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Preventing Interference in the Prevention of Directors' Duties

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Added on  2019/11/19

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The case of Cassimatis has been observed to have fulfilled all the criteria regarding the sections of 206E, making it applicable to the directors of the company too. The decisions made in the case have opened up many doors regarding the breach of directors' duties and have made the interpretation of the Corporation Act more predictable. The case has also shown that the grounds made by the respondent company are based on vague knowledge of the directors and that the acts of directors to gain illegal money without taking due care for the interest of the company and investors shall not be considered any more.

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Running head: BUSINESS AND CORPORATION LAW
Breach of Director’s duties
Name of the student:
Name of the university:
Author note

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1BUSINESS AND CORPORATION LAW
Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Duties of the directors:...........................................................................................................3
Decision of the court:.............................................................................................................4
Critical analyse of decision:...................................................................................................4
Other relevant section:............................................................................................................6
Impact of the decision:...........................................................................................................7
Conclusion:................................................................................................................................7
Reference:..................................................................................................................................8
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2BUSINESS AND CORPORATION LAW
Introduction:
Director and outcomes of the breach by the directors base the present case on the
grounds of breach of duties. The many newspapers and channels that the growth of cases
regarding the breach of director’s duties has been increased rapidly have reported it (Aroney
et al. 2015). The provision regarding the breach of director’s duties has been attracted the
provision of the Corporation Act. Several cases are pending before the various courts of
Australia regarding the same and in this report, an attempt has been made to discuss and
critically analyse the court’s decision and responsibilities of the directors regarding one of the
important case law named ASIC v Cassimatis [2016] FCCA 1023.
Discussion:
The current case is one of the most significant cases in the history of Australia
regarding the violation of the respective provisions of the Corporation Act 2001 attracts the
grounds regarding the breach of duty by the director (Barnett 2017). Directors are the most
important part of a company and they are eligible to take all the necessary decisions
regarding the benefit of the company (Berk et al. 2013). Therefore, it can be narrated that the
directors should have to perform their duties in good faith and think about the benefit of the
company. Under the Corporation Act, several sections have been mentioned where from it is
clear that if any director of a company tried to gain illegal benefit or anything that harm the
interest of the shareholders, law will abstain them from doing so. The provisions mentioned
under the Corporation Act are engraved under section 180 to section 184.
An allegation had been made by the ASIC against the financial giant Storm Financial
Limited that points out that the director of the company Mr. Cassimatis had breached the
respected provisions of the Corporation Act 2001 and liable for the violation of the respected
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3BUSINESS AND CORPORATION LAW
Act. Allegations have also been made against the illegal acts of the directors of the company
and it was alleged that the company had failed to perform their duties in good faith (Blair
2015).
The problem arose in the year 2008 when the director of the company had adopted
one financial model and call for investment from every stages of the society to invest money
in the project. The company was one of the well known companies in the financial sector of
Australia and therefore, the company had not face any trouble regarding the investment.
Allegation made by the ASIC that the company had failed to point out the risks of the
financial sector and also did not mention the outcomes of the situation if the money are being
faced by financial downturn.
It was announced by the directors of the company that the result of the investment
will be beneficial in nature and it was observed that many people who had no knowledge
about the financial risk, invested their money into the project with the dream to gain certain
profits (Chia and Ramsay 2015). After certain times, the company had faced a huge financial
crisis and all the invested money were lost and the investors had to face a lot of problem.
It was alleged by the ASIC that the director of the company had not taken any wise
step regarding the security of the interest of the investors rather defended himself with the
statement that in the financial sector, risk is an obvious factor (Coffee, Sale and Henderson
2015).
Duties of the directors:
It is provided by the Corporation Act 2001 that the directors of the company has
certain duties to be performed. There are certain sections mentioned under the Corporation
Act 20010 regarding the provisions of the duties of the director. According to section 180 (1)
of the Act, it is required that the directors of a company should have to perform their duties

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4BUSINESS AND CORPORATION LAW
with necessary care and diligence. It has also been mentioned under the provision that the
directors should act in good faith regarding the acts of the company and if they are unable to
exercise their duties by maintaining the necessary provisions of the Corporation Act 2001,
certain penalties will be imposed on them. The penalty provision in this case is section 1317
of the Corporation Act 2001 (Crane and Matten 2016). It is the duty of the director of the
company to secure the interest of the shareholders and the investors as well. There is another
relevant section under the Corporation Act 2001 (section 945A) regarding the duty of the
directors to search for the background of the investors before taking or accepting money from
them.
Decision of the court:
After perusing all the necessary documents and examined the relevant witnesses, the
court had observed that the directors of the Storm Financial Limited had violated the
provision stated under section 180(1) of the Corporation Act 2001 (Ferrell and Fraedrich
2015). It has been rightly observed by the court that the company had intervened all the
necessary provisions regarding the director’s liability. It has also been observed by the court
that the directors of the respective company had failed to interpret the relevant sections of the
Corporation Act successfully. The acts of the directors of the company had not met the
provisions of the term Good Faith. It has also mentioned by the Court that the director of the
company had failed to maintain the rules mentioned under section 945A of the Corporation
Act.
Critical analyse of decision:
It is clearly stated under the provisions of the Corporation Act 2001 that it is the
utmost duty of the director of a company to act in good faith while performing their job. It is
required by them to act with due care. The term due care and diligence means all the acts that
is positive in nature. The parameter regarding the same is what a prudent man of general
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intelligence will do in certain circumstances. The provision of section 180(1) of the
Corporation Act is mandatory in nature and it binds the director of any company to do any
arbitrary works against the interest of the company and against the interest of the investors or
the shareholders as well. It has been mentioned in ASIC v Fortescue Metals Group Ltd.
[2011] FCAFC 19 that the directors of the company should not violate the provisions of the
Corporation Act 2001 regarding section 180(1). It has been stated in this case that the
provision of the Corporation Act will be imposed on all the directors of the company.
A clear intention should be taken into consideration regarding the thorough analysis
of the relevant provisions of Corporation Act reveals that the interest of the company and the
shareholders will not be mitigated at any cost. In Vrisakis v ASICC [1993] 9 WAR 395 it was
stated that it is one of the most important tasks of the director of a company to apply his
positive mind so that it will be possible to maintain a balance to avoid the potential risks
regarding the interest of the company.
In the case of the Cassimatis, it was contended by the directors of the company that
the provisions of the Corporation law is not applied on the sole director of the company. It is
also contended that the statute will not allow imposing the penalty provisions on the sole
director of the company. In Shafron v ASIC [2012] 247 CLR 465 that the scope of section
180(1) of the Corporation Act is not possible to limit up to the statutory limit or duties and
therefore, it is proved that the decision of the court regarding the case is appropriate in nature.
It was proved by the examinations of the witnesses that the investors of the company
were from very low stages of the society and without checking the background of them, the
director of the company had allowed them to invest. The aftermath effect of the financial
downturn regarding the company was detrimental in nature and it was observed that the
director of the company had not even act for securing the interest of the investors rather he
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stated that the investors must know about the financial risk of the financial arena. Therefore,
it has been proved that the director of the company had failed to perform his duties under
section 945A of the Corporation Act 2001. It has also been seen that many investors became
insolvent after the downturn and they pointed their finger against the director of the Storm
company as he had not mentioned about the risks of the financial problems and had not taken
any positive steps to secure the interest of the investors (Keane and McKeown 2014).
Other relevant section:
Certain provisions of the Corporation Act mentioned under the section 206E (1) is also
applicable in this case. It has been observed by the Court that there are certain elements for
the applicability of the section, which are as follows:
It is to be proved that the person who has violated the provision of the Corporation
Act are holding the post of the directors or other officers;
The provisions of the Corporation Act has been violated by him for at least two times;
There shall be sufficient ground to show that the respondent or the alleged person had
failed to take reasonable steps regarding the prevention of the interference.
The court should also be satisfied regarding the grounds of the disqualification.
It has been observed that the directors of the company had fulfilled all the criteria
regarding the sections of 206E (1) and therefore the section can be imposed on the
directors of the company too. Therefore, it has been proved that the decisions of the court
regarding the case of the Cassimatis is appropriate in nature and the same has been
proved by different case laws and the documents submitted by the Australian Securities
and Investment Commission. Some of the statements are also been proved by the
submission made by the witnesses of the case (Laing, Douglas and Watt 2015).

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7BUSINESS AND CORPORATION LAW
Impact of the decision:
It has been observed that the decisions made in the case of Cassimatis have opened
many doors regarding the breach of the directors’ duties. It has been proved that the
outcomes of the breach had made the interpretation of the sections of the Corporation Act
more predictable and the scope of the relevant sections was become wider (Hedges et al.
2015). The excuse that has been taken by the directors of the company in general are been
discussed here and it has been proved that the grounds made by the respondent company
y in such situations are based on vague knowledge of the directors of the company. It has
been reported by many newspaper that the rate of the growing nature of the breach of
duties by the directors can be controlled and is controlled by the decision of the court in
the case of the Cassimatis. It has also been reported that the acts of the directors to gain
illegal money without taking due care for the interest of the company and the investors
shall not be considered any more (Langford 2015).
Conclusion:
Therefore, from the above-mentioned case, it can be said that the decision of the court
regarding the matter is quite justified and the observation of the court is based on the certain
relevant case studies regarding the same. It has also been proved that the court had rightly
analyse all the provisions of the corporation Act 2001 relating to the case and the nature of
the decision of the case is wide enough. The court had rightly imposed penalties on the
alleged company and suspended the directors of the company to continue the business. After
all, the case is one of the most important case regarding the breach of duties by the director
and created effective impression on the industrial development in the continent of Australia.
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Reference:
Aroney, N., Gerangelos, P., Murray, S., & Stellios, J. (2015). The Constitution of the
Commonwealth of Australia: History, Principle and Interpretation. Cambridge University
Press.
Barnett, H. (2017). Constitutional and administrative law. Taylor & Francis.
Berk, J., DeMarzo, P., Harford, J., Ford, G., Mollica, V., & Finch, N. (2013). Fundamentals
of corporate finance. Pearson Higher Education AU.
Blair, M. M. (2015). 12. Boards of directors and corporate performance under a team
production model. Research Handbook on Shareholder Power, 249.
Chia, H. X., & Ramsay, I. (2015). Section 1322 as a Response to the Complexity of the
Corporations Act 2001 (Cth).
Coffee Jr, J. C., Sale, H., & Henderson, M. T. (2015). Securities regulation: Cases and
materials.
Coffee Jr, J. C., Sale, H., & Henderson, M. T. (2015). Securities regulation: Cases and
materials.
Crane, A., & Matten, D. (2016). Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Ferran, E., & Ho, L. C. (2014). Principles of corporate finance law. Oxford University Press.
Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases.
Nelson Education.
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Hargovan, A. (2017). Corporate law: Judicial guidance on de facto director liability for
insolvent trading. Governance Directions, 69(2), 111.
Hedges, J., Bird, H. L., Gilligan, G., Godwin, A., & Ramsay, I. (2016). An Empirical
Analysis of Public Enforcement of Directors’ Duties in Australia: Preliminary Findings.
Keane, A., & McKeown, P. (2014). The modern law of evidence. Oxford University Press,
USA.
Laing, G., Douglas, S., & Watt, G. (2015). Aspects of Corporate Delegation, Reliance and
Financial Reporting: Lessons from Australian Securities and Investments Commission v.
Healey. Canberra L. Rev., 13, 16.
Langford, R. T. (2015). Directors' Duties: Conflicts, Proactive Disclosure and S 181 of the
Corporations Act.
Langford, R. T., Ramsay, I., & Welsh, M. A. (2015). The origins of company directors'
statutory duty of care.
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