Corporations Law: ASIC v Adler Case Analysis

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

1
CORPORATIONS LAW
Case Australian Securities Investment Commission v Adler
Case Introduction:
In the case of ASIC v Adler, the HIH Casualty and General Insurance Ltd(HIHC) had provided an
unsecured and undocumented loan amounting to 10 million dollars to the Pacific Eagle Equity Pty. Ltd.
The Pacific Eagle Equity Pty. Ltd was a company which was the trustee of the Australian Equities Unit
Trust (AEUT) and was controlled by Adler. It is important to mention that Adler acted as a non-
executive, as well as through the Adler Corporations Ltd acted as a substantial shareholder of the
company HIH. After the loan was provided Pacific Eagle Equity Pty Ltd. had become the trustee of the
AEUT. A chain of transactions took place subsequent to the approval of the loan which is enumerated
below:
The loan of 10 million dollars provided by HIH to PEE was later applied to the subscription of 10million
dollars worth of AEUT Units.
PEE purchased shares of the company HIH worth four million from the stock market
However, PEE had later sold the shares of HIHC at a loss of 2 million dollars. The reason for purchasing
the shares of HIHC was to give false impressions to the in the investors that the company was doing well
and was financially sound.
The company PEE had also purchased several unlisted shares in the communication and technology
companies from the company Alder Corporations Pty Ltd for four million dollars. This transaction was in
the form of an investment.
A sum of 2 million dollars had been given to Alder under the trust by AEUT.
It can be mentioned that all these transaction had been done in secrecy. The Board of directors did not
have knowledge about the transactions. The approval of the shareholders had not been taken and there
was no disclosure of the aforementioned transactions to either the board of directors or to the HIH’s
investment committee. It is to be mentioned that the loan had been given without any documentation
and the loan was given without any securities. The ASIC alleged that Alder, acting as an officer of the
company HIHC had breached his duties in relation to the provisions of sections 180, 181, 182 and 183 of
the Corporations Act 2001 (Cth).
Contravention of the provisions of the Corporations Act 2001 (Cth) in relation to this case

2
CORPORATIONS LAW
Section 9 of the Corporations lays down the provisions related to the identification of persons as
directors of organization. This section also lays down the duties of such directors. It can be stated in
accordance with the provisions of section 9 of the Corporations Act 2001 that any person who is
appointed at the position of a director, irrespective of what name has been given to that position can be
called a director. It can be stated that this section identifies certain people as directors even though such
directors have not been properly appointed to the position of the director. It can be stated that
directors have certain duties in relation to governance of companies. Such duties are imposed on the
directors in order to protect the rights of the shareholders of the company from the risks of leading the
company to harm. Shareholders of a company are exposed to several risks such as fraud. Directors have
certain duties in relation to controlling the assets of the company for the purpose of carrying on the
business of the company and not using such assets in their personal interest, to avoid mismanagement
and making competent decisions of the company. Further in accordance with section 9 of the
Corporations Act 2001, it can be stated that an ‘officer of a corporation’ includes senior employees of
the company who hold a managerial post, executives of the company in senior positions and in the
board of directors of the company.
In the case ASIC v Adler, it was held by the court that Adler who was acting as the director of HIH
companies was also the officer of the wholly owned subsidiary of HIH Company in relation to the
provisions of section 9 of the Corporations Act 2001. The court held that Adler even though had not
been properly appointed as a director or officer of the company, he was to be regarded as a direct. The
court pointed out that Adler by virtue of being a director had been involved in the decision making
process of the company HIH and its subsidiary companies, therefore his decisions affect ted the
substantial or whole part of the business. Santow J in his judgment of this aforementioned case
provided a good summary of the principles which are applicable to the duties of a director.
In section 180 of the Corporations Act 2001 (Cth), it has been provided that directors or officers of
companies need to discharge their duties and exercise their powers with a standard of care and
diligence. This section of the Corporations Act provides that whether a director acted with a standard of
care and diligence is to be assessed from the perspective of another reasonable director acting in the
same circumstances and holding the same position as the director in consideration. If the court finds
that any reasonable director would have acted with additional diligence and care, the court will hold the
director in consideration breached his duty as provided in section 180(1). It can be stated in accordance
with the aforementioned section that executive directors are to be regarded as full time employees who