Breach of Duties and Obligations of Directors and Officers in ASIC v Alder Case Study
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This case study analyzes the breach of duties and obligations of directors and officers in ASIC v Alder case. It discusses the contravention of the Corporations Act, 2001 and the punishment suffered by Alder due to conviction.
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Running Head: COMPANY LAW0 company law Based on case study MAY 23, 2018 Student details:
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COMPANY LAW1 Introduction In the case ofASIC v Alder, HIH Casualty and General Insurance Ltd (HIHC) gave loan of $ 10 million to the Pacific Eagle Equity Pty Ltd. (PEE) which is controlled by Alder. It was undocumented and unsecured loan. Alder was a non-executive director and also a substantial shareholder of HIH. PEE became trustee of the Australian Equities Unit Trust (AEUT). PEE purchased the shares of HIH of $4 million for good impression on the stock market and sold them at the loss of $2 million. There was the contravention of the Corporations Act, 2001 by the four defendants, Rodney Alder as a non-executive director and an officer of HIH, Ray Williams as the founder and CEO of HIH and Dominic Fodera as CEO and director of HIH. It was held that Alder breached the duties of directors or officers as per the Corporations Act, 2001. This case shows an example for the breach of the duties and obligations of directors and officers of the organisation of Australia (Keay, 2018). Inappropriate behaviour of Alder in the capacity of officer- In this case of ASIC v Alder, Alder was a director of HIH as well as an officer of wholly owned subsidiary. It reflects that Alder took part in the decision making of business of company. Alder through PEE purchased shares of $4 million to create a false impression of helping HIH to the stakeholders and stock market. Thus Alder misled the shareholders of HIH, concerning the value of company. This loan caused the interest conflict between own interest of Alder and the interest of company. Alder’s intention was to hiding the facts. Alder was knowingly involved in the contravention of the Corporation Law and more specifically the Corporations Act. Alder breached the statutory duties of director or duties of an officer (Latimer, 2012). As an officer, Alder did not comply with the following requirements of the Corporations Act, 2001- 1.Act due to care and diligence. 2.Act in the good faith. 3.Avoid misuse of the important information. 4.Avoid misuse of position of an officer. Contravention with the Corporations Act, 2001- It was found by the court that Alder breached many duties of the director under section 180, 181, 182 and 183 of the Corporations Act (Lee, 2016). The Corporations Act, 2001 requires that- 1.Directors should act due to care and diligence. 2.Directors should act in good faith.
COMPANY LAW2 3.The directors should not misuse the position of director. 4.The directors should not make inappropriate use of the information. As per section 180 of the Corporations Act, directors are required to discharge their powers and duties with care and diligence. In this case, a vigilant and diligent director would not have permitted HIHC to loan of $10 million to Pacific Eagle Equity Pty Ltd to use loan amount to secure shares of HIH. Here intention of the Alder was to secure the price of shares for own extensive shareholding. Alder also did not ensure the safeguards to give security to HIHC. Thus Alder contravened the section 180 of the Corporations Act, 2001 (Schenone, 2017). Section 181 of the Corporations Act states that the directors are required to perform duties and obligations for specific purpose. They are required to act in good faith. There is a very close link between obligation to act in good faith and specific purpose because if functions are performed without any specific purpose then it will not be considered in the public interest. Alder took unsecured and undocumented loan by the funds to acquire the shares of HIH. Thus Alder did not act in the good faith (bona fide). Alder breached his duty under section 181 of the Corporations Act, 2001 (Baxt, 2015). Further as per the section 182 of the Corporations Act, the directors should not misuse their position. They are required to use their position in proper way. In the case ofASIC v Alder, Alder took unsecured and undocumented loan of $10 million from HIHC. In this way Alder misused his position of director. As a CEO, Williams also misused his position to take benefits for Alder. It was contravene of section 182 of the Corporations Act, 2001 (Nicholson, 2018). As per section 183 of the Corporations Act, the directors should not use information in improper way to achieve benefit for own or for someone. Alder was liable for breach of the requirements of section 183 because his conduct involved specific information of poor financial position of company. Furthermore, HIHC gave loan of $10 million illegally to PEE to secure shareholding in HIH and there was no disclosure of this given loan to investment committees or other directors. The HIHC subscribed $10 million unit trust which was less than of the initial subscription. This was not in the interest of shareholders as well as not in the interest of HIH and HIHC. Punishment suffered by Alder due to conviction- In the case ofASIC v Alder, The court found that Alder was liable for the contravention of numerous sections of the Corporations Act (Bottomley, 2014). As per section 184 of the Corporations Act, the director who breaches the requirements of section 181 or section 182 or section 183 of the Corporations Act is liable for-
COMPANY LAW3 1.Fine up to $200000, or 2.Maximum sentence up to five years, or 3.Both sentence and fine In the given case, Alder was disqualified from the position of director for 20 years, imposed fine of $900,000 and imprisonment of 5 years (Stefan, 2016). Conclusion- As per the above analysis, it is clear that it is a duty of company to make sure good corporate governance. Further, the duties and obligations of directors are very important in an organisation. The executive or non-executive directors are always required to perform their obligations as per minimum standard. Furthermore, it is required that directors always should have knowledge of the business of company. The director should be familiar with financial position of an organisation. They should not be affected by the performance and position of the senior managers of the company.
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COMPANY LAW4 Reference Baxt, R. (2015).Duties and Responsibilities of Directors and Officers. Australia: Australian institute of company directors. Keay, R.A. (2018).The Corporate Objective. Melbourne: The Hybrid Publisher. Lee, P.W. (2016). Regulating Director’s duties with civil penalties: Taking a leaf from Australia’s Book. Journal of Common law world review,35(1), 1-23. Latimer, P. (2012).Australian Business Law. Australia: CCH Australia ltd. Nicholson, M. S. (2018).Duties and liabilities of corporate officers and directors. Cambridge: The Cambridge press. Schenone, S. (2017).Duties and Responsibilities of directors and company secretaries. Australia: Australia University Press. Bottomley, S. (2014).Australian Corporation Law.Australia: LexisNexis Butterworth. Stefan, H. C. (2016).In Search of Corporate Accountability: Liabilities of Corporate Participants. Cambridge: The Cambridge Press.