Business and Corporation Law Case Analysis

Running head: BUSINESS AND CORPORATION LAW
Business and Corporation Law
Name of the Student
Name of the University
Author Note

1BUSINESS AND CORPORATION LAW
Table of Contents
Case Introduction.............................................................................................................................2
Breach of Duties..............................................................................................................................2
Critical analysis of decision of court in the context of Corporations Act 2001 (Cth).....................4
Breach of section [728(1) (a)]......................................................................................................5
Continuous disclosure and profit forecast...................................................................................5
Failure to know disclosure obligations........................................................................................8
Non-disclosure to Company Board about Profit downgrade.....................................................10
Impact of the decision on the operation of Australian companies.................................................10
Relevance of the decision..............................................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

2BUSINESS AND CORPORATION LAW
Case Introduction
The Federal Court of Australia announced that the company has committed a violation of
the Corporations Act 2001 (Cth) by making deceptive or misleading statements in its prospectus,
which is related to the drilling technology. The company failed to disclose about circumstances
that resulted in impairment in the ability to anticipate profits. It endowed its auditors with false
information related to its assets and liabilities of its subsidiaries. The Non-English speaking
director of the company is alleged to have failed to perform his director duties that are stipulated
under the Corporations Act 2001 (Cth).
The plaintiff (Australian Securities and investment Commission) [ASIC] applied for
declarations of contravention of the Corporations Act 2001 (the Act) against the Sino company
that is, the first defendant and the former executive director and chairperson of the company, Mr.
Shao that is, the second defendant. All the charges against the company and its director were
proved and both the company and its director were held liable for committing a breach of the
Corporations Act 2001 (Cth). The Federal Court of Australia has ordered that Sino Australia
Oil and Gas Limited is entitled to a penalty of $800,000 and its former chairperson Mr.
Tianpeng Shao has been disqualified from managing companies for a period of twenty years.
Breach of Duties
The Court declared that Sino (the company) had committed a breach of the following provisions
of the Corporations Act 2001 (Cth):
i. the company made fake representations in its prospectus documents with respect to
patents declared by Sino and which was held by its Chinese-based subsidiary;

3BUSINESS AND CORPORATION LAW
ii. the company contravened section 728(1)(a) of the Act by offering shares in it under the
Replacement Prospectus, which included the misleading and deceptive statements;
iii. the company committed a breach of section 728(1)(b) by offering shares in it under the
Third Supplementary Prospectus wherein the company failed to disclose the loan that
was made to its subsidiary company named Daqing Huao Shangfeng Oil Field
Technology Limited Company;
iv. the first defendant violated section [728(1)(c)] wherein it failed to make disclosure about
the circumstances which hindered their ability to predict that the profit provided in the
Replacement Prospectus cannot be achieved. The company failed to inform the ASX
regarding the circumstances, thus, violating section [674(2)] of the Act;
v. the company further violated section [1041H] of the Act by providing false information
to its auditors regarding the profit and loss of its subsidiary company during the financial
years 2012-2014;
vi. under section [1041H] of the Act, the company has further provided false information
regarding assets and liabilities of the subsidiary company during the financial years 2012-
2014;
The court further declared that the second defendant has committed contravention of the
following provisions of the Act:
i. Under section [674(2A)] of the Act, Mr. Shao or second defendant was involved in the
breach committed by the first defendant under section [674(2)] of the Act;
ii. the second defendant violated section [180(1)] of the 2001 Act by approving the
Supplementary Prospectus, Replacement Prospectus without comprehending English
text and without even obtaining translations of such Prospectus in Chinese language;