Queensland Nickel Pty Ltd: A Case Study in Corporate Governance and Director's Duties

This assignment examines the case of Queensland Nickel Pty Ltd, a company that went into liquidation in 2016. The assignment analyzes the administrator's report, focusing on the company's financial instability, related party transactions, and the actions of the directors. It explores the relevant provisions of the Corporation Act 2001, particularly those concerning director's duties and responsibilities, and assesses the legal consequences of their actions. The assignment concludes by highlighting the importance of corporate governance and the potential consequences of failing to comply with director's duties.

Corporation Law
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Introduction
Law is an integral part of the economy of the company which establishes an effective legal
system which is responsible for controlling and regulating the activities which may affect the
individuals and the companies operating its business under the legal system of the nation. There
are various laws which a company is liable to follow; however, this assignment is based on the
applicability of the provisions of the Corporation Act, 2001. From the time of establishing or
incorporating a company until its dissolution, the management of the company is under an
obligation to comply with the norms specified in the Corporation Act, 2001. This assignment
focuses on the case of Queensland Nickel Pty Ltd and the report provided by the administrator.
This assignment is divided into two parts which include the description about the company,
director of the company, identification in the working of the company and the recommendations
made by the administrator for working of the company and to the shareholders.
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Key Facts
Queensland Nickel Pty Ltd. is an Australian which was established in the year 1971 and which
operates its business in the production and distribution of nickel and cobalt. It also purchases
from third parties mines and processes cobalt-bearing laterite ores and nickel (Bloomberg, 2018).
This company was previously owned by the BHP Billion which is a British-Australian Company.
However, this company was acquired by a politician and businessman, Clive Palmer in the year
of 2009.
The company is identified as a Proprietary Company. As per the provision of section 45A, a
company registered under this section or which changes its status to the proprietary company
under the mentioned above. As per section 113 of the act, it is stated that such company must not
have more than 50 non-employee shareholders if the company is a proprietary company or is
converted into a proprietary company (Legislation.gov.au, 2018).
In the recent period of time, it was noted that the company was becoming financially unstable.
The request of the Palmer taxpayer was rejected by the Government of Queensland in the year of
late 2015 stating that the company has not disclosed full information about the company to the
government and the company have made huge donations to the Palmer United Party. The
ownership of the company was transferred to newly established company i.e. Queensland Nickel
Sales Pty Ltd under the direction of the nephew of Palmer, Theodore Mesnick, which was the
result of a joint venture agreement QNI Resources Pty Ltd and QNI Metals Pty Ltd, both the
companies are owned by the Palmer. In January 2016, 237 workers of the company was removed
for cost cutting and it was stated by the company that it is due to the poor price of nickel in last
twelve years and due to the refusal of the guarantee of loan from the Government of Queensland
amounting $35 million for the purpose of redundancies (Dorsett, 2016). However, despite having
financial problems, the company made a donation to the Palmer United Party amounting $20
million in two years which includes the donation made just before the removal of the workers
amounting $288,516. In April 2016, it was discovered by the administrator of the company that
the company has incurred debts amounting $771 million and on 22nd April 2016, creditor voted
for the liquidation of the company.
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This assignment is based on the report of the administrator i.e. John Park, Kelly-Anne Trenfield,
Quentin Olde and Stefan Dopking who were appointed on 18th January 2016 as per the
provisions of the section 436 A of the Corporation Act, 2001. An administrator report is a report
which is prepared in such case when the authorities have any suspicion on the company and its
working and when it is believed that the management of the company is not complying with its
duties and responsibilities (Wolters Kluwer, 2018). This report provides an insight to the
creditors, investors and the other related about the financial position of the company. As per the
section mentioned above, it is stated that an administrator may be appointed by the company if it
is resolved by the Board to affect that:
 For the voting for the resolution in the opinion of the director
 The company is insolvent.
 Or may become insolvent in the future time.
If the person or the individual to be appointed as the administrator must not hold a position as a
liquidator, otherwise, the provisions mentioned above is not applicable to such person.
Reflection of the report
As per the report of the administrator, there is various related transaction party which are as
follows:
 Expenses on behalf of QNI Metals which are incurred or sustained by the Queensland
Nickel Pty Ltd in the financial year of 2016 which is have been not approved by the
parties in joint ventures amounting, $61,608,314.
 Expenses on behalf of QNI Resources were incurred or sustained by the Queensland
Nickel Pty Ltd which was not even approved by the parties to the joint venture during the
financial year of 2016 amounting, 246,433,255.
 Outstanding Loan amounting $2,659,073 from Clive Palmer.
 It was proposed by the Waratah Coal to provide the coal tenements to assist the
Queensland Pty Ltd as a security in regards to obtaining funding for satisfying the
purpose of trading requirements of general nature.
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It was claimed by the QNI Resources and QNI Metals and alleged the Queensland Nickel Pty
Ltd by the agreement of joint venture, that the company is engaged in unauthorized activities and
as per the agreement of joint venture, the company has failed to obtain the budget for the period
of 2015-16. It was also claimed by QNI Resources and QNI Metals that all the expenses made on
behalf of the companies mentioned above by the Queensland Nickel Pty Ltd made in the period
of the joint venture were not approved in the budget or it can also be said that the company
doesn’t have the budget approved.
Turning Point of the given scenario
On 13th January 2016, Queensland Nickel Pty Ltd purchased the shares of China first i.e. 2
Billion Shares which is enough to have a control over the company and to remove the caveat on
the mining tenements placed by China First. The payment for the shares purchased by
Queensland Pty Ltd amounting $135M would be paid in two instalments before or on December
2017 or 2018. Moreover, on same date, i.e. 13th January 2016, Queensland Nickel Pty Ltd was
allowed to use the specified mining tenements of Waratah Coal to obtain funds for the operating
and functional activities of Queensland Pty Ltd. Both the companies have filed charges for
general security for securing their interest against the liabilities of the company i.e. $100m and
$135M of Queensland Pty Ltd (Mubarok & Yunita, 2015). It has been stated that China First and
Waratah Coal have made a claim with the proof of debts as per the security arrangement between
the companies. All the claims made by both the companies are considered by the administrator
appointed by the company.
In the year 2012-13, sixty vintage cars were purchased by QNI Resources from overseas and
Australian Dealers which was transferred to the Palmer Coolum Resort for the purpose of
establishment of Motorama Museum. Payment for the purchase of these cars was made by
Queensland Nickel Pty Ltd through the bank account of the company and recorded the
transactions as “Major Capital Purchase” by the QNI Resources. All the vintage cars were owned
by Mr Palmer as it was sold by QNI Resources for $5 Million which was 17% more than the
original value of the cars. Payment was not made by Mr Palmer either to Queensland Nickel Pty
Ltd. or to QNI Resources in cash. However, whatever payment was received by the Queensland
Nickel Pty Ltd for the proceeds of the sale of cars were recorded through the loan account
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transaction of the Mineralogy. However, loan forgiveness of amount $5 Million was recorded in
the loan account of Mineralogy. It was stated by the parties to the joint venture that Queensland
Nickel Pty Ltd doesn’t hold any assets or interest or any other right in the purchase of such
vintage cars and the assets and the interests are held by the parties to the joint venture. However,
it was stated by the administrator of the company that as the payment for the cars were made by
Queensland Nickel Pty Ltd, they have prima facie right to sell the assets or the interest it holds.
Payment was made by Queensland Nickel Pty Ltd for purchasing a land amounting $8.1 Million
for Palmer Coolum Resort which was operated by Palmer Leisure Coolum. However, such land
was sold to Mr Palmer in the year of 2012 for an amount of $12 Million. As per the agreement of
amended share sale, it was stated that the payment in regards to the Palmer Leisure Coolum will
be made by the QNI Resources and QNI Metals. Moreover, Queensland Nickel Pty Ltd made a
payment of $58.9 Million in total on behalf or to Palmer Leisure Coolum which includes the
cash payment of $43.9 Million made to the Palmer Leisure Coolum as working capital for the
period of 30th June of 2014 and more funds were transferred to the Palmer Leisure Coolum
amounting to $ 6.9 Million. This payment also includes the payment of expense amounting to
$5.9 Million for the period specified above and the payment of $880K was also made after the
specified period. Purchase of quarter-share interests amounting $1.2 Million for the villas in the
resort. These payments were made against the loan account of the Queensland Nickel Pty Ltd in
the name of Palmer Leisure Coolum and were forgiven by the Queensland Nickel Pty Ltd or
were absorbed as expenses for trading by transferring it to the operational account of the
company who made all the payment.
However, the company was suffering from distress in terms of its financial position, even when
the company made a donation amounting $20 million in two years to the Palmer United Party
which includes the donation amounting $288,516 was made just before the termination of the
workers.
The action of the director otherwise to the situation provided above
 The director of the Queensland Nickel Pty Ltd, Mr Mensink must not acquire the shares
in China first i.e. 2 Billion shares amounting $135 Million in two instalments as the
company didn’t have any funds to make payment to the company.
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 Same in the case of Waratah Coal, the company allowed the use of specified coal
tenements so that the main company is available to get funds for performing its
operations. Due to this, the company owed $100 Million to the Waratah Coal. The
director must have refused to such offer as the director knew about the financial position
of the company (Robertson, 2017).
 All the payments made in regards with the related parties of the company or the related
party of the director such QNI Resources, QNI Metals, Palmer Leisure Coolum, etc.
made not be made or approved by the director of the company. If payment was made by
the company, then such payment must not be forgiven and payment of the same must be
received back from the debtors.
Duties and Responsibilities of the Directors
Section 179 states that there are various duties and the responsibilities of the directors,
secretaries or other officers of the company who is under an obligation to comply with such
duties and responsibilities (Bottomley, 2016).
Section 180 deals with the civil liability of the directors and other officers in terms of care and
diligence towards the company. It is stated under this section, all the powers available with the
directors and other officers must be exercised with proper care and due diligence as if any other
person would have exercised if such person would be in the position of director or the officers of
the company. As per sub-section (2) of this section, it is stated that the decision made by the
director or the officers of the company must be in the favour or interest of the company. Such
decision must not be the interest of the company and such decision must be reasonable for the
company.
Section 181 deals with the civil liability of the director to perform in good faith. It is stated in
this section that the powers or the authorities available with the directors or the officers of the
company must be exercised in good faith for a specific purpose for the company. It must also be
ensured that the powers exercised must be in the interest of the company. It is stated in sub-
section (2) of this section that the person, who violates the provision mentioned above, will be
considered as violating the provisions of this section too.
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Section 182 deals with the civil obligation of the directors and the officers of the company. As
per this section, the director or the officer of must not make improper use of the position for their
own benefits or for the benefits of some other person and such act affects the company (William
Roberts Lawyers, 2018). If any director or the officer violates the provision above-mentioned,
then such act of the person will be considered as contravention in sub-section (2) of this section.
Section 183 of the act deals with making use of information. It is stated that all the information
or the data available with the director and the officers of the company must not be used for
gaining the benefit of their own or for the benefits of some other person and such action must not
be detrimental to the company (Du Plessis, 2017). If any person contravenes the norms
mentioned above, then it will be considered as a contravention under subsection (2) of this
section.
Section 184 of the act deals with the criminal offences of the directors in terms of good faith, use
of position and use of information. If the any of the action or decision made or the position is
used or the information is used by the director or the officers of the company which is reckless,
intentionally dishonest, detrimental to the company, not in good faith and for the proper purpose
then it will be considered as criminal offences on the part of the agents of the company (Brookes,
2012).
As per the provisions of the Corporation Act, 2001, it is stated that if the director of the company
fails to comply with the duties and responsibility, then it will attract legal consequences or legal
penalty which may extend up to $200,000.
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Conclusion
It is concluded from the discussion made above that all the provisions of the Corporation Act,
2001 are required to comply with the management of the company. As per the provided scenario
of Queensland Nickel Pty Ltd, it went into liquidation as the company was not able to maintain
its financial position. Moreover, the company continued its business even after not having
enough funds. The company also made payment for its related party and the related party of the
director which resulted in having the debts of $771 million. It was clear from the actions of the
company that all the decision of the company was made to deceive the company which
ultimately result in the liquidation of the company by the voting of the creditors.
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Reference
 Bloomberg. (2018). Company Overview of Queensland Nickel Pty Ltd. Available at:
https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=5533292.
[Accessed: 28.05.2018]
 Bottomley, S. (2016). The constitutional corporation: Rethinking corporate governance.
Routledge.
 Brookes. M. (2012). Consideration of Corporations Act - Fiduciary duties, duties of
fidelity, and account for profits. Carter Newell Lawyers. Available at:
http://www.carternewell.com/page/Publications/Archive/Consideration_of_Corporations
_Act_-_Fiduciary_duties_duties_of_fidelity_and_account_for_profits/. [Accessed:
28.05.2018].
 Dorsett, J. (2016). Queensland Nickel: Jobs of 550 workers terminated, administrators
say; union says entitlements in doubt. ABC News. Available at:
http://www.abc.net.au/news/2016-03-10/administrators-queensland-nickel-terminate-
most-of-550-jobs/7237240. [Accessed: 28.05.2018].
 Du Plessis, J. J. (2017). Disqualification of Company Directors: A Comparative Analysis
of the Law in the UK, Australia, South Africa, the US and Germany. Taylor & Francis.
 Fittock, J. E., & Fittock, J. E. (2007). Nickel and cobalt refining by QNI Pty Ltd, Yabulu,
QLD. Mawby"-AUSIMM Monograph 19 Volume.
 Legislation.gov.au. (2018). Corporation Act, 2001. Available at:
https://www.legislation.gov.au/Details/C2018C00131. [Accessed: 28.05.2018]
 Robertson, J. (2017). Why Clive Palmer's assets have been dragged into the Queensland
Nickel fight. Available at:
https://www.theguardian.com/australia-news/2017/aug/17/clive-palmer-has-been-less-
than-frank-and-likely-to-be-hiding-wealth-say-liquidators. [Accessed: 28.05.2018]
 William Roberts Lawyers. (2018). Directors Duties. Available at:
https://www.williamroberts.com.au/News-and-Resources/News/Articles/Directors--
Duties. [Accessed: 28.05.2018].
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 Wolters Kluwer. (2018). CORPORATIONS ACT 2001, SECTION 435A OBJECT OF
PART. Available at:
https://iknow.cch.com.au/document/atagUio486540sl14510555/corporations-act-2001-
section-435a-object-of-part. [Accessed: 28.05.2018]
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