HI6027 Assignment on Business & Corporations Law
Added on 2020-05-28
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Business & Corporations Law
2Business & Corporations LawIntroductionThe Corporations Act, 2001 (Cth), through its different sections, presents a number of duties on the directors and on the key officers of the companies in the commonwealth jurisdiction of Australia. These duties are applied in context actions undertaken by the directors while running the company, on behalf of the shareholders of the company (Latimer, 2012). In doing so, the directors have to work in the best interest of the company, to not trade when the company is or is about to become insolvent, duty of good faith, and the like. Not upholding theseduties can prove costly for the directors, as it could result in their disqualification from being director in any company for a set period, and also the applicability of pecuniary penalties (Cassidy, 2006). ASIC v Flugge & Geary [2016] VSC 779 is amongst the cases where the directors duties covered under the Corporations Act were applied. This case revolves around the duty of the directors in making proper inquiries, where not doing the same, resulted in Flugge being held liable and upholding the same resulted in Geary being acquitted (Baker McKenzie, 2016). This discussion makes an attempt at highlighting the details of this case, in context of the duties of directors. BackgroundBack in December 2007, civil penalty proceedings were initiated by the ASIC in Supreme Court of Victoria against six of the previous officers and directors of the company called AWB, based on the breach of sections 180 and 181 of this act. These allegations were
3Business & Corporations Lawbased on the wheat trade of the company with Iraq, along with the alleged misuse of OFFP, i.e., the Oil for Food Program, created by UN back in 1995. Under OFFP, the money from sale of Iraqi oil was placed in the escrow account of UN and this could be applied for the sale of wheat to Iraq, in addition for the other humanitarian uses. The company could attain the wheat price, subject to the approval of UN, which had to be purchased by Iraq from the escrow account of UN. It had been alleged by the ASIC that the company made payments to the government of Iraqin an indirect manner, regarding the inland transportation fees which had been purported for wheat which had to be distributed in Iraq. For these payments, the company compensated itself, by inflating the wheat prices which had to be paid by the nation and by attaining the inflated prices from the escrow account of UN (Supreme Court, 2016). It was alleged by the ASIC that these payments had been a sham and had been simply a mode through which the nation could attain the internationally traded currencies, which breachedthe UN Security Council Resolutions. After the public disclosure of the conduct of the company, it had to bear major financial harm, which was in form of the lost market capitalisation, which was approximately of $781 million at the very least, followed by suspension, debarment from participation in programs of US government, lost trade, major compliance and legal costs, restructure and redundancy costs, and payments of settlements for the class actions, along with suffering an immeasurable harm which included loss of reputation, loss of moral and loss of the corporate knowledge (ASIC, 2016). Relevant DutiesUnder section 180(1) of the Corporations Act, the directors or the other officers of the company have the duty of exercising their powers and also discharging their duties in a careful
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