Padbury Mining Case Analysis

This assignment requires a thorough analysis of the legal case involving ASIC and Padbury Mining Limited. Students must examine the facts of the case, specifically focusing on the company's violations of sections 1041H and 674(2) of the Corporations Act 2001. The analysis should delve into the court's findings regarding the directors' breaches of duty and the imposed penalties. A key element is to demonstrate understanding of legal principles related to corporate disclosure, misleading conduct, and director liability.

Running head: DIRECTORS DUTIES
Directors Duties
Name of the Student
Name of the University
Author note

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DIRECTORS DUTIES
Table of Contents
Introduction......................................................................................................................................2
Case introduction (Facts).................................................................................................................2
Directors’ duties violated by the directors.......................................................................................3
Decision of the court........................................................................................................................4
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

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Introduction
The directors of an organization have to ensure that when they discharge their obligation
they should observe an extent of care in diligence in relation to the work. This means that they
should at the least comply with the provisions provided by law in relation to the affairs of the
company. However in case it is found that the directors indulge in the violation of legal
provisions or making the company to do so they would be liable under the provisions of section
180(1). Breaching the provisions would subject the directors to financial penalties along with
suspension from management as deemed fit by the court. The case of ASIC v Padbury Mining
Limited [2016] FCA 990 in an example of such a situation and is discussed below.
Case introduction (Facts)
The federal court had imposed a ban on the directors of Padbury Mining, Terence Quinn
and Gary Stokes for a period of three years along with a financial penalty of $25000 in relation
to the breach of directors’ duties of making disclosure. In this case Mr Terence Quinn and Gary
Stokes had allowed for a release of an ASX announcement advising that a funding of $6 billion
had been obtained by Padbury Mining for the purpose of constructing a deep water post along
with rail network in Western Australia. The funding announcement had been released under the
title of 'Oakajee Funding Secured' on 10th April 2014. The following terms were present in the
announcement:
The company is happy to state that they have secured necessary funding for the
aforementioned construction project. The funding has been given by a private investor, the terms
of which are contained in shareholders’ agreement between the parties. The development of the

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project is to be carried out by Midwest Infrastructure Pty Ltd (MWI) which is a fully own
subsidiary of the company. The company has engaged with Western Australia Government for a
long time and the funding is going to allow MWI to increase the engagement in a significant
manner.
However the agreement has a condition that a number of terms had to be complied by the
company which the company was not actually in a position to satisfy. One of such terms was
getting a bank guarantee in relation to the financer of a value of 1.3 billion. The directors of had
significant knowledge in relation to such terms. However despite the knowledge the
announcement made by the directors did not contain any reference to such highly conditional
terms.
The company asked the ASX to put a trading halt in relation to its shares. However
between the halt and the funding announcement 200 million shares had already been traded. An
announcement named 'Deed of Termination and Release' had also been provided by the company
which disclosed that the agreement had been terminated.
Directors’ duties violated by the directors
The directors of the organization are imposed with the duty to act in such a way where
they can observe care and diligence n relation to their activities as under section 180(1) of the
CA. Whether care and diligence have been observed by the directors in relation to their duties is
indentified by comparing their actions with the actions of an imaginary director in the same
position and situation as the director in context. Where it can be proved that any reasonable
director would have carried out with the same action than there is a presence of care and
diligence in the actions of the director in context.

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However it has been alleged that the directors of Padbury have violated this duty under
the CA for a number of reasons. Firstly the directors have indulge in a conduct which is
misleading and defective or is likely to mislead or deceive as provided under the provisions of
section 1041H of the CA. A misleading and deceptive conduct had been done by the
organization as it made an announcement in relation to securing funding which it has actually not
as it was depending upon a highly conditional status.
This action had actually been permitted by the directors of the company. In addition the
company also failed to comply with its obligation of making disclosure in relation to the
condition precedents which was to be utilized for the purpose of determining whether the
company would receive the funding or not. In addition the company failed to comply with the
disclosure obligation by failing to disclose the identity of the company which was supposed to
provide the required funding.
Decision of the court
Proceedings have been commenced by the ASIC against the company, its directors in relation to
seeking the following relief
 The declaration that the company had violated the provisions of section 1041H of the CA
which is in relation to a conduct which is misleading or deceptive or is likely to mislead
of deceive.
 The declaration that the company had violated the provisions of section 674(2) of the CA
which is in relation to making disclosure about the name of the party which was supposed
to provide the required funding

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 Declaration against the directors of the company that they have made the company to
violate the provisions of section 1041H and section 674(2) of the CA.
 A declaration that directors of the company had violated the provisions of section 180(1)
of the CA by failing to discharge their duties with a degree of diligence and care.
 A declaration with respect to section 206C of the CA that the directors be suspended
from managing the affairs of the company
 A declaration under section 1317E of the CA which would make the directors pay
pecuniary penalties
An agreed statement if fact had been executed by the parties in this case with respect to
section 191 of the EA 1995 in relation to the proceedings. The statement of fact had been
tendered at penalty hearing. Minutes of consent orders had also been produced by the parties
before the court.
In relation to section 180(1) it had been provided by the court that both the directors of the
company have violated the provisions of this section. This was because of the authority provided
by them to the company in relation to making the announcement. It was known to the directors
of the company that providing such an announcement on behalf of the company is going to
constitute a misleading and deceptive conduct or a conduct which is deceptive or likely to
deceive. It was also clear to the directors that it would be harmful to the company as if the
statement is provided the company is going to violate the provisions of section 1041H of the CA.
This is because in case the deceptive or misleading nature of the statement is revealed it would
not be good for the reputation of the company and have the potential of jeopardizing market

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perception of the company which also include its capacity of procuring the required funding to
develop the project. (FCA 990 at 56)
In addition where such statement was released by the company and it failed to disclose the
required information with respect to section 674 of the CA, it would make the company
contravene the provisions of the section. (FCA 990 at 57)
It had also been admitted by both the directors of the company to ensure that they have the
duty of ensuring that they were totally satisfied in relation to the announcement that the company
is going to procure the finances, however it was evidently not done so by them. They knew that
the contract was subjected to high conditional requirements which were likely to not be fulfilled
by the organization in the light of its capacity. (FCA 990 at 58)
In the case of Commonwealth of Australia v Director, Fair Work Building Industry
Inspectorate (2015) 326 ALR 476 it was provided by the court that in relation to civil penalty
proceedings a defendant or a regulatory authority can make submission in relation to appropriate
penalties and orders can be made by the court in relation to the appropriate penalty.
In addition it had been stated in the case of Australian Competition and Consumer
commission v Reiwa Inc (1999) 161 ALR 79 at 86 that the court has a responsibility to be
satisfied that what has been provided is not contrary to public interest and is in compliance of it.
Thus the court took into account the proposed declaration which the ASIC proposed.
It had been admitted by the company that it has violated the provisions of section 674(2) of
the CA on two occasions. It had been admitted by the company that there were condition
precedents in the shareholder agreements which if made available to a reasonable person would
affect in a material way the price of the shares of the company. In addition the same admission

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had been made by the company in relation to failure of disclosing the identity of the parties who
are supposed to provide funding was required by them to be disclosed under the provisions of
section 674(2) of the CA.
An admission was also made by the directors of the company that they have been involved in
the contravention made by the company in relation to section 674(2) of the CA. they had also
made an admission that they have made the company to violate the provisions of the section.
(FCA 990 at 51)
It was admitted by the company that while causing the publication of the ASX funding
announcement it had made a potential or actual representation to the investors in the company
that it had secured funding of an amount of $6 billion.
The company also admitted that the representation in context was deceptive or misleading or
was likely to misled or deceives in relation to the timing of the representation. This was because
the company did not have sufficient funds for the purpose of getting a guarantee of 1.6 billion
from the bank in the name of financer Superkite. In addition the company was not able to
procure any commitment from EPC or any other entity which would provide it the required
funding for being able to procure a 1.6 Billion bank guarantee. Specifically it had been admitted
by the company it has contravened the provisions of section 1041H of the CA. The directors
themselves indulged in a conduct which led the company to indulge in action which are
misleading or deceptive or is likely to mislead or deceive in relation to financial products.
In relation to the their defendant Terence Martin Quinn the court declared that in relation to
section 1317E of the CA there has been a contravention of section 674(2) of the CA as he was
involved alongside the directors in the contravention of the same section. In relation to section

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1317E of the CA there has been a contravention of section 674(2a) of the CA as he was involved
alongside the directors in the contravention of section 674(2). In addition, with respect to section
1317E of the CA there has been a contravention of section 180(1) of the CA as he was involved
alongside the directors in the contravention of section 1041H.
Conclusion
It can be concluded from the above discussed facts of the case that the court has provided
a fair and just judgment in relation to the directors who were prominently depicted through the
facts of the case. The directors were found to be in breach of section 180(1) of the CA as they
have failed to comply with section 1041H and 674(2) which subjected the company to a
detrimental situation. The decision signified that until and unless the directors are sure that their
actions are not in violation of a particular law they must not carry out with such actions. In this
case the federal court had imposed a ban on the directors of Padbury Mining, Terence Quinn and
Gary Stokes for a period of three years along with a financial penalty of $25000 in relation to the
breach of directors’ duties of making disclosure. Thus all the declarations which were claimed by
the ASIC were provided by the court.

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References
ASIC v Padbury Mining Limited [2016] FCA 990
Australian Competition and Consumer commission v Reiwa Inc (1999) 161 ALR 79 at 86
Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 326
ALR 476
Corporation Act 2001 (Cth)