ASIC v Mariner: Director Duties and Business Judgment Rule

HI6027 BUSINESS & CORPORATIONS LAW
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HI6027 BUSINESS & CORPORATIONS LAW
ASIC v Mariner
(Group Details: )
12-May-18

HI6027 BUSINESS & CORPORATIONS LAW
Case introduction
The decision given in Australian Securities and Investments Commission v Mariner Corporation Limited
[2015] FCA 589 was based on the applicability of different sections covered under the Corporations Act,
2001 (Cth). The first matter which was dealt with in this case was the prohibition put through the act
through section 621(2) on the bluffing bids (Jade, 2018). The crux of the matter led to the court holding
that the need of recklessness under this section resulted in the bar of contravention being set high, so
that these violations would take place on in egregious situations. An example of this was that there was
lack of genuine intent of following through the bid. In this matter, the proposition regarding prohibition
giving the meaning of a bidder having reasonable grounds of believing that they would be able to fulfil
their obligations where a major part of the offer in the bid was accepted was rejected by the court. This
case is also important from the viewpoint of director duties, particularly in context of the ability of
directors in invoking the business judgment rule (Prickett and Teo, 2015). This discussion is focused
majorly on this second aspect of the ASIC v Mariner case and would highlight the duties which were
breached in this case.
Facts of ASIC v Mariner
Mariner was a corporate investment company. This company aspired to buy either all of the shares or a
majority of those shares of a company called Austock Group Ltd. Olney-Fraser was the CEO of Mariner
Corporations Ltd who got an unsolicited approach on June 08th 2012 from one James Goodwin, the joint
MD of Arena Investment Management Limited, which was Morgan Stanley Inc.’s part of international
real estate arm. An interest in making purchase of business unit of Austock was communicated by
Goodwin in the initial communication, and this was to be done once the takeover was done (Usher Levi,
2016).
After this approach, on the following days, more discussion was undertaken between Olney-Fraser and
Goodwin regarding the possible purchase and also on the possible chances of funds from Arena being
provided for facilitation of this takeover. Despite the extension discussions between the two parties, a
binding agreement could not be attained. A key feature of this discussion was hat none of the other
company directors of Mariner were aware of this communication. Yet, Olney-Fraser did provide
different proposals to Mariner’s two other non-executive directors (Usher Levi, 2016).
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HI6027 BUSINESS & CORPORATIONS LAW
On June 25th 2012, Mariner put out a statement to ASX where the announcement regarding company
having made a conditional offer to Austock for acquisition of all of their shares @ 10.5 cents per share
(Ricci and Miyairi, 2016). This was deemed as an off market offer. It was the view of Mariner board that
the value of Austock was $20 million approx, which was needed for funding the takeover. The company
got a letter from Austock which provided that the offer was invalid based on price per share which was
offered, and this led to an increase in the bid by 11 cents, so as to allow for minimum bid price rule
being met. However, another company did put a more attractive offer, resulting in the takeover bid of
Mariner falling apart (Usher Levi, 2016).
Duties/ Responsibilities breached
Section 180(1) of the Corporations Act imposes a duty of care and diligence on part of directors and
other officers as a civil obligation. This section requires the directors of companies to exercise their
powers and discharge their duties compulsorily in a manner which show adopting of degree of diligence
and care compulsorily. This has to be done on the measures of reasonable person exercising similar
duties faced with similar situation and holding same position as the director in question. The civil
penalty provisions for beach of section 180(1) are covered under section 1317E of the Corporations Act
(Federal Register of Legislation, 2018).
This section not only provides the penalty provisions, but also puts forth the defences in terms of the
business judgment rule covered under section 180(2). As per this rule, the director of the company,
when making a business judgment rule, would not be liable for breach of section 180(1), or for the
breach of similar duties under the common law and in equity. In this context, there is a need to show
that:
 The judgment made by the director was for a proper purpose and in good faith,
 Did not have any material personal interest of director in the main matter of judgment,
 Director informed properly themselves on this matter in a reasonably appropriate manner, and
 Rationally had faith in judgment as being the best decision for the company (Federal Register of
Legislation, 2018).
Why the duties were breached?
The proceedings against the directors of Mariner were initiated by ASIC based on the following breaches
being alleged:
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