Legal Issues Faced by Gordon and Slater: A Business Law Analysis

This article discusses the legal issues faced by Gordon and Slater, an online library for study material, with regards to breach of directors' duties and violation of provisions of Corporation Act 2001 (Cth). It also explores the avenues available to regulatory bodies and directors to address these issues.

Running head: BUSINESS LAW
Business Law
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Introduction
There are various shareholders of Gordon and Slater that might take part in a class action as they
got to know about the allegations that the company is having some financial problem. This class
action was taken against the high profile law firm. The rival firm is Maurice Blackburn that is
leading with $250 million class action that involves around more than 3000 people. A person
named Andrew Watson who is from Maurice Blackburn had commented that Gordon and Slater
had misrepresented their financial prospects towards the market. It developed a part in a
company of United Kingdom named Quindells in the year of April 2015. Gordon and Slater’s
value that shared plummeted and they acquired a loss of $1.02 billion in the month of August but
it was promised by the company to the shareholders that it would soon recover. Gordon and
Slater got failed to release their information about their financial prospects and performance to
the market. It was explained by Mr. Watson that last year in November their 30 per cent shares
fell in two business days and after some weeks these shares fell up to 51 percent. Gordon and
Slater stated that the media was aware of the reports that Maurice Blackburn intend to file a class
action. The firm stated that there was misconduct by Gordon and Slater that was found in a
separate investigation1.
ANSWER 1
ISSUE
1 SLATER-AND-GORDON (2018) <http://www.abc.net.au/news/2016-10-12/slater-and-gordon-lawfirm-faces-
class-action-from-shareholders/7925104.>

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The first issues is to identify the legal problems which the firm Gordon and Slater may face in
relation to the facts discussed above
RULE
In the section 674 of Corporation Act 2001 (Cth), all such business organization need to liable to
the reveal the substantial evidences as conferring to the rules which are listed2. As mentioned in
the Ss. 1041A, any person must not carry out any such transactions in the business which might
affect the expansion of the false price in the trading processes of the monetary products.
In the s. 728(la) in CA 2001, it has been declared that a person must not suggest any of the
securities under the documents which are visible, as it has deceptive and misleading declarations.
Also in s. 728(2), a person who gives such a declaration regarding the matters of future without
the proper knowledge of the surroundings, leads towards giving a misleading declarations. As
mentioned in the Ss. 728(3), it is declared that any person is regarded to commit an offense or a
crime, where he is found to be violating the provisions mentioned in the Ss. 728(1) or if he gives
away some deceptive or misleading declarations, or is seen to disregard the newest situation
which are mentioned in the provided statements3.
2 Corporation Act 2001 (Cth) s 674
3 Corporation Act 2001 (Cth) s 728

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As mentioned in the s. 183 of the CA 2001 that the directors cannot misuse information gained
form the company and cause losses to it4.
APPLICATION
According to the case mentioned above, the directors Law Firm Slater and Gordon, were not able
to provide the required statements to the market which were needed for its financial predictions.
Later, it is also found that the directors provided some misstatements regarding the working of
the company. Thus, the breach of the provision is seen by Law Firm Slater and Gordon, as per
the section 728 of CA, 2001.
Adding to this above mentioned case Slater and Gordon had got a wrong representation
regarding the financial prospects. Therefore, there were several shareholders who depended upon
their wrong representation. A false image was put up by the organization in the form of a
presentation.
Afterwards, in the case mentioned above the directors were not seen to be acting sincerely
without any intention to deceive, as they were unable to disclose the truth regarding the financial
condition of their business.
ANSWER 2
4 Corporation Act 2001 (Cth) s 183

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ISSUE
The second issue which needs to be analyzed is that what are the avenues which are available to
the regulatory bodies and the directors in relation to the problems identified above.
RULE
The ASIC also known as the Australian Securities and Investment Commission is an
independent Australian governing body, which acts like the Australia’s business controller. The
ASIC role is to impose and also adjust the Australian company’s financial service laws as a
measure to guard the Australian consumers, creditors and Investors. The responsibility which the
ASIC holds is to administer the necessities of the CA 2001. In the section 1317e of the CA, it is
said that the court has a power to announce the agreement if it is seen that the individual is
violating the civil penalty provisions. In respect to the court, the violation of the provisions of the
civil penalty act in relation to an individual, who violates the civil penalty, must be a part of the
statement mentioned in the agreement5.
The provisions which are mentioned in the s. 1041 states that, regarding the exposure of a
company’s product or its financial service, any person must not be involved in any actions stated
to be misleading or deceptive. It is also declared that if the person fails to follow the rules of the
above mentioned section then he will be liable to be charged by the civil liability provisions.
5 Corporation Act 2001 (Cth) s 1317E

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As mentioned by the provisions of the s. 206 of the Corporation act, it was clarified that an
individual can be ineligible from performing as a director, where it is seen that civil liabilities are
been violated by the actions by the rules which are given in s. 206c of the CA6. The court has the
right to unable an individual from considering under two such factors which are the behavior of
the individual regarding his administration, or any other issue which the court things can be
appropriate.
The directors can rely on the business judgment rule under section 180(2) as a defense against
the ASIC7. The directors can ask for forgiveness under section 1317S against the breach of
duties8.
APPLICATION
According to Section 183 of the CA it has been explained that if some rules applied it can be
described that the directors of Slater and Gordon have breached their duties to act honest. There
is an explanation that have been provided that the directors of Slater and Gordon have made
deceptive and misleading statements as per the prospectus of the company that was given in the
section 728 of CA. Thus, civil liability will be charged to these people as it is explained in the
section 1041H. Further the defense available under section 180(2) will not apply as the directors
although did not have a personal interest they did not act as reasonable directors. However, they
can get leave from court under section 1317S.
6 Corporation Act 2001 (Cth) s 183
7 Corporation Act 2001 (Cth) s 180(2)
8 Corporation Act 2001 (Cth) s 1317S

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Conclusion
The above discussed provisions are available for the directors and the ASIC
Issue 3
In this situation the issue which has been identified is that whether the court will be able to lift
the corporate veil or not in the situation which the directors of Slater and Gordon are in with
respect to breach of directors duties.
Rule
In the case of Salomon v A Salomon & Co Ltd [1896] UKHL 1, the court declares the company
to be imaginary. It was figured out that Salmon had integrated the company’s contrary for the
true intent of the companies act. According to the above mentioned case, it was related to the
corporate law which stated that a company is said to be a separate legal entity and therefore a
juristic individual in the eyes of the law9. This case is said to be complex and has many layers.
The implications of this case stated that if a company owns legal personality who are separate
and independent from the identity of the owners. If the company is formed without any intention
of fraud, then the owners of the company and the company would be legally judged by the court
separately. This corporate fiction was arranged to enable the groups of people to go after an
economic function as a single unit, without liabilities to risks or liabilities in one's personal
capacity. The courts would only lift or pierce the corporate veil where the motive of
9 Salomon v A Salomon & Co Ltd [1896] UKHL 1

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incorporating the company was fraudulent or deceptive as stated by the principles of the case of
Chandler v Cape plc [2012] EWCA Civ 52510. The above discussed principles have also been
discussed in the case of Littlewoods Mail Order Stores v IRC [1969] 1 WLR 121411.
As mentioned in the Ss. 728(3), it is declared that any person is regarded to commit an offense or
a crime, where he is found to be violating the provisions mentioned in the Ss. 728(1) or if he
gives away some deceptive or misleading declarations, or is seen to disregard the newest
situation which are mentioned in the provided statements. Thus this section makes the directors
of the organization personally liable for breach. Further the directors are also personally liable
for breach of duties under section 180-183 of the Act via section 1317H.
It is also the nature of law that when there is a contradiction between common law and statue
law , the law of provided through statues prevail.
Application
In the given situation it is clear through the application of the case of Solomon v Solomon that
the court may not lift the corporate veil unless the company had been formed for a purpose of
doing fraud. However the law firm has not been formed for a fraudulent purpose and thus the
corporate veil cannot be lifted. On the contrary the provisions of section 728(3) and 1317H of the
CA provides form making the directors liable personally for the loss caused to the investors
which has actually been done in the present case as the directors have violated their duty. In the
light of the contradiction the law of the statue will prevail and the corporate veil is liable to be
lifted
10 Chandler v Cape plc [2012] EWCA Civ 525
11 Littlewoods Mail Order Stores v IRC [1969] 1 WLR 1214.

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Conclusion
The corporate veil can be lifted in the situation
Final Conclusion
In the first answer the issues which have been indentified are the directors did not comply with
the provisions of section 728 and 674 of the CA and thus violated directors’ duties. The ASIC
can take actions against the directors based in these section and the directors can rely in the
defenses in section 1317S. In the their answer the corporate veil can be lifted in the situation.

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Bibliography
ABC NEWS SLATER-AND-GORDON (2018)
<http://www.abc.net.au/news/2016-10-12/slater-and-gordon-lawfirm-faces-class-action-from-
shareholders/7925104.>
Chandler v Cape plc [2012] EWCA Civ 525
Corporation Act 2001 (Cth)
Littlewoods Mail Order Stores v IRC [1969] 1 WLR 1214.
Salomon v A Salomon & Co Ltd [1896] UKHL 1