Law of Business Organizations | BX2112

Running Head: BUSINESS AND CORPORATION LAW 0
Law of Business Organisations
BX2112
1/4/2020
Student’s Name

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Contents
Introduction......................................................................................................................................2
Question 1........................................................................................................................................2
Issue 2
Rules 2
Application 4
Conclusion 5
Question 2........................................................................................................................................5
Question 3........................................................................................................................................6
Conclusion.......................................................................................................................................7
References........................................................................................................................................8

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Introduction
Companies are artificial entities where directors and officers of the same take business decisions
on behalf of their companies and are responsible to look after all the compliance. The concept of
corporate governance demands managers of the business is ethical and responsible in the
performance of their duties. In Australia, Corporations Act 20011 (the act or CA 2001) applies to
every company registered in this country and outlines duties, which are required to perform by
directors and officers. In recent times, many of the cases have reported where these business
managers have breached their duties and held liable by the relevant authorities. The presented
report has been developed on one such case, which is related to executives of Murray Goulburn
Co-operative Co. Limited. The report shall contain legal issues of the case, the role of the
Australian Securities and Investments Commission (ASIC) and the significance of other similar
cases.
Question 1
Issue
What alleged corporate legal issues have found in the subjective case?
Rules
Corporations Act 2001 demands every director as well as officers of the company to follow some
of the compliance while dealing on behalf of the company. These duties are divided into two
sections namely general duties and specific duties. Section 180 to 184 of the act carries these
1 Corporations Act 2001 (Cth)

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general duties. According to section 180 (1) of the act states that every director/officer of the
company is liable to behave similar to a reasonable person and to perform the functions with
diligence and care2. Similarly, section 181 of the respective act believes that it becomes the duty
of business managers (officers and directors) to discharge their functions for the proper purpose
of keeping good faith. On the different side, Section 182 and 183 of the act prevent using
corporate information or position for personal use by these directors and officers.
In conjunction with these duties, directors and officers are also liable for some specific duties
that include the duty to make certain disclosures to authorities under different situations. For
instance, section 601FD outlines the duties of officers of a responsible enterprise under a
registered scheme where according to subsection 1, these officers are responsible to act with
honesty, diligence, and care setting aside their interest. Clause b of section 601FD (1) requires
each officer to work as a reasonable person carrying diligence and care3. Further clause f of this
section stipulates that an officer of a responsible entity under a registered scheme must ensure
that such entity complies with the act, constitution of the scheme, compliance plan of the scheme
or any other condition in respect to "Australian Financial service license" of the responsible
entity. Section 674 (1) of the Act puts an obligation on officers of the listed entities to disclose to
market operators on the happing of an event if required so under-listed obligations. It means it is
a requirement under the listing rule but Corporations Act confirms the same.
Section 675 of the act is another important section that applies to the unlisted disclosing entity as
well as on those listed entities where no listing rules are specified in relation to the disclosure of
particular information. As per subsection 1 of this section if these companies become aware of
2 Ian Ramsay and Benjamin Saunders, An Analysis of the Enforcement of the Statutory Duty of Care by the
Australian Securities and Investments Commission (2018) 36(6) Company and Securities Law Journal 497-521.
3 Austlii.edu.au, CORPORATIONS ACT 2001 No. 50, 2001 - SECT 601FD (Austlii) <
http://www5.austlii.edu.au/au/legis/cth/num_act/ca2001172/s601fd.html>.

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any sensitive information which is not generally available and can make a significant impact on
the value of shares if becomes available then the same needs to lodge a document containing
such information with ASIC. Failure to disclose under section 674(1) and 675 (1) attracts civil
penalties as mentioned under section 674 (2A) and 675 (2A) subsequently4. While duties and
obligations of directors and officers of the company under CA 2001, Section 1041H is also
necessary to mention which attracts civil liability for deceptive or misleading conduct.
According to this section, no person is allowed to be engaged in any deceptive or misleading
activity in relation to financial service or financial product. Any breach of this section attracts
civil liability under section 1041 of the act.
Application
The lead issue of the subjective case is related to failure in complying with the provisions of
continued disclosure discussed above in the rule section. Mr. Gary Helou, who was former
"managing director" of "MG Responsible Entity Limited" (MGRE) and "Murray Goulburn Co-
operative Co. Limited" (MG) and Mr. Bradley Hingle, former Chief financial officer of both of
these companies failed to timely disclose certain price-sensitive information to Australian
Securities Exchange5. This was the lead corporate issue involved in the whole scenario. As
discussed in the rule section, the officers were required to disclose listing rules as required under
section 674 of CA 2001. MGRE announced to ASX on 29 February 2016 forecasting the
Farmgate Milk Price and net profit after tax for the financial year ending 30th June 20166. Here
4 Legislation.gov.au, Corporations Act 2001 (Australian Government) <
https://www.legislation.gov.au/Details/C2017C00328/Html/Volume_3>.
5 Clint Jasper, Legal action against Murray Goulburn executives to continue, despite bid to have it thrown out of
court (ABC News, 04 October 2019) < https://www.abc.net.au/news/2019-10-04/federal-court-action-against-
murray-goulburn-bosses-to-continue/11574846>.
6 Asic.gov.au, 19-152MR ASIC commences Federal Court action against former Murray Goulburn executives Gary
Helou and Bradley Hingle (ASIC, 25 June 2019) <
https://asic.gov.au/about-asic/news-centre/find-a-media-release/2019-releases/19-152mr-asic-commences-federal-
court-action-against-former-murray-goulburn-executives-gary-helou-and-bradley-hingle/>.

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ASIC alleges that CFO and MD of the companies beached the provisions continuous disclosure
obligations in MG as well as in MGRE.
Another corporate legal issue, which was involved in the case, is a breach of general
director/officer duties mentioned in section 180 of the act. Mr. Gary and Bradley failed to
perform their duty with care and diligence as they failed to monitor the financial performance of
both the said companies considering February Earnings Guidance. In addition to this,
information, that indicated that February Guidance was unlikely to achieve, was not informed to
board before 26 April 2016. In the Financial announcement made by these companies some
misleading statements were made which was a clear breach of section 180 of CA 2001. In
addition to this, Mr. Helou also breached section 1041H as he allowed the February
announcement and engaged in deceptive or misleading conduct7.
Conclusion
As MD and CFO of the MG and MGRE breached many provisions of CA 2001, the same formed
corporate legal issues. The court found that MGRE was liable for breach of section 674(2) where
the same failed to notify ASX about the situation that made MG unable to achieve the financial
forecast given by the same.
Question 2
In the context of Australian Companies, ASIC is an important authority. It is an integrated
corporate, financial service, consumer credit, and market regulator of Australia and is an
independent government body of the nation. CA 2001 is only legislation and therefore an
authority was required to regulate the activities of directors and officers of Australian companies.
7 Carlene Dowie, Former MG CEO Gary Helou fails in bid to stop ASIC case against him (Farmonline, 07 October
2019) <https://www.farmonline.com.au/story/6425861/helou-fails-in-bid-to-stop-asic-case/>.

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In addition to this, ASIC also ensures that the companies are complying with the provisions of
CA 2001 in their dealings. Corporations Act gives ASIC the authority to take legal actions
against those directors or executives of the company who fails to meet their obligation under this
act. ASIC has the power to contact those companies who do not lodge their financial reports or
fail to meet office holder requirements. As the authority is liable to look after the compliance and
conduct of directors and other executives of Australian companies hence the same was involved
in the Murray Goulburn case.
To check how ASIC works, civil liability provisions mentioned in CA 2001 are required to have
a look upon as ASIC mainly involves in those cases where directors are liable for civil penalties.
Civil penalties for breach of section 180 (1), 674(1) and 675(2) stipulate under section 1317E of
CA 2001. According to this section when a court makes a declaration of contravention, ASIC
gets powers to seek a disqualification order u/s 206C as well as a pecuniary order u/s 1317G or
the act8. Due to the virtue of pecuniary order directors and executives held liable for penalty
whereas, by disqualification order, they can prohibit to manage the affairs of companies for a
particular period. ASIC played its role in the studied case as Mr. Gary and Bradley breached
section 180 (1), 674(1) and 675(2) of the act. ASIC has initiated proceedings against the liable
parties in the Federal Court of Australia and made allegations to them with respect to a breach of
duties conducted by them. In this case, ASIC sought declarations under the said sections in
addition to the disqualification order of the period as may be deemed fit by the court.
8 Australia, Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related
regulations (CCH Australia Limited, 2011).

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Question 3
As mentioned in the introductory part of this report, cases of breach of CA 2001 are very
common. Similar cases have also happened there in the past where ASIC initiated action against
executives of the Australian companies due to failure in making timely disclosure to authorities.
These directors and executives hold liable to pay penalties and some of them declared
disqualified from managing affairs of corporations. One such case is of Byte Power Group
Limited. In this case, the company made a declaration to ASX as on 27th October 2017 that its
Singapore based partner was advanced in the development of software and an alpha testing was
expected before the year-end which was not true. As per the allegation made by ASIC, Byte
Power was aware that the statement made by the same was not true in a reasonable manner and
this manner failed to inform ASX the true situation complying with the continuous disclosure
obligations mentioned under section 674 (2) of CA 2001. As a result of the breach, the company
had to pay $33,000 as a penalty9. The case is recent and is significant to study to understand the
power of ASIC and the obligation of the company under CA 2001.
One other case, which is related to failure in providing continuous disclosure, is of Bellamy's
Australia Limited. In this case, on 18th October 2016, the board of the company was informed
about the expected revenue for 2017. On 2 December 2016, the company informed ASX about
the expected revenue for the first and second half of 201710. ASIC alleged that the company
knew by 18 October 2016 that the forecasted financial position was unlikely to be achieved yet
the same made disclosure to ASX. The company holds liable for the breach of section 674(2) of
9 Asha Barbaschow, Cryptocurrency exchange Byte Power cops AU$33k fine from ASIC (ZD Net, 13 February
2019) < https://www.zdnet.com/article/cryptocurrency-exchange-byte-power-cops-au33k-fine-from-asic/>.
10 Investors.bellamysorganic, ASIC Investigation completes Bellamy’s accepts infringement notice without
admission of liability (Investors.bellamysorganic, 11 October 2017) <
http://investors.bellamysorganic.com.au/DownloadFile.axd?file=/Report/ComNews/20171011/01906716.pdf>.

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CA 2001 as well as listing rules provided by ASX. As a result of this investigation conducted by
ASIC, Bellamy's shad to pay $66,000 as a penalty11 (Reuters, 2017).
As general legal principles, these cases have their huge significance as it provides lessons to
executives of Australian companies. Companies have to pay penalties and directors faced
liability due to negligence. The decision of these cases gives an idea to other companies about
the fact that how serious consequences they can face and why they should behave as a reasonable
person while performing their duties.
Conclusion
To conclude this report, this is to state that the same highlights key provisions of the
Corporations Act 2001 where officers, directors, and other executives of the company may be
held liable. In Murray Goulburn's case, directors held liable for breach of the general duty of
directors as well as specific duties of the same where they were required to make continuing
disclosure to ASX promptly providing correct and reliable information. ASIC is a lead authority
that regulates compliance with CA 2001 by corporate mangers and can seek pecuniary and
disqualification orders. Lastly, some cases have been discussed where officers conducted some
fault and the company faced heavy penalties. These cases show the seriousness of the issue and
provide a lesson that managers of the companies should work responsibly, otherwise in addition
to personal liability, the company can also be held liable.
11 Reuters.com, BRIEF-Bellamy's Australia updates on infringement notice from ASIC (Reuters, 11 October 2017)
<https://www.reuters.com/article/brief-bellamys-australia-updates-on-infr/brief-bellamys-australia-updates-on-
infringement-notice-from-asic-idUSFWN1ML10C>.

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Bibliography
Legislation
Corporations Act 2001 (Cth)
Books/Journals
Australia, Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC
Act 2001, related regulations (CCH Australia Limited, 2011).
Ramsay, Ian and Benjamin Saunders, An Analysis of the Enforcement of the Statutory Duty of
Care by the Australian Securities and Investments Commission (2018) 36(6) Company and
Securities Law Journal 497-521.
Other Resources
Asha Barbaschow, Cryptocurrency exchange Byte Power cops AU$33k fine from ASIC (ZD Net,
13 February 2019) <https://www.zdnet.com/article/cryptocurrency-exchange-byte-power-cops-
au33k-fine-from-asic/>
Asha Barbaschow, Cryptocurrency exchange Byte Power cops AU$33k fine from ASIC (ZD Net,
13 February 2019) < https://www.zdnet.com/article/cryptocurrency-exchange-byte-power-cops-
au33k-fine-from-asic/>.
Asic.gov.au, 19-152MR ASIC commences Federal Court action against former Murray
Goulburn executives Gary Helou and Bradley Hingle (ASIC, 25 June 2019) <
https://asic.gov.au/about-asic/news-centre/find-a-media-release/2019-releases/19-152mr-asic-

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commences-federal-court-action-against-former-murray-goulburn-executives-gary-helou-and-
bradley-hingle/>
Austlii.edu.au, CORPORATIONS ACT 2001 No. 50, 2001 - SECT 601FD (Austlii) <
http://www5.austlii.edu.au/au/legis/cth/num_act/ca2001172/s601fd.html>.
Carlene Dowie, Former MG CEO Gary Helou fails in bid to stop ASIC case against him
(Farmonline, 07 October 2019) <https://www.farmonline.com.au/story/6425861/helou-fails-in-
bid-to-stop-asic-case/>
Clint Jasper, Legal action against Murray Goulburn executives to continue, despite bid to have it
thrown out of court (ABC News, 04 October 2019) <
https://www.abc.net.au/news/2019-10-04/federal-court-action-against-murray-goulburn-bosses-
to-continue/11574846>
Investors.bellamysorganic, ASIC Investigation completes Bellamy’s accepts infringement notice
without admission of liability (Investors.bellamysorganic, 11 October 2017) <
http://investors.bellamysorganic.com.au/DownloadFile.axd?file=/Report/ComNews/
20171011/01906716.pdf>
Investors.bellamysorganic, ASIC Investigation completes Bellamy’s accepts infringement notice
without admission of liability (Investors.bellamysorganic, 11 October 2017) <
http://investors.bellamysorganic.com.au/DownloadFile.axd?file=/Report/ComNews/
20171011/01906716.pdf>.
legislation.gov.au, Corporations Act 2001 (Australian Government) <
https://www.legislation.gov.au/Details/C2017C00328/Html/Volume_3>

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Reuters.com, BRIEF-Bellamy's Australia updates on infringement notice from ASIC (Reuters, 11
October 2017) <https://www.reuters.com/article/brief-bellamys-australia-updates-on-infr/brief-
bellamys-australia-updates-on-infringement-notice-from-asic-idUSFWN1ML10C>