Corporate Law Practice - Assignment

CORPORATE LAW

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Summary of case and parties at fault...........................................................................................3
Primary legal issues related with officer duties and directors.....................................................3
Penalties to different parties.........................................................................................................4
Actions of the directors and officers when company was probably insolvent............................5
Role of ASIC................................................................................................................................6
Interesting observation and findings............................................................................................6
Reflection and observation..........................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................1

INTRODUCTION
Corporate law is a body of law, rules, practice and regulation which governs the relation,
rights, companies, conduct of person and businesses. It helps in regulating legal entities that exist
to carry out business activities in a lawful and legal manner. This study will highlight, case on
ASIC v Adler (2002) 41 ACSR 72.
MAIN BODY
Summary of case and parties at fault.
Adler was a non executive director, Domain Fodera was a financial controller and
director and William was a Chief Executive officer and a director. In the year 2000, HIH
Insurance paid around $10 million from a wholly owned subsidy HIHC to Pacific Eagle Equity
Pty Limited (PEE). PEE used approximately $3.9 Million in order to purchase shares of HIH.
ASIC contend that, Adler's purpose in order to purchase shares was to support the share prices of
HIH for the personal benefit related to HIH shareholding. HIH shares were sold at a loss of $2.1
million. ASIC contended proceedings against Adler, Fodera and William alleging contraventions
related with financial assistance, related party transactions and directors duty provision in
relation with Corporation Act. The two directors get contravened of s208 of corporation act,
which is related with party financial benefits. Directors also get involved in the breach of s260A
of Corporation Act which is related with financial assistance for the purchase of shares. Alder,
William and Fodera were held responsible for contravening directorial duties under ss 180, 181,
182 and 183 of corporation law. Alder also made PEE to make three unsecured loans of
approximately $2 million. The payment was unsecured and inadequately documented. The
transaction was not carried out at arm's length. There was no ratification or approval was
obtained from the board (Muscillo and Dawson, 2016). There is an alleged breach of directorial
duties as an officer by Adler a non executive director of HIH, Domain Fodera was a financial
controller and director and William was a Chief Executive officer and a director. Alder is
providing financial assistance in order to acquire shares in a holding company. Alder also
focuses on providing financial benefit to the related party of the company.
Primary legal issues related with officer duties and directors.
Section 180 (1) states that, every director of the company should adhere to normative
standards and codifies the general law. Section 181 states that, director should exercise their
powers in good faith, exercise their powers, act with reasonable diligence and care, avoiding

conflict of interest, not to use company position and information for personal advantage or gain.
Section 182 states that, directors should focus on avoiding conflict of interest. Section 260 of
Corporation Act, states that a company must prevent from financially assisting an individual in a
company. Section 208 of corporation act, which is related with party financial benefits (Venus,
2016).
Directors and officers of the company must comply with various duties such as act in
good faith, exercise their powers, act with reasonable diligence and care, avoiding conflict of
interest, not to use company position and information for personal advantage or gain (Bowley,
2018). Directors and officers of the company comply with fiduciary and legal responsibilities
which includes the duty of loyalty, care and obedience. The legal issues of this case were related
with financial assistance, related party transactions and directors duty provision in relation with
Corporation Act.
By attaining the position of directors and officers they had to take care of the
stakeholders interest and also had to maintain loyalty in the company internal matters. The legal
issue arise in case of personally liable for any such loss which is incurred by company employees
intentionally. As it is the duty of the directors to take care of their employees and also retain their
interest in the work premises for longer time period. The issue arises in respect of not taking the
complain of employees seriously or not examining their work structure on daily bases. As it is
the duty of directors to accomplish the task accordingly to the capability of the workers and also
inspect the superiors on daily bases. With this procedure, they can resolve the matters easily
without any disputes in company.
Penalties to different parties.
In case of breach of corporation law, for an individual the maximum civil penalty is
$200000 or three times benefit gain from any contravention of law. In case of corporation the
civil penalty range from $1 million to $10.5 million or three times benefit gain from any
contravention of law. Courts may also relinquish orders that aim to recover financial benefits.
Adler, Fodera and William face various civil consequences for contravening civil penalty
provision under section 180, 181, 182, 183, 209(2) and 260(D) which includes pecuniary penalty
order of maximum $200,000 and disqualification from managing corporation for a prescribed
period. The supreme court of the company has heavily penalized the directors for violating the
Corporation Act. Furthermore, Adler was disqualified as a director for 20 years and Williams

was disqualified as a director for 10 years. Directors of the company were heavily penalised for
not complying with their responsibilities and duties, as they worked to fulfil their personal
interest rather than company and stakeholders (Harris and Hargovan, 2016).
Actions of the directors and officers when company was probably insolvent.
When the company becomes insolvent, then the company is not able to pay off its debt
and further carry out its business operation (Hanrahan, 2018). Directors should be more
responsible and ethical at the time of insolvency of the company. All the legal formalities must
be complied for smooth functioning of the business. Directors and officers of the company must
focus on anticipating current and future cash flows of the company and also prevent insolvent
trading. When the company becomes insolvent the role and responsibility of the director shifts
from being company's shareholder to its creditor. The director has to pay off its debts to their
personal liability (Grantham, 2015). The directors should exercise their powers in good faith,
exercise their powers, act with reasonable diligence and care, avoiding conflict of interest, not to
use company position and information for personal advantage or gain. Directors must take
considerable actions in an attempt to pay debts in a lawful and legal manner. Directors of the
company must pay off all the debts of the company in a legal manner. Directors must review the
conformance strategies and budgetary control (Duties and liabilities of directors of Australian
companies, 2019). Directors ad officers must also review various policies and monitor
performance of management. The legal things which the directors have to follow at time of
insolvency are listed and discussed in the adjoining points below-
 If the company is insolvent then the directors needs to make sure that they do not incur
more debts and they need to restructure and try to refund the business so that it might be
revived.
 The other thing which the director needs to do is put the company under voluntary
administration where some suitably qualified person takes control over the working of the
company and tries to find solutions to save and restore the company and its financial loss.
 It is the duty of the director that at time of insolvency he must provides for all the
information relating to the financial accounts and all the losses and must give access to
all the records, books of accounts to the person appointed for handling insolvency.

Role of ASIC.
Australian Securities and Investment Commission (ASIC) is an Australian government
body that act as corporate regulator of Australia. The key role of ASIC is to regulate and enforce
financial service law and company law in order to protect the investor consumer and creditor of
Australia. The main reason behind involvement of ASIC in the case was that when the
AEUT( Australian equities unit trust) issued ten million dollar units to HIHC then Adler created
a false impression in front of the stock exchange that he did it deliberately to help HIH to
increase their share price or to make it stagnant. Although, the share of HIH were sold by PEE
for 2.1 million dollars. Thus, it led to sudden collapse of share market and as a result it affected
the holdings of the shareholders, taxpayer and general public.
This massive loss and damage caught the attention of the Australian government and they
instructed the ASIC to deeply look into the matter. Later on, after various investigations ASIC
came to the conclusion that Adler purchased the shares for their personal advantage and thus it
was a criminal offense as well as a breach of corporate law. There were no other parties involved
rather than ASIC and once the case was solved it was the supreme court that passed the sentence
against the directors of the companies. The reason behind appointment of ASIC was that it was
specialized in solving cases related to breach of security, shares and violating the policies of
stock exchange.
Interesting observation and findings.
In the view point of Du Plessis, (2015) Adler misused his power and authority by
providing funds worth 10 million dollars to his newly formed company PEE for his personal
objective whereas William authorized the payment without having full knowledge thus it proves
that it is imperative to have the complete knowledge regarding the activities conducted in the
business otherwise it can cause serious problems for not only the director but also for the entire
organization. Moreover, Bowley, (2018) stated that Adler used incorrect information to increase
his holdings in HIH company which is also a breach of contract. The activities performed by the
directors were not only unethical and illegal as well and it not only affected their business but
also affected their individual image which will make them feel guilty every single time. In this
case, it has also been observed that the transactions extended to an arm's length which at one
point of time made it possible for Adler to get protected from the case as it was used as a defence
mechanism.

Reflection and observation.
From the above case study I have observed that it is important for directors to discharge their
duties with proper care and diligence and they must not misuse it otherwise it can have adverse
effects on the working of the company which can further affect the shareholders and
stakeholders of that organization as well. Also, it made me realized the negative consequences of
not following the corporate laws and legal regulations. It is imperative for the director to work in
the best interest of company and not indulge in insider's trading. Moreover, I also understood the
importance of director's position and its adequate utilization in order to contribute towards the
growth of the company. Apart from the penalty and punishment, it also hampered the image of
the directors and the company and as a result I have reflected that every company big or small,
must work under the guidelines of legal rules and regulations as not only would it help hem in
smooth working but also it would improve their overall image thus help in profit maximization.
CONCLUSION
From the above conducted study, it has been concluded that, Corporate law is a body of
law, which helps in regulating legal entities that exist to carry out business activities in a lawful
and legal manner. Furthermore, this study highlights case summary on ASIC v Adler (2002) 41
ACSR 72 and the main parties at fault. It will further demonstrate, Primary legal issues related
with officer duties and directors and Penalties to different parties. When the company becomes
insolvent, then the company is not able to pay off its debt and further carry out its business
operation. This study also includes, the role of ASIC in specific case with interesting observation
and reflection.

REFERENCES
Books and journals
Bowley, R., 2018. An Analysis of Challenges to ASIC’ss 920A Banning Orders Against
Financial Services Providers in the AAT and the Courts.
Du Plessis, J. and Mathiopoulos, J., 2016. Defences and relief from liability for company
directors: Widening protection to stimulate innovation. Australian Journal of Corporate
Law, 31, pp.17-07.
Du Plessis, J.J., 2015. Reverberations after the HIH and other recent Australian corporate
collapses: the role of ASIC. Australian Journal of Corporate Law, 15, pp.225-245.
Du Plessis, J.J., 2017. Disqualification of Company Directors: A Comparative Analysis of the
Law in the UK, Australia, South Africa, the US and Germany. Taylor & Francis.
Grantham, R., 2015. The proceduralisation of Australian corporate law. Federal Law
Review, 43(2), pp.233-257.
Hanrahan, P.F., 2018. On Compliance-Essay in Honour of Professor Bob Baxt
AO. Contemporary Issues in Corporate and Competition Law Essays in Honour of
Professor Robert Baxt AO (LexisNexis Butterworths, Sydney, 2018) Chapter, 9.
Harris, J. and Hargovan, A., 2016. Still a sleepy hollow? Directors’ liability and the business
judgment rule. Directors’ Liability and the Business Judgment Rule (March 7, 2016), 31.
Langford, R.T. and Ramsay, I., 2015. Directors’ Conflicts: Must a Conflict Be Pursued for There
to Be a Breach of Duty?. Journal of Equity. 9(3). pp.281-289.
Muscillo, M. and Dawson, L., 2016. Avoiding defective disclosure in IPOs. Governance
Directions, 68(8), p.480.
Venus, P., 2016. How to avoid disqualification as a director by ASIC. Governance
Directions, 68(1), p.28.
Online
Duties and liabilities of directors of Australian companies. 2019. [Online]. Available through:
<https://www.bakermckenzie.com/-/media/files/locations/australia/bk_australia_dutiesliabi
litiesofdirectors_dec17.pdf?la=en>
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