Assignment : Business Law (Solution)

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

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Duties/responsibilities breached:
Introduction
The case of ASIC v Parker r [2003] 21 ACLC 888; [2003] FCA 2621 deals with dittoes of
the directors and what penalties are attached in cases when the director fails to perform in
accordance with the terms of the duties. The directors in a company are in a fiduciary relation
with the company and also the employees and are in a bona fide relation. The work of the
director is to act in accordance with the agreements that have been entered into between the
director and the company. Therefore, the function of the director is to act in good faith towards
the benefits of the employees and the directors have to act in the best interest of the company.
The director’s duty is to act in the best interest of the employees so that the goals and aims of the
company are upheld2.
Body of report
The rights and the obligations of the directors are upheld by the Australian Corporations Act.
The directors therefore have a duty to comply with the statutory requirements of the Act and in
cases when the director breaches his duties, he shall be liable for the breach. The liabilities
incurred shall bear both civil and criminal penalties. The civil penalties shall be in the form of
paying damages and fees and compensate the aggrieved party. On the other hand, the criminal
penalties are attracted in cases of company fraud. The director shall exercise duty of care and
shall ensure that the decisions he takes are in the best interest of the company. The degree of care
that the director has to take should be equivalent to what a reasonable man would take to further
his obligations. The Australian Corporations Act states that the director has the duty to act in
1 ASIC v Parker r [2003] 21 ACLC 888; [2003] FCA 262
2 ASIC v Mariner Corporation Limited [2015] FCA 589.

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good faith and in the best interest of the company. The directors are not only responsible for the
functioning of the company and the employees, but also responsible for the interests of the
shareholders. The steps taken by the company are to reach some goals and ensure that the
decisions are for fulfilling some certain purpose. Therefore, the director has to make sure that the
purpose of the decision is fulfilled and to reach that purpose, the director cannot be said to be
indulging in unfair business practices. The director is also liable to the company in a way that
ensures that the duties that the director owes to the company are fulfilled by him. The functions
of the director also include that the director has to make all the necessary declarations about the
trade that he is participating in and the declarations have to be honest and truthful and the
director shall not dupe the employees into believing in the truthfulness of the business.
Therefore, the director is duty bound to be informed about the conditions of the company. The
director has to make all the profit declarations about all the business that he is dealing in and they
should be truthful and also to the best interest of the company. The director has to exercise care
and due diligence so that your actions do not cause any harm to the Employees in the present
case it was held that the directors and breach the statutory duty of care that the out to the
company and that they had acted in violation of the principles of the Australian corporations Act
as a result of which civil penalty proceedings were initiated against the directors and the
proceedings were brought against the four defendants who were also the directors in the
company come to the facts of the case. One. Tel Limited is an Australian limited company and
the case was brought against the 2nd and the 4 defendants named John David mark Silverman
and Rich. In this case which is the Director and he is also one of the executives of the company
and Mr Silbermann is the finance director of the company. Here the plaintiff is the Australian
securities and investments Commission and the case was brought by ASIC against the

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defendants namely Silverman and Rich. In the year 2001 other than the executive director there
were other several directors and non executive directors and one of the executive directors Mr
Packer was involved in the day to day of shares of the company two other members were also
included in the boat but later depositions changed.
It is worthwhile to note that ASIC started its proceedings against the non executive
chairman and the other executive directors who were 4 in number. The proceedings were not
brought against directors. The contention was that the directors did not disclose the true financial
position of the company and with the intention to mislead the company gave out wrong
information about the financial position. Here it is pertinent to mention that for ASIC to initiate
any proceeding it is not important to consider whether the defendants lied about the true financial
position. Even though they knew where the company was standing, they did not inform the
authorities. This is a clear breach of the director’s duty because he owes a duty of care and
diligence and it is his responsibility to ensure that the company functions in the best interest of
the employees and does not mislead the company about its financial position or insolvency3. It is
the duty of the directors to make the company know about the financial position and the
executive directors failed in their beauty to inform the true position and how much expenses the
company can bear. ASIC started its enquiry to find out the true financial position and whether
the directors have knowledge about the condition of the company and it came to the knowledge
of ESIC that the cash flow the position of the creditors debtors the liquidity where was then what
was shown in the report by the directors and therefore there was a clear propaganda to mislead
the company into believing that it had a sound financial position to enter into business
transactions.
3 ASIC v Sino Australia Oil and Gas Limited (in liq) [2016].

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Therefore all the information provided by the director to the board had no logical basis
and they were without any concrete backing. By investigation the Australian securities and
investments Commission also came to know that the directors were fully aware of the condition
of the company and after knowing the truth they had failed to make a proper disclosure of the
financial position to the board. After the case was presented by the Australian Securities and
Investment Commission to the court the directors, that is, the defendants in the case filed a
counter suit where they wanted to show that the groups actual financial position was what they
have shown in the report and had convert to the board and that they were not in any malafide
intention to deceive the board. The company said that their claim was on the ground that they
had made clear submissions about the true financial position of the company they did not provide
any expert accounting evidence. Now coming to the judgment of the case it is important to first
understand that the defendants in the case made an allegation that the findings of the Australian
securities investment Commission where outside its power and the evidence submitted by them
were beyond the scope of the case.
Duty of the director entails that he has to make declarations about the status of the
company and the financial position. The courts have unanimously decided what actions of the
directors constitute a breach of the duty. Therefore it is difficult to state whether just making a
disclosure would have absolved the director and would have been held that he has not reached
his duty or whether even though the disclosure was made they would have been a breach
nonetheless because the director has not taken the required steps to ascertain that he was acting
in the best interest of the company. Applying the provisions of section 180(1) of the corporations
act it is held that the director has to discharge his duties with proper care and diligence and the
directors have proper responsibilities towards the company where he is working4. Peter
4 Australian Corporations Act, 2001 sec 180(1)

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MacDonald is the first defended in the case and he is also a chief executive officer and the
director of the company and it was held that he has violated section 180(1) of the corporations
act because he had failed to lodge an enquiry to ascertain whether the foundation was properly
funded or not the director have also reached his duties in the sense that he did not advise to board
regarding the draught announcement we misleading or false. The ASIC is of the opinion that the
director was obligated to disclose all the information to DOCI and by failing to do so the director
has reached his duties under the corporations act. The biggest contention raised by ASIC is that
the company has reached its statutory duties of care and diligence why not with holding the true
position of the company5. The directors under the Corporation Act or mandated to make a
disclosure of the information they have received about the company and also disclosures that will
be relevant for the transaction of the company in such cases the director self take the decisions
keeping in mind they will influence the course of trade and the profit maximization of the
company. One way for the directors to escape liability in cases of breach of fiduciary duty is to
obtain proper consent from the shareholders. Applying all these provisions of duty of care of the
director and the duty to act with diligence and care when applied to the present case it can be
stated that the company shall not indulge in any unfair or illegal means to obtain profit.
Furthermore it is the duty of the director to disclose all the relevant information before entering
into any trade and buy a wording to disclose the financial position of the company the directors
of acted in breach of the duties. The provision of section 180 (1) talks about the duties of the
director and what constitutes a breach of those duties under the Corporations Act6. In the present
case it was held that even though the director was very well aware of the final position of the
finances of the company, he did not advance and did not act in the promotion and betterment of
5 Hargovan, Anil. "Corporate law: Foreign directors of Australian companies put on notice: No leniency for
ignorance of duties." Governance Directions 69.1 (2017): 37.
6 Hedges, Jasper, et al. "The policy and practice of enforcement of directors' duties by statutory agencies in
Australia: An empirical analysis." Melb. UL Rev. 40 (2016): 905.

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the company. Section 588G of the Corporations Act states that a company shall not trade while it
is insolvent and it is the sole responsibility of the director to ensure that the company is in a
financially stable position to trade.
FODARE PTY LTD SHEARN (2011) NSWSC 4797 is an important case that talks about the good
faith duties of the director and the Court had applied section 181 and 588G of the Australian
Corporations Act to state that it is the duty of the director to ensure that he exercises his duties in
the best interest of the company and does not breach his duties8. In the above mentioned case, the
sole director was held to have acted in violation of her contractual obligations to the company.
The company was not in a financially stable position but the director did not inform the board
and encouraged the company to indulge in trading being fully aware that the financial condition
of the company did not permit insolvent trading9. Therefore, in that case it was held that the
director shall be held personally liable in cases when the director forces the company to indulge
in trade. The case also tried to understand the role of ASIC as the regulator of corporate
undertakings and whether it was an effective regulator or not. The case tried to shape the course
of penalizing the director for corporate misconduct and the case also talked about civil and
criminal penalties in case the directors breached their duty.
Conclusion
This is a landmark case because it spoke about the rights and duties of the director and held that
if director acts in contravention of his duties, he shall be made liable. In this case, the court also
7 Fodare Pty Ltd Shearn (2011) NSWSC 47.
8 Australian Corporations Act, 2001, section 588G
9 Brown, Adrian. "ASIC: Disrupting untrustworthy pre-insolvency advisors and improving information for
creditors." Australian Restructuring Insolvency & Turnaround Association Journal28.3 (2016): 46.

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held that a director cannot escape liability of his fiduciary obligations by absenting himself from
the meeting. He shall be held liable for passing a resolution of enacting loan knowing very well
the financial condition of the company. Therefore by proposing a loan and gaining fees out of it,
the director was held to be liable for breaching his duties to act in good faith. Therefore the
director shall be held liable for failing to make proper disclosure and also for remaining absent
from the meetings. The judges held that fiduciary duty cannot be judged on disclosure or
absenteeism, but also on the failure to act honestly in the interest of the company.
Video script
 The case in question deals about the rights and duties of the directors under the
Corporations Act. In this case, it was alleged that the directors had violated their rights by
acting in breach of their fiduciary duties. According to section 180 and 588 G of the
Corporations Act, it is clear that the directors have to act in good faith and they have to
exercise due care and diligence in taking decisions.
 ASIC plays the role of a perfect regulator of commercial transactions and it is responsible
for ensuring that the director acts for the purposes for which he is responsible and he
performs the duties that he owes to the company.
 The directors are responsible to make perfect declarations about the financial condition of
the company and based on the opinion of the director, the company shall indulge in
trading.
 In this case, the director did not declare that the company was facing financial problems
and therefore was not in the position to make profits out of the current conditions. Te
director being aware of the financial difficulties, proposed a plan of loan and also derived
profit out of it.

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 The director is responsible for carrying the best interests of the company and has to put
his interests ahead of the interests of the company which the director failed to do in this
present case.
 The director therefore violated the rights that have been enforced on them by virtue of the
legislature and has acted in personal interest and not in the interest of the company.
 The company has also indulged in trading and violated section 588G of the Corporations
Act because even though he was aware that the company is undergoing financial turmoil,
he acted in self interest.
 This case reaffirms that the relation between the director and the company is that of
fiduciary and the director is obligated to act in good faith.
 In case it is found that the director has breached his duties, civil and criminal liabilities
shall be imposed on him.
 This is an important case because it laid down that the director is responsible to act in
good faith and not be negligent in their dealings.

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References
ASIC v Mariner Corporation Limited [2015] FCA 589.
ASIC v Parker r [2003] 21 ACLC 888; [2003] FCA 262
ASIC v Sino Australia Oil and Gas Limited (in liq) [2016].
Australian Corporations Act, 2001 sec 180(1)
Australian Corporations Act, 2001, section 588G
Brown, Adrian. "ASIC: Disrupting untrustworthy pre-insolvency advisors and improving
information for creditors." Australian Restructuring Insolvency & Turnaround Association
Journal28.3 (2016): 46.
Fodare Pty Ltd Shearn (2011) NSWSC 47.
Hargovan, Anil. "Corporate law: Foreign directors of Australian companies put on notice: No
leniency for ignorance of duties." Governance Directions 69.1 (2017): 37.
Hedges, Jasper, et al. "The policy and practice of enforcement of directors' duties by statutory
agencies in Australia: An empirical analysis." Melb. UL Rev. 40 (2016): 905.