ASIC v Rich: Establishing the Principle of Business Judgment Rule


Added on  2023-06-10

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Running head: COMPANY LAW
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The main issue of this case is to determine whether the alleged company One.Tel
has breached the provisions of Corporation Act 2001 or not.
The main subject matter of the case is based on certain provisions of Corporation
Act such as director’s duty and business judgment rule. Australia is a business country and all
the rules regarding the processing of a company are very strict. Corporation Act 2001 is the
main legislative approach to deal with the matter related to the company acts. Australian
Securities and Investment Commission is the main regulating body in this case. It works to
inspect the acts of all the companies to inspect whether there are any illegal thing is going on.
The rules provided in the Corporation Act 2001 are mandatorily imposed on the directors of
the companies. According to section 180 of the Act, every director of the company is
required to perform their acts with due care and diligence and they should not act against the
interest of the shareholders. According to the general principle of Company Law, company is
the separate entity from its director; however, the director takes all the important decisions of
the company (Farrar 2016). Therefore, they are regarded as the mind of the company.
Considering their acts in the company, the directors have certain duties towards the
shareholders and to the company. They could not earn illegal profit from the company by
deceive others. They should be loyal and should employ good faith while perform for the
interest of the company. Under the Corporation Act 2001, the directors should have to
maintain all the provisions of the Act and in case of any failure found by the Australian
Securities and Investment Commission, the alleged director has to face penal action. There
are many cases where the directors of companies have to face serious penal action for non-
performing the provisions of the Corporation Act (Huebner and Klein 2015). However, there

are certain provisions under the Corporation Act, where certain defences have been
mentioned for the directors so that they can defend their position. The case of ASIC v Rich is
an important case in this matter. The principle of business judgment rule has been established
in this case.
The directors of the company play an important role and it is their duty to deal with
all the operational matter in good faith (ANDREW 2016). There are number of cases pending
before the Australian court where the directors have failed to comply with the provisions of
Corporation Law and case like ASIC v Adler and ASIC v Cassimatis are certain examples in
this regard. According to the Act, a director has to consider certain matters while taking
important decisions for the company. They are not expected to think about their personal
interest and should not deceive the shareholders. An allegation has been brought against the
directors of One.Tel by ASIC that they have failed to assess the financial position of the
company and they have taken certain decisions by which the company become insolvent.
Further, they should assure the existence of system to facilitate the flow of financial
information to the board. However, the directors of the company had taken the assistance of
the defence provision of Corporation Act 2001 and the whole onus of proof has been passed
on their buck.
According to the allegation of ASIC, the financial condition of the company was
very bad and without assessing the financial condition the directors of the company has taken
certain steps that affects the shareholders of the company. Further, it has been alleged that the
directors of the company have all the knowledge about the company’s condition and they
have failed to maintain the balance of probabilities. In addition, it has been stated by ASIC
that the directors of the company has failed to discharge their duty with due care and
diligence and therefore, should be charged under section 1317E of the Act. In this perspective
ASIC has shown certain case citations to support their case. In ASIC v Adler, it has been held

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