Australian Securities and Investments Commission v Andrew Alexander Lindberg Case Analysis

This paper provides a discussion on the case of Australian Securities and Investments Commission v Andrew Alexander Lindberg [2012] VSC 332; 91 ACSR 640 related to the breach of the Corporation Act 2001 (Cth). It includes facts, breached duties, court decision analysis, and implications on company law.

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CASE INTRODUCTION
The case of Australian Securities and Investments Commission v Andrew Alexander
Lindberg [2012] VSC 332; 91 ACSR 640 is related to the breach of the Corporation Act 2001
(Cth). One of the most unique features about this case is that the defendant had admitted that he
have violated the provisions of the CA in his capacity as the director of the company. There was
an agreement between the ASIC and the Defendant director that the director will pay a pecuniary
penalty of $100000 and a management ban of two years. However the court stated that it would
only be satisfied with the settlement between the parties if the breaches alleged by the ASIC can
be established. This paper will provide a discussion in relation to this case as to what were the
facts, what duties had been breached by the directors, an analysis of the decision of the court
based on the current corporation law and the implications on company law of the decision
provided by this case.
INTRODUCTION TO FACTS
A civil penalty proceeding had been instituted by the ASIC against Mr Lindberg who was
the director of AWB Limited (AWB) for acting in a way which contravened the provisions of the
CA by being involved in the wheat trade of the company in Iraq where the Oil For Food Program
which was run by the United Nation had been misused by the director. The ASIC amended its
claim against the directors and the proceedings did not continue. However there were lengthy
negotiations between the parties and they reached a settlement. As per the settlement four
contraventions had been admitted by the directors in relation to s 180(1) of the CA as he failed to
deploy reasonable care and skill and other allegations against him had been withdrawn. The
parties tendered to four contraventions in relation to the CA, a statement of agreed facts,

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submission in relation to the applicable legal provisions. The statement of agreed fact provided
for a background in relation to contraventions. The court in this case found that the declaration of
contravention under the provisions of section 1317E cannot be provided merely because of the
consent of the ASIC or the defendant. The declaration is to be only provided when the court is
satisfied that the contravention had been made. In addition the burden of proof is upon ASIC to
show the contraventions made in the balance of probabilities. The court had to analyze that the
statutory conditions for the purpose of imposing the pecuniary penalties have been violated or
not. The ASIC had made a claim for pecuniary penalties based on evidence that the director had
made a serious contravention of the CA. The court will only allow the declaration if it is satisfied
that the contravention made by the director was serious in nature.
Iraq was the primary market of the sale of wheat produced by the company. There were
allegations that UN Escrow Account had been misused. The account was used to obtain money
for purpose other than foodstuffs and medical supplies and hard currency had been received by
Iraq in the violation of UN sanctions. This was because in relation to a contract of selling wheat
to Iraq the company was to be provided with money from the UN account for the wheat sold by
them in the country. The company was supposed to present before the UN Office of the Iraq
Program with the contract of sale of wheat in the country and UN would release the sale price
form the Account to the company in case the OIP was content that all requirements gave been
met. The sale price of wheat however actually included the price paid for inland transportation
and thus the money from the account had misused.
BREACH OF DIRECTORS DUTIES

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Each of the four contraventions which had been alleged in the situation by the ASIC was in
relation to the breach of section 180(2) of the CA. The duty is in relation to Care and diligence
which is a civil obligation only. The wordings of the section suggests that any director or other
officer of a organization must deploy their power and discharge their obligations by observing a
degree of diligence and care which any reasonable person would deploy in case
(a) They were the director or officer of a corporation in the circumstances of the corporation
(b) They held the same office which is held by the directors and also the same
responsibilities within the company
The section is a part of chapter 2(D) of the legislation which provides that “the part gives the
most important duties of secretaries, directors, employees and other officers of a company. Other
duties are provided through other provisions of the Act and other laws which include the general
law.
ANALYSIS OF COURT DECISION BASED ON EXISTING LAWS
In this case it had been stated by the court that it is satisfied with the contention that the
defendant director had contravened the provisions of the CA specifically in relation to section
180(1). The contraventions had been made in relation to an admission of negligence by the
director while performing his obligations in relation to the organization. However, the
contraventions did not lead to deliberate wrongful, morally turpitude or dishonest actions on the
part of the director. However there was a failure on the part of director to perform the duties as a
reasonable officer or director would have in the existing circumstances at that time. In addition
the court was satisfied with the fact that the breaches which had been made in relation to the
legislation were serious in nature. The court also found that the pecuniary penalties which the

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ASIC wanted as well as the disqualification period was within the permissible range even where
it was the upper range. The court used its discretion to impose the pecuniary penalties and
disqualification period of $100000 and 2 years which had been wanted by the parties to the case.
The decision had been made by the court because in April 2003 it had been informed to the
defendant director that the company wants to recover a debt worth US$8 million from the IGB
through the increase in price of the sale of wheat to IGB under OFFP Contracts A1670 and
A1680.
Even where the director had the knowledge about the above facts there was a failure on the part
of the director to make proper inquiries for the purpose of ascertaining whether the recovery was
in compliance with the resolution of the UN and whether the recovery was with the approval and
knowledge of the UN.
Thus the duties under section 180 had been thereby violated by the defendant director between
the period of April 2003 and August 2004 as he failed to discharge his duties and exercise his
powers as a managing director and officer of the AWB with a degree of diligence and care which
a reasonable person would have exercised if
(a) They were the director or officer of a corporation in the circumstances of the AWB
(b) They held the same office which is held by the Mr Lindberg and also the same
responsibilities within the AWB
It had been established via the evidence that the director had knowledge about the nature and
existence of the Tigris debt. It had also been proved via the evidence that information had been

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provided to the director on 7th April 2003 that the price in outstanding sale of wheat contract
included a component with respect to repayment by Tigris of $10 per tonne and the director
failed to enquire whether the component included within the approval and knowledge of the UN
or whether its recovery was in compliance to the resolution of the UN. It had also been implied
through the admission made by the director that he had knowledge about the resolution of UN
and that the contract had been approved by the United Nations.
The director then violated the provisions of section 180(1) as he failed to discharge his duties and
exercise his powers as a managing director and officer of the AWB with a degree of diligence
and care which a reasonable person would have exercised if they were the director or officer of a
corporation in the circumstances of the AWB and they held the same office which is held by the
Mr Lindberg and also the same responsibilities within the AWB.
There had been no evidence provided in relation to whether the reasonable person would have
made enquires which the defendant director failed to make. However it is implied via the
agreement between the director and the ASIC that a reasonable person would have made such
inquires. The court thus made a ruling that contravention I had been made by the defendant
director.
In relation to the second contravention it was stated that the defendant director did make enquires
as well as obtained advice for two highly respected senior counsels. The general counsel of the
company had informed the defendant director that resolution 66I of the UN had been breached
because of increasing the wheat price for paying of the Tigris Debts, there was no disclosure in
relation to the processing of the higher amount via OFFP and the increase in price was not
humanitarian purpose payment. However the court in this case had held that contravention II had

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not been made by the director as the decision made by him has to be assessed in the context of
what had been told to the board about the investigation and what had been revealed. The third
contravention was in relation to inaccuracies in the Tigris Agreement as well as the collection of
Tigris Debt. The contravention consisted of the fact that the Defendant director did not
specifically inform the board that inflation of prices had been doe recover the Tigris debts under
contracts A1670 and A1680. In addition the director did not inform the board about the Tigris
agreement properly by misdescribing the payments to the company in form of a service fee
rather than a debt owed by AWBI in form of a success fee. As the court had proper evidence in
relation to the allegations it held that the director had contravened section 180(1). The fourth
allegation was in relation to IIC allegations. The court was also satisfied with the fact that the
contravention had been made by the director.
IMPLICATION OF THE DECISION OF THE COURT
The first implication is in relation to reliance in the advice and information provided by others.
The decision implies that the directors and other officers have to be aware about any risk
assessment undertaken by the organization so that they can understand fully any implications of
concerns raised by them.
The second implication is in relation to continuing obligations. The decision implies that
officers and directors have to commit to enquires that as much as possible and should also re
evaluate obligations and corresponding efforts in relation to the change in circumstances.
The third implication was in relation to importance of harm. In this case the court implied that
directors have to ensure that they continuously, accurately and actively monitor their

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organizations action specifically those which may result in potential reputational or financial
damages.
Conclusion
In this case the court concluded that it is satisfied with the contention that the defendant director
had contravened the provisions of the CA specifically in relation to section 180(1). The
contraventions had been made in relation to an admission of negligence by the director while
performing his obligations in relation to the organization. However, the contraventions did not
lead to deliberate wrongful, morally turpitude or dishonest actions on the part of the director.
However there was a failure on the part of director to perform the duties as a reasonable officer
or director would have in the existing circumstances at that time. In addition the court was
satisfied with the fact that the breaches which had been made in relation to the legislation were
serious in nature. The decision was totally in compliance with legal provisions of the CA.

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References
ASIC v Adler & 4 Ors [2002] NSWSC 171; (2002) 20 ACLC 576
ASIC v RICH & ORS [2003] NSWSC 186; (2003) 44 ACSR 682
Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2002] FCA
619; (2002) ATPR 41-880
Vizard [2005] FCA 1037; (2005) 145 FCR 57