the given case.

Duties breached
 The company did not complied with section
601FC since a standard was not maintained and
approval of members were not taken.
 The company failed to act honestly and notify
its members regarding the changes which are
made in its constitution (Jade, 2013).
 Section 208 was also violated since prior
permission was not taken before making related
party transaction by the company.

Duties breached
 Directors violated section 180 since a care was
not maintained while introducing two new fees
in the constitution.
 The purpose was to gain personal profits which
violated section 181.
 Only 10 to 15 minutes were given to other
directors while making the decision in July 2006,
thus, the position was use improperly which
violated section 182 (Hills, 2014).

Decision
 Section 601FD (1) (b) was violated because a
standard which is reasonable is not maintained
by the directors.
 Mr Lewski and his family received a substantial
profit by acting unfairly.
 The decision taken by directors resulted in
causing detriment to the company and its
members.

Decision
 The court provided that the company violated
section 601FC by failing to get the prior
approval of its members.
 A standard of care and diligence was not
maintained since the company entered into
related party transaction without prior approval
as well.
 The company failed in duly making the
payment of listing fees.

Decision
 Directors violated their duties given under
section 180, 181 and 182.
 They are also liable for breaching section 601FD
(1) (b) and section 208.
 The compliance with section 601GC was not
made as well.
 The court held both company and directors
liable and imposed civil penalties on the parties.

Relevancy of the case
 This case is relevant for Australian corporations
to understand the importance of compliance
with the provisions given under the
Corporations Act.
 The case highlighted the importance of getting
prior permission of the members when
amendments are made to the constitution.
 The case also emphasised on the importance of
compliance with director duties.

Relevancy of the case
 The case showed that directors have to ensure
that they maintain a standard of care.
 They should act in good faith and avoid
prioritising their personal interest above the
interest of the company.
 They should avoid making such decisions
should could adversely impact the interest of
the company and its members (Donald,
Ormiston and Charlton, 2014).

Relevancy of the case
 The importance of proper use of position by
directors is also defined by the court in this
case.
 The judgement of this case shows that penalties
are imposed on the company and directors if
they violate the sections of the Corporations
Act.
 Other Australian corporations can evaluate this
case to avoid making mistakes by themselves.

Conclusion
 To conclude, this case is relevant to understand
the provisions of responsible entities and
directors of the company.
 The case was filed due to failure of getting the
prior approval by the directors of the company
from the members.
 The permission was not taken while changes
were made in the constitution of the company.

Conclusion
 The court held both company and directors
liable in its judgement and imposed appropriate
penalties.
 This case is relevant to understand why
compliance with corporate provisions are
necessary and how directors can maintain a
standard of care.
 Effective compliance with these duties ensure
that the interest of the company is protected
and directors did not misuse their position.

References
 AICD. (2017) General duties of directors. [Online] Available at:
https://aicd.companydirectors.com.au/resources/director-tools/practical-tools-for-directors/
duties-of-directors/general-duties-of-directors [Accessed 25/09/2018].
 Austlii. (2013) Australian Securities and Investments Commission v Australian Property
Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers
appointed) (No 3) [2013] FCA 1342 (12 December 2013). [Online] Available at:
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/2013/1342.html?
stem=0&synonyms=0&query=title(australian%20securities%20and%20investments
%20commission%20near%20australian%20property%20custodian%20holdings) [Accessed
25/09/2018].
 Austlii. (2018) Corporations Act 2001. [Online] Available at:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ [Accessed 25/09/2018].
 Donald, M.S., Ormiston, J. and Charlton, K. (2014) The potential for superannuation funds to
make investments with a social impact. Company and Securities Law Journal, 32(8), pp.540-
551.
 Hills, S. (2014) Directors of REs (responsible entities) have great responsibilities. [Online]
Available at:
http://www.mondaq.com/australia/x/313296/Trusts/Directors+of+REs+responsible+entities+
have+great+responsibilities [Accessed 25/09/2018].
 Jade. (2013) Australian Securities and Investments Commission v Australian Property
Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers
appointed) (No 3) [2013] FCA 1342. [Online] Available at: https://jade.io/article/311903
[Accessed 25/09/2018].