Corporations Law: Breach of Director’s Duty and Court Decision Analysis

Running head: CORPORATIONS LAW
CORPORATIONS LAW
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2CORPORATIONS LAW
Table of Contents
Case Introduction.............................................................................................................................3
Breach of Director’s Duty...............................................................................................................4
Analysis of the Court Decision........................................................................................................5
Relevance and Impact of the Decision............................................................................................7

3CORPORATIONS LAW
Case Introduction
In this case the plaintiff is an Australian company, named AWA dealing with
manufacture, import and export of electronic and electrical products. The company imported
supplies from Japan and other countries in large quantities. There was difficulty in conduct of
business for the company due to deregulations of the Australian financial markets and severe
fluctuation in the international currency markets. In placing contracts and delivery of the
products there had been a time lag of 6 months or more which in addition with currency
fluctuation could potentially affect the profitability of a contract. The company to avoid the
potential risk had only option to purchase foreign currencies in contracts for import of goods.
The company’s entire overseas purchase with one of its major suppliers, Department of Supply,
was covered against fluctuations in foreign countries under a number of contracts against the
purchase of overseas components. In the year 1985-86 the company stopped purchasing foreign
currency contracts and started to invest in managed hedging. The activity was successful to the
point that in the financial year 1986-87 25% of the company’s total profit was anticipated from
managed hedging. In 1985 a Foreign Exchange Manager had been appointed by the company
who showed a profit of over 400% in just eight months. It was later discovered that only
contracts showing profits were disclosed by the manager and the contracts with losses were
either kept undisclosed or the losses were concealed by either rolling over the contracts at
historic rates or by paying those losses by means of unauthorized borrowing of funds from a
number of banks. During this period two audits were carried out by Daniels both of which were
not able to show any deficiency in the company’s accounting structure. The audits were not
statutory audits that entail certain consequences and obligations as in neither case audit