Liabilities of Directors under Corporation Act 2001

This assignment provides a comprehensive study of the liabilities of directors under the Corporation Act 2001. It includes an in-depth examination of sections 180, 181, 184, and 945A of the Act, as well as two major cases related to these provisions. The report also discusses the concept of due care and diligence, and the availability of relief from civil penalties for directors who act with honest intention and in good faith.

Case Study: Breach of
director's duties

Table of Contents
INTRODUCTION...........................................................................................................................1
ASIC v Vizard, 2005........................................................................................................................1
Background of the case...............................................................................................................1
Duties and responsibilities of a director......................................................................................2
Breach of duty under section 181................................................................................................3
Criminal breach of liability under section 184............................................................................3
Breach of Duty under section 599G............................................................................................4
Contrast of the decided case with Rodney Adler........................................................................4
Insider trading.............................................................................................................................4
Judgement...................................................................................................................................4
ASIC v Cassimatis [No.8] [2016] FCA 1023..................................................................................5
Background.................................................................................................................................5
Duty under section 180...............................................................................................................5
Argument presented by the accused............................................................................................6
Reasonable basis of the advice under section 945......................................................................6
Relief from Civil penalty............................................................................................................6
Judgement...................................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES ...............................................................................................................................8

INTRODUCTION
Australian corporation laws are the essence of UK company law. There exist only a
single statute that regulates the corporation area in Australia that is Corporation Act 2001. the
Australian Securities and Investment Commission is the only organisation that withhold the
administration and regulate the provisions of the statute. The history of corporation laws is
somewhat related to the Constitution of Australia, according to which Australian parliament has
been provided limited power to control the corporation laws. As per the Article 51(1), power to
makes laws related to the betterment of the corporation has been given to the parliament. Also
foreign corporations, and financial or trading corporations are formed within the limits of
Commonwealth. (Newburn, T. ed., 2012)
The corporation are established by charters, legislations or prescription, is entirely a
separate legal organisation. The recognised corporation are known as corporation sole, similar to
UK laws. But it is also separated from Australian statutory meaning of corporation, in some
scenario. Mainly, corporation limited by shares are functioning in Australia. The directors
appointed to an organisation has certain liabilities and he has to comply with those duties, such
as reasonable care and diligence (section 180) and good faith and proper purpose (section 181).
The directors are personally responsible for the breach of such liabilities under section 588G.
Also, directors are obliged with some fiduciary liabilities such as mentioned under section 182
and 183, duty on conflict of interest and the utilisation of confidential information, respectively.
The directors are also liable for criminal obligations as per section 184.
In this assignment ASIC v Vizard 2005 case has been taken to explain the fiduciary and
statutory duties of a director.
ASIC v Vizard, 2005
Background of the case
Mr Stephen Vizard, was designated as non-executive director of Telstra Corporation
(herein after TC) in 1996. Market related information was provided to him before disclosing
such in to the market by Telstra. Mr. Vizard acted on information wrongly for the three times
which was gained by him during the course of directorship in the company.
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Firstly, he brought the shares of a firm named Sausage Software which was merging with
Telstra, and the merger was resulting into the growth of the shares of that company, so it was a
profitable move by him.(Gorris, J. M., Hamermesh, L. A. and Strine, L .E., 2011)
Secondly, he sold his shares of the company Computershare, as Telstra was dissociating
his share from the company which would result in the drop of the shares of that company.
Similar to the Sausage case he brought the shares of another company who was going to
merge with Telstar, which was ended up in the increase of the value of its shares.
Mr. Vizard, used his position for his own greed and that was a foul conduct by him, so he
was responsible for the breach of the director's duties. The matter was presented before the ASIC
and an investigation was launched and on 4th of July 2005 proceedings against Mr. Vizard was
initiated. He was penalised with an amount of $390,000 according to the judgement made by
Judge Finkelstein of the Federal Court of Australia.
In his sentence, judge expressed two notes of disagreement in the respect of penalties. In
the first situation, it was decided by him that the amount of penalty made upon the convict was
very low and it could have been a bit higher. In the second criteria, disagreement was against the
disqualification for five years, it was suggested by him the term was less and could be more in
the respect of such breach. According to him it should be double the said period.
The case was criticised by the public, as according to them Mr. Vizard has been treated
very leniently due to some political pressure over ASIC and DPP. Moreover, he should be
criminally charged with the civil one and the penalty that has been raised upon him was not
sufficient.
Duties and responsibilities of a director
A director is liable for the management of its company. It is mandatory for him to abide
by the legal obligations as a director under Corporation Act 2001. A director has been vested
with several liabilities some of them are, to work in good faith of the company for its best
interest, to perform his duties with care and diligence also to avoid conflicts between the interest
of the company and his personal interest, to intercept the company trading at the time of
insolvency and during the winding up of the company it is his duty to report the liquidator on the
affairs of the company and help him by providing him the books and records which is in
possession of the director.(Ciepley, D., 2013)
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In order to meet the liabilities it is necessary for a director to be honest and careful with
the dealings of the company, also to understand the responsibilities and keep informed about the
company's financial position and functioning. It is essential for a director to do all the paperwork
and levy the taxes and debts in time. It is his fiduciary duty to utilise the information provided to
him for the betterment of the company and not for his personal use. Also, it is his liability to get
professional view if he is in doubt.
In the case of ASIC v Vizard, the director has breached all his fiduciary duty for his own
use. He missuses his power and access the information given to him for earning profit for his
own.
Breach of duty under section 181
It is the responsibility of the director to act in good faith of the company. According to
the section 181, it is essential for the directors and other officers perform their powers and duties
in the good faith and for the best interest of the corporation and for a proper purpose.
Mr. Vizard intentionally use his power to earn profits for him. He sold his share before
the merger of Sausage Software and earned a good amount of m0ney from his share. It was all
possible because he use his position to extract such knowledge before the merger also in order to
save himself from the loss he sold his shares of another company before Telstra was revoking his
liabilities. ( Kaczorowska, A., 2015)
Criminal breach of liability under section 184
A director is criminally liable for the act which is does without due care and dishonestly.
According to section 184 of the Corporation Act 2001, a director of a corporation is liable for an
offence if they does any act recklessly and dishonestly with intentionally causing harm to the
company.
Also according to the sub-clause of section 184, a person obtaining information because
of his position as director or other officer or an employee, if he uses his powers and designation
dishonestly, with intention, in order to earn direct or indirect advantage for himself or for
someone who is related to him.
In the decided case it was exactly what happened. Mr. Vizard used his position for his
own use. He utilized the information to earn more profit and save himself from the losses.
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Breach of Duty under section 599G
It is the duty of director to prevent insolvent trading by company. According to sub-
clause 1 of section 588G of the Act, implication of this provision is on such person who is a
director for the time when the company is under debt and is insolvent at that time or becomes
insolvent by facing such debt.(Gond, J. P., Kang, N. and Moon, J., 2011)
If the person has the knowledge of debt during the insolvency and he is fails to prevent
the company from such debt and his action was proven to be dishonest then he liable for an
offence under this section.
Contrast of the decided case with Rodney Adler
The case of Mr. Vizard was similar to the case of Rodney Adler, who was a former
director of HIH insurance. He was punished for jail, 21 years equal to life imprisonment. The
charges that charges was similar to that of Mr Vizard case that is intentionally dishonest and
failing to discharge his duties as a director of HIH, also he did some act which was not in good
faith of the company.
Insider trading
It is an illegal act of trading by getting confidential information and using such advantage
for practising trading on the stock exchange. The person is known as inside. As per section
1043A of the Act an insider is such person who has the inside information of any share related to
stock exchange. That person has knowledge of such information which is not available in the
market and if such information is available then an accountable man would have expected to
have a material impact on the cost or value of such financial product.
The situation of Vizard was also similar to the Rene Rivkin's case. Rene use his position
of director to obtain the inside information an d that help him to earn profits for his own. Rene
was punished for nine months detention and was fined for $30,000.
Judgement
Mr. Vizard was held liable for only civil breach of liability. The conflict was that Vizard
was not charged with the criminal liability, as his acts were according to that responsibility.
According to the report of ASIC the reason for not charging him for criminal liability was
because the witness was not ready to give evidence. Gray Lay who was a key witness refuses to
provide information regarding the offence. This was the only reason Vizard was not charged
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under section 184, breaching his director's duties, intentionally and recklessly. This is how ASIC
defend their decision for not pursuing criminal charge against him.
ASIC v Cassimatis [No.8] [2016] FCA 1023
Background
Storm Financial Limited is a finacial consulatany company situated in Townsville. It was
founded by Emmanuel and his wife Julie as a private limited company. The allegations upon
them was related to the section 180 of the Corporation Act 2001, that they have breached the
duty of care and diligence.
According to ASIC, the couple permits storm to give advice to a particular investor,
according to the 'Storm Model”, which resulted in contravention in some provisions of the Act
including section 945A (1). The firm shall provide information to a client if and only if the client
has given the firm consideration for the investigation into the matter.
Judge Edelman decided that “ASIC sat a huge bar for itself to conduct responsibilities”,
also he put his view that it is not essential to have an actual breach by a corporation in order to
lie within the section 180(1). In the end it was decided that storm was liable for Civil
contraventions under section 945A(1)(b) and 945A(1)(c) of the Corporation Act.
It was said that the investors has suffered a significant losses an it could be altered if the
directors have taken their liabilities extremely seriously. Also the convicts were not given
immune of the section 1317S that, the party has taken decision in the good faith of the
corporation in the crucial circumstance.(Allerdice, R. C., 2012)(Humphery-Jenner, M., 2014)
Duty under section 180
According to the section 180 it is require for the director to stabilise the predictable risk
of loss to the corporation. Harm is refereed to the interest of corporation, it is not essential to
prove any actual loss has happened to the corporation.
It is the duty of the director r other officer to perform their actions with due carte and
diligence. Breach of such duties will result in, breach of civil liability. As it can assured from the
above case the convicts were not able to take due care of the information of their clients which
ended up in the loss caused to their investors.
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Argument presented by the accused
In the context of the charges Mr. and Mrs. Cassimatis presented that the section 180 does
not withhold the responsibilities of the directors who are the sole shareholders of a solvent
company. According to the argument there was no illegal act by the director of a solvent
organisation causing or allowing a company to proceed even there is possibility of risk and
losses.
The presented argument was abolished by the Judge by saying that it is not in the context
of section 180.
Reasonable basis of the advice under section 945
According to the section 945A it essential for an organisation to provide such advice
which is related to the circumstance provided by the client and such shall be relevant to the case
give by him. As per section 945A, the advice must be appropriate to the client, in respect for
what he has given consideration. Also investigation in such matter shall be done whose consent
has been provided by the client.
The advice provided by the Strom was an inappropriate on which resulted in the loss of
their investor. It was because of neglecting the situation of the client
Relief from Civil penalty
According to the section 1317S if the person, a director or other officer, does an act with
honest intention and in good faith of his client then they are immune to the civil penalty. If a
person believes that an eligible proceedings will may proceed against him then they may apply to
the court for immune against Civil Penalty.
In the decided case Mr and Mrs Cassimatis, applied in the court that the section 180 does
not apply over the director of sole trader company and the acts was done honestly in good faith.
But it was rejected by the judge by replying that it does not lie in the definition given under
section 180.
Judgement
It was decided by the court that the couple were liable for the civil offence under section
180 because they were unable to take due care and diligence of the matter submitted by their
clients, which resulted in the loss of their investors.
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CONCLUSION
From the above it can be concluded that it is essential for a director to abide by the rules
and regulations of the Corporation Act 2001. on breaching such duties they can be punished
under this act. Also this report deals with two major cases which is related to section 180, 181,
184 and 945A of the Act. Said judgements and results are also provided in this analysis. Apart
from that certain immune has been provided to the directors and other officers of an organisation.
It is complete study of liabilities of directors under Corporation Act 2001.
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REFERENCES
Books and Journals:
Newburn, T. ed., 2012. Handbook of policing. Routledge.
Gorris, J. M., Hamermesh, L. A. and Strine, L .E., 2011. Delaware corporate law and the Model Business
Corporation Act: A study in symbiosis. Law and Contemporary Problems. 74(1). pp.107-120.
Kaczorowska, A., 2015. Public international law. Routledge.
Ciepley, D., 2013. Beyond public and private: Toward a political theory of the corporation. American
Political Science Review. 107(1). pp.139-158.
Gond, J. P., Kang, N. and Moon, J., 2011. The government of self-regulation: On the comparative
dynamics of corporate social responsibility. Economy and society. 40(4). pp.640-671.
Allerdice, R. C., 2012. A frank assessment-TR 2012/5 and s 254T of the Corporations Act 2001. Taxation
in Australia. 47(3). p.144.
Humphery-Jenner, M., 2014. Barristers Operating as Corporations. Journal of Corporate Law
Studies.14(1). pp.277-286.
Wellard, M.N., 2014. A sample review of Deeds of Company Arrangement under Part 5.3 A of the
Corporations Act.
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