Business Law Assignment

The report discusses the ASIC v Adler case and breach of director duties under Corporations Act 2001. It explains the provisions of the act and how Adler breached them. The report also mentions the penalties levied on Adler and lessons for directors. The report is relevant for business law students and covers course code and college/university if mentioned.

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Business Law Assignment 1
Contents
Introduction......................................................................................................................................2
Breach of the provisions of Corporations Act, 2001.......................................................................3
The decision of the court.................................................................................................................6
Lessons from the case......................................................................................................................6
Conclusion.......................................................................................................................................7
References........................................................................................................................................8

Business Law Assignment 2
Introduction
The case given for this report is ASIC v Adler [2002] NSWSC 171 is one of the important
cases in the area of director duties and breaches thereof. Under Corporations Act, 2001 (Cth),
many of the duties are mentioned that are required to be followed by officers and directors of a
company incorporated in Australia. When any of the director or officer of an Australian
company, breaches the provisions of Corporations Act 2001 then it becomes an issue itself and
leads out further proceedings. In this case, director and officers of the company done some
misconduct and used their position and available information with them in an inappropriate
manner. In this report, the details and facts including other factors such as punishment led out by
the court and learning and lesson came out from the case are mentioned.
In the subjective case, a person named Rodney Adler was a substantial shareholder and
director (non-executive) of a company named HIH. HIH was a holding company of another
company named Casualty and General Insurance Co Ltd (HIHC). HIHC granted a loan worth
$10 million to Pacific Eagle Equity (PEE). This was an undocumented and unsecured loan. Adler
also owned another company that was Pacific Eagle Equity. The said loan was granted and
provided to PEE without the information and knowledge of other directors of HIH. It means only
Adler was aware with the same as he was a director (non-executive) of HIH. After the said loan,
PEE became a trustee of the Australian Equities Unit Trust (AEUT) (Plessis, Hargovan &
Bagaric, 2010). AEUT has issued the units to HIHC at the value of $10 million; Nevertheless the
overall value of the trust was less than $10 million. In addition to this, the trust involved in the
case i.e. AEUT was also controlled by Adler because the only shareholder of the trust was Adler
and his family members (Allens, 2018).

Business Law Assignment 3
PEE used the received fund out of the subjective loan in an unethical manner. This
company purchased the shares of HIH, worth $4 million. The only intention behind such
purchase of shares was to make a false impression of the brand value of HIH. Adler wanted to
show the rest of the investors of the market that HIH is doing well in it is business and shares of
this company are in demand. The logic behind such intention was to prevent the price of the
shares by falling down. Further, after such purchase, Adler sold out these shares at a loss of $2
million.
In addition to the above transaction, PEE spent $4 million in the purchase of shares of
unlisted companies from Adler Corporations. By investing in these shares, Adler Corporation
suffered from a heavy loss. It means these shares were not profitable at all. The rest of the
amount out of loan i.e. $2 million was lent out to Adler. It was an unsecured loan, which was
again undocumented.
Breach of the provisions of Corporations Act, 2001
In the aforesaid transactions, Adler was the person who had an interest in all the
companies. He was a non-executive director of HIH and was a shareholder of HIH and PEE. In
addition to this, he was also the owner of Adler Corporation and AEUT. Being a non-executive
director of the company he was required to fulfill all the duties mentioned under Corporations
Act, 2001 (the act). Under this act, some obligations are there for the directors and officers of the
company, which they need to follow in the course of the performance of their duty.
Section 180 of Corporations Act 2001 demands, that every officer and director of the
company must follow his/her duty with proper care and diligence. After reviewing the facts of

Business Law Assignment 4
the studied case, it can be stated that Adler did not perform his duty with due care. He was
involved in many of the transactions that have no base. Further subsection 2 of section 180 of
Corporations Act 2001 says that every director and officer of a company must use his/her best
judgment while taking the decisions on behalf of the company (Austlii, 2018). Adler also
breached the provisions of this subsection by doing dealing with the shares of HIH in an
unethical manner. Further, he has purchased the shares of the unlisted company, which were in a
financial difficulty. It can be seen that by doing so Adler did not take any reasonable care in
respect of HIH.
Section 181(1) of Corporations act requires every director and officer of a company to act
in the best interest of the company (Australia, 2011). Further section 181 (2) states that every
such people need to act for a proper purpose. Both of these subsections of section 181 are closely
connected to each other. An action cannot be considered in the best interest of the company if the
same does not carry a reasonable purpose. In this case, the transaction Adler did was for his best
interest but no for the company. He purchased HIH shares because he wanted to uplift the prices
of shares of this company for his personal gain. Being a non-executive director, it was his duty to
perform for the interest of the company but not in his personal interest.
Further, Section 182 of the act states that the office of director and office is a strong
position. These people take decisions on behalf of the company and the decisions bind on the
company. In such a situation, it becomes the duty of such people to not misuse of their positions.
Nevertheless, in the given case, the person named Adler misused his position (Australian
Government, 2018). He took adverse advantage of his position by requesting a loan worth $10
Million from HIHC. It was an unsecured loan, which was a complete danger for HIHC. Further,
as HIHC was a subsidiary company, such unsecured loan could be a danger for HIH too. As

Business Law Assignment 5
Adler was the non-executive director of HIH, it was his responsibility to consider the impact of
the subjective loan on HIH as well. However, he did not do so. Hence, it is clear that Adler
breached his duties under section 182 of Corporations Act 2001.
In addition to section 180, 181 and 182, section 183 is also a significant section of
Corporations Act 2001. This section says that a person who is in the position of a director or an
officer of a company must not use the available information improperly in order to take personal
benefits (Queensland Govrenment, 2018).
After a study of the provisions of section 180 to 183 of corporations acts 2001, that
provides general duties of a director, this can be stated that Adler breach almost every duty
which was required to be fulfilled by him.
Now moving from general duties of directors and officers under Corporations Act 2001,
section 184 lay out the criminal penalties on a director who breaches their obligation under any
of the sections from 180 to 183. Section 184 states that if a director of the company acts
dishonestly then he /she can be held liable for the criminal offenses and can be sentenced with an
imprisonment of maximum 5 years or/and a find worth $200000 (Legal Services Commission of
South Australia, 2018).
Section 260A of the act states that a company can provide financial assistance to a person
who is going to purchase shares in the company or in the holding company (Dundas Lawyers,
2014). While providing such assistance, the company needs to be sure that such advice is not
conflicted with the interest of the company or that person. Here, the company refers to the people
who act on behalf of the company. In this case, Adler did many transactions that were not in the
interest of any of the companies in which he had a direct or an indirect interest. HIHC provided

Business Law Assignment 6
an unsecured loan to PEE. PEE purchased shares of unlisted companies, which was a complete
loss as the financial conditions of these companies were not good. All such transactions prove
that a reasonable advice was not granted by Adler to these companies where it was his liabilities
to do so because the ultimate control of these companies was with Adler only. Therefore, in
conjunction to director duties, Adler also breached the provisions of Section 260A.
The decision of the court
In the decision of this case, the court held that Adler being the non-executive directors of
HIHC, breached his duties under section 180, 281, 182 and 183 of Corporations Act 2001 (Briefs
of Cases, 2018). Further, penalties have also been levied on Adler. It was held, that he is liable to
pay the compensation for damages suffered to victim parties under section 1317H of the act in
addition to pecuniary penalty order under section 1317G that is a penalty of amount maximum
$200000. In addition to these monetary penalties, he has also been disqualified by managing a
company under section 206C of the act (Jade, 2018).
Lessons from the case
This is a very significant case in the area of director duties. As given in the decision of
the case, now the people who are managing a company in Australia are being more responsible.
They know their duties well. This was related to a person who has a common interest in many of
the companies and therefore court held him liable to take unfair advantage of such common
interest. Further, it has been noted that after this case, directors of companies became more
conscious with respect to the loan and investments disbursement in group companies. Law is
there for everyone but everyone does not take it seriously until unless some adverse results come

Business Law Assignment 7
out to them. For instance, in this case, Adler and other directors of HIHC had to pay penalties
and they might know that how seriously they were required to take care of the rules, regulations
and provisions of the Corporations Act, 2001. This act is only applicable to Australian
companies and therefore is a lesson for all the directors of every Australian company. In
observation, this has also noted that in addition to section 180-183 of the act, directors also owe
their duties in other sections and hence they are required to comply with Corporations Act, 2001
but not the sections related to director duties.
Conclusion
In conclusion, of this report, this is to be stated that the duties of directors are an
important area of the Corporations Act, 2001. The studied case i.e. ASIC V Adler is important
case related to this area of study, which provides a lesson to the directors of rest of the
companies in the nation that they must comply with the provisions of Corporations Act 2001,
otherwise they can be held liable for penalties.

Business Law Assignment 8
References
Allens. (2018). Cases. Retrieved From: https://www.allens.com.au/pubs/itm/jul02/cases.htms
ASIC v Adler [2002] NSWSC 171
Austlii. (2018). Corporations Act 2001 - Sect 180. Retrieved From:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s180.html
Australia. (2011). Australian Corporations & Securities Legislation 2011: Corporations Act
2001, ASIC Act 2001, related regulations. Australia: CCH Australia Limited.
Australian Government. (2018). Corporations Act 2001. Retrieved From:
https://www.legislation.gov.au/Details/C2018C00275
Briefs of Cases. (2018). ASIC v Adler (2002) 41 ACSR 72; [2002] NSWC 171 New South Wales Supreme
Court. Retrieved From: http://helpcasebriefs.blogspot.com/2014/03/ASIC-v-Adler-
2002-.html
Corporations Act, 2001 (Cth)
Dundas Lawyers. (2014). Do I need financial assistance whitewash? Retrieved From:
https://www.dundaslawyers.com.au/do-i-need-financial-assistance-whitewash/
Jade. (2018). Adler & Anor v ASIC. Retrieved From: https://jade.io/article/235283
Legal Services Commission of South Australia, 2018). General Duties of Directors -
Corporations Act 2001 (Cth). Retrieved From:
https://www.lawhandbook.sa.gov.au/ch05s04s02.php

Business Law Assignment 9
Plessis, J., J., D., Hargovan, A., & Bagaric, M. (2010). Principles of Contemporary Corporate
Governance (2nd ed.). New York: Cambridge University Press:
Queensland Government. (2018). 7.3 Corporations Act 2001 (Cth) (the Corporations Act).
Retrieved From: https://www.premiers.qld.gov.au/publications/categories/policies-and-
codes/handbooks/welcome-aboard/member-duties/corp-act-2001-c.aspx