LAWS4005 - Company Law- Australian Securities and Investment Commission

Running head: COMPANY LAW
Company Law
Name of the Student
Name of the University
Author Note

1COMPANY LAW
Part A
ISSUE
In the case of Australian Securities and Investment Commission (ASIC) v Cassimatis1
the issue before the high court of Australia was to find out the proper meaning of the duty which
is imposed on the directors of an organization through Section 180(1) of the Corporation Act
2001 which respect to care and diligence2. The court in relation to the case were asked to find out
that the directors of the company who also held the overall share capital of the company can be
prosecuted under section 180(1) for using a self made model to provide advice to the clients to
their company belong to a particular class. The advices in context of the case had been provided
to those people who did not have much assets or source of income and were nearing retirement
or had already retired. The advice was not provided in according to a reasonable director as
alleged by the Australian Securities and Investment Commission. The company in the context of
this case was Storm Financial Limited (the company) and the two sole directors of which were
the defendants. The advice which was provided by the company made them undertake a loan
against the value of their homes and further invest such loans to a specific index fund. The court
had been provided a a specific few issue to which it had to address which are
1. Whether the duty under section 180(1) with respect to care and diligence has been
violated by the directors of the company or not
1 (No. 8) [2016] FCA 1023
2 Corporation Act 2001 (Cth) Section 180(1)

2COMPANY LAW
2. In order to be held for violating section 180(1) of the CA whether it has to be proved that
the directors actually violated the section.
3. Whether the duty which is imposed on the directors through section 180(1) id only
limited to the company and its shareholders or to the society at large
4. Whether the directors who are the only shareholders of the company can be prosecuted
for the violation of section 180(1) or not
The Applicable law
The functions of the directors are to set objectives for the corporation and to form and
supervise plans with respect to the achievement of such objectives. While performing these
functions a duty to act with care and diligence is imposed on the directors.
Although this duty is imposed on the directors through common law, the corporation act
section 180(1) also depicts that the directors of the company must discharge their function and
use their powers which would have been done by a hypothetical reasonable director in case:
The hypothetical director was the director of the same company with respect to the exact
same situation. The director would have been occupying the same office which is actually
occupied by the directors in context and must be having the exact same responsibilities like
them.
In the case of Australian Securities and Investments Commission (ASIC) v Mariner
Corporation Ltd3 the courts used a test similar to that of the objective test, to determine whether
the an imaginary reasonable director would have been more cautious towards the actions taken
by them to avoid unnecessary risk and to ensure the best possible outcome for the corporation.
3 [2015] FCA 589

3COMPANY LAW
In the case of Australian Securities and Investments Commission v Healey4 it had been provided
by the court that whether or not the duties of the directors had been met is determined through
analyzing the nature and size of the company’s business operations. The structure of the board
along with the work allocated to the directors is also taken into account by the court.
The experience and skills which directors have are also used to analyze the breach of
duty if the skills had been used as a criterion for the appointment as directors. Along with civil
penalties which are imposed upon the directors with respect to section 1317E of the CA, a claim
for negligence can also be brought against such directors who contravene the duty of care and
diligence5.
Submissions of the Party
In relation to the breach of section 180(1) of the CA by the directors, a submission had
been made by the directors of the company that the model in context of this case used to
provided advice to the clients was feasible and therefore it was not possible for the directors to
reasonably foresee the contraventions which had been made by them and the same would have
been applicable in relation to a reasonable person. The directors in relation to the particular issue
had made many submissions and one of which was that the model had been used to provided
advice to various eminent professionals such as lawyers and even financial advisors. In addition
submissions had been made by the company which stated that model had been duly reviewed by
the compliance professionals, the non executive directors of thee company and the employees of
ASIC themselves. The directors of the company moreover provided before the court that the
company’s share values had never gone down in the last 10 years indicating that the directors
4 [2011] FCA 717
5 Corporation Act 2001 (Cth) Section 1317E