Business Law: Misrepresentation of Financial Prospects and Breach of Director's Duty

Running Head: BUSINESS LAW
BUSINESS LAW
Name of the Student:
Name of the University:
Author Note

1BUSINESS LAW
The case study of Slater and Gordon Law firm
Class action had been led against the firm Slater and Gordon as it had misrepresented its
financial prospects. The Rival firm Maurice and Blackburn had led the class action. This class
action involved 250,000 dollars and 3000 members. It was alleged by the share holders that the
firm had misrepresented its financial position after it suffered a loss by acquiring a division of
the company Quindells. It had been alleged by Plaintiff Matt Hall that he had relied on the
misrepresentation of the Law Firm and subsequently lost a million dollars as the price of the
shares had fallen drastically. He further accused the firm to have knowledge about the financial
trouble it was likely to face, however it failed to disclose the same to the public. It had been
accused by Mr. Watson, a shareholder of the firm that the firm had misrepresented its financial
prospects.
Issue:
The issue in consideration in the given scenario is whether misrepresentation of financial
prospects of the company constituted breach of the duties of the directors.
Rule
The rules regarding the operations of the company are governed by the Corporations Act 2001
(Cth) It is the duty of the Australian Securities and Invest commission (ASIC) to implement the
rules as provided in the Corporations Act1.
Section 183 of the aforementioned act states that it is the primary duty of the directors to act in
good faith and in the best interest of the company and the shareholders.
1 2001(Cth)

2BUSINESS LAW
It has been provided in section 674 if the Corporations Act 2001 (Cth) that companies and
corporations are required to continuously disclose information and material facts in accordance
with the listing rules. .
Section 728(1)a states that a person cannot offer securities by disclosing any document which is
misleading or deceptive in nature. Section 728(2) of the Corporations Act states that any person
who provides a statement about a future event without reasonable grounds or information to
believe that such statement is likely to have effect in future, would be considered to be a mis
statement. It can be said in accordance with the provision as provided in section 728(3) that any
person who produces misstatement or omits to mention new circumstances that have arose will
be held to have violated the provision of 728(1).
Section 1041 A states that any person who is engaged in business must not undertake any act
which is likely to effect the creation of an artificial prince for the purpose of trading the financial
market or financial product.
It has been clearly provided in section 1041B that a person should not commit any act or omit to
do any act which is likely to have a misleading and false appearance.
Application
It has been provided through the facts of the case study that the Law Firm Slater and Gordon mis
represented the financial prospects of the firm. The shareholders of the firm had relied on such
statements and had sustained losses subsequently. Thus the firm breached the provision of 728(1)
of the Corporations Act.