Gore v ASIC: Violation of Director Duties in Corporations Law

This report analyzes the case of Gore v ASIC to identify the director duties violated in the context of Corporations Law. It examines the facts of the case, the violation of duties, the judgment of the court, and the relevance of the case in relation to director obligations and compliance with the law.

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Corporations Law

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TABLE OF CONTENTS
INTRODUCTION...................................................................................................................2
FACTS OF THE CASE..........................................................................................................3
VIOLATION OF DUTIES........................................................................................................3
JUDGEMENT OF THE COURT............................................................................................5
RELEVANCE OF THE CASE................................................................................................6
CONCLUSION.......................................................................................................................7
BIBLIOGRAPHY....................................................................................................................8

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INTRODUCTION
In this report, Gore v ASIC1 case will be analysed in order to identify the director duties
that were violated in this case. The provisions of director duties are given under the
Corporations Act 2001 (Cth) (“CA”).2 Various guidelines are issued in this Act in order to
make sure that the powers of directors must not be used for improper purposes which
could harm the interest of the company. These duties impose mandatory obligations on
the directors in regards for ensuring that they must not violate these provisions or else they
could face civil or criminal consequences. This report will evaluate the facts of Gore v
ASIC in order to identify the factors that lead to violation of director duties. This report will
also evaluate the key duties which are violated and analyse the circumstances that lead to
the violation. The decision made by the court along with an evaluation of its relevance in
regards to companies operations in Australia will be analysed in this report as well.
1 [2017] FCAFC 13
2 Corporations Act 2001 (Cth)

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FACTS OF THE CASE
As per the facts of this case, an appeal was made by Ms Marina Gore regarding an
injunction that was imposed on her. Gore has established companies in the British Virgin
Island, and she was inducing self-managed superannuation funds for a number of
Australian investors in order to invest in the United States and Australian real estate.3 Mr
Gore’s wife, Mrs Marine Gore was acting as the director of a corporate entity that was
involved in the process of the scheme. She attended while the scheme was being
developed along with his husband. During this period, she was involved in the process of
reviewing the documents that contain crucial information regarding relevant offers that
were made regarding securities. Furthermore, she was also involved in the progress that
was made by the company in order to prepare a number of documents that were relevant
to the establishment of the scheme.4 In the proceedings brought by the ASIC against Mr
Gore for failing to comply with CA’s disclosure requirements, it was also found that Ms
Gore was also knowingly involved that lead to violation of the Act and an injunction was
imposed.
As per this injunction, she was prohibited for a period of 7.5 years under section 1324 of
CA. This prohibits her from carrying out her business in the financial services industry. It
was held that she had deliberately violated the provisions given under the CA, such as 727
(1) and 727 (2).5 These sections were violated because she offered securities of the
company without providing proper disclosure documents. She also violated the provisions
given under section 1041H as well by failing to provide relevant information. Along with
these guidelines, it was also held that certain provisions of the Australian Securities and
Investments Commission Act 2001 (Cth)6 are also violated. It was held that section 12 DA
was contravened by Gore since she was engaged in misleading and deceptive conduct. A
cross-appeal was filled by the ASIC against the appeal of Gore on the basis of the
injunction involved in the dispute to determine that it was inadequate.
VIOLATION OF DUTIES
3 Jade, Gore v Australian Securities and Investments Commission (2017) < https://jade.io/j/?
a=outline&id=520906 >.
4 GTLaw, Insights (2017) < https://www.gtlaw.com.au/insights/case-updates-june-2017>.
5 Hallandwilcox, Gore no more – ASIC not required to prove intention in civil penalty proceedings (2017) <
https://hallandwilcox.com.au/gore-no-asic-not-required-prove-intention-civil-penalty-proceedings/>.
6 Australian Securities and Investments Commission Act 2001 (Cth)

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There are various sections of CA 2001 that were violated by Gore in this case. Section 79
of CA provides provisions regarding accessorial liability. These provisions provide that the
liability can be imposed on a person for violation of the Act as an accessory by another
individual as long as it is established that the first person was involved in the breach. The
person that conspired with others or induced, abetted, aided, counselled or procured with
a direct or indirect manner can be held liable.7 Furthermore, section 727 provisions
information regarding lodging of disclosure documents. Section 1 imposes restrictions on a
person from offering any securities that require adequate disclosures which must be made
as per the provisions of Part 6D.2. Subsection 2 provides provisions regarding requirement
of the offer form which must be submitted as well along with other documents.8
Furthermore, relevant director duties are given under section 180 and 181. It is expected
from directors that they will ensure that corrective measures are taken by them to ensure
“care and diligence” in their action as per section 180. They should comply with these
guidelines when they take business judgements while acting in their position.9 The element
of “good faith” is necessary to be present in the actions of directors as per section 181
which provides that they must not give priority to their self-interest while harming the
interest of the company.
In Gore v ASIC case, securities offered without compliance with the disclosure
requirements given as per Part 6D.2. Furthermore, the parties did not lodge with the ASIC
relevant documents, including the profile statement, prospectus and other documents.
Gore has the knowledge of these matters still she failed to ensure that these compliances
are fulfilled.10 She was aware of the breach; still she failed to take corrective actions. It was
provided that Gore was aware regarding the provisions of section 727 still she
contravened them.11 Furthermore, she also failed to maintain “care and diligence” that
was expected from them, which leads to a violation of section 180. Gore’s actions were
also not taken in “good faith” since she acted selfishly without considering the interest of
the company.
7 Jasper Hedges et al., ‘The Policy and Practice of Enforcement of Directors' Duties by Statutory Agencies in
Australia: An Empirical Analysis’, (2017) 40 (3) Melbourne University Law Review 905-966.
8 Austlii, Corporations Act 2001 – Sect 727 (2019) <
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s727.html >.
9 Wolters Kluwer. (2019) Corporations Act 2001, Section 180 Care And Diligence — Civil Obligation Only
(2019) < https://iknow.cch.com.au/document/atagUio485896sl14504541/corporations-act-2001-section-180-
care-and-diligence-civil-obligation-only>.
10 Ashurst, Full Federal Court clarifies criminal fault position (2017) < https://www.ashurst.com/en/news-and-
insights/insights/whats-new-full-federal-court-clarifies-criminal-fault-position-171003/>.
11 ASIC, Decision on application of Criminal Code in civil proceedings under Corporations Act (2017) <
https://asic.gov.au/about-asic/news-centre/find-a-media-release/2017-releases/17-192mr-decision-on-
application-of-criminal-code-in-civil-proceedings-under-corporations-act/>.

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JUDGEMENT OF THE COURT
In this case, the court recognised that the disclosure requirements are contravened by
Gore and she failed to lodge relevant documents to the ASIC. The court provided that the
ASIC was only required to establish that the defendant had knowledge regarding the
disclosure requirements. This judgement was supported by the case of Yorke v Lucas12 in
which it was held that accessory could be held liable when he/she had the knowledge of
the necessary facts that leads to the breach.13 In its judgement, the court also analysed the
decision of Giorgianni v The Queen14 as well. It was given in this case that the accessory
must intentionally render assistance or must give encouragement to the principal offender
and must know about the “essential matters of the offence. Based on these judgements,
the court established that the ASIC was not obligated to establish that the accessory had
knowledge about the legal provisions that were violated. Establishing that the accessory
was aware regarding the illegal actions is only enough to hold the party liable. Since the
party has the knowledge of the fact, compliance with those principles is required, and they
must ensure that other parties must comply with those principles as well. Despite the fact
that this case contained a number of elements that raised concerns in the Criminal Code;
however, the court rejected to apply those provisions because they were not issued when
the case was first presented before the court.
The court provided that if this matter would have been related to a criminal offence, then
the case can be sent back in order to consider it again, but it cannot be done in this case.
This case has clearly established the principle of accessory liable.15 The court rejected the
application of criminal penalties in the cross-appeal of ASIC by providing that they were
not applied in the first instance based on which they cannot be applied in the appeal. It
was held that Gore was a part of the grand scheme based on which the court ordered him
to pay the cost incurred in the appeal of the ASIC. Furthermore, the court ordered the
ASIC to pay for the costs of cross appeal. The court also applied in the judgement of ASIC
v Adler16 in this case. In this case, Adler Corporation and Rodney Adler were held liable for
violating section 79 of the CA. It was held that they violated section 180 and 181 of the CA
since they were aware of the illegal actions since they were aware of the illegal actions of
12 [1985] HCA 65
13 Katrina Seck, ‘Employment: Accountant liable as third party accessory to client's fair work breaches’,
(2017) (35) LSJ: Law Society of NSW Journal 78.
14 [1985] HCA 29
15 SM Solaiman and Abu Noman M Atahar Ali, ‘The most serious offenses and penalties concerning unsafe
foods under the Food Safety Laws in Bangladesh, India, and Australia: a critical analysis’, (2015) 70 Food &
Drug LJ 409.
16 [2002] NSWSC 171

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the company. The parties were in agreement with the actions of Adler, and no actions
were taken by them in order to resolve this issue.
RELEVANCE OF THE CASE
The decision given in this case provided key provisions regarding the impact of the
accessorial liability principle in Australia. This decision shows the role of directors in
relation to ensuring that they comply with their duties while taking business decisions. The
directors are obligated to ensure that they must comply with disclosure requirements that
are imposed by the CA to avoid legal consequences while issuing securities.17 The actions
taken by Ms Gore resulted in violating the principles are given under section 727 in
regards to ensuring that relevant documents are submitted by parties when they issue
securities. This case also shows that the actions taken by directors or their failure to
comply with these policies could result in imposing civil or criminal penalties on them.
These provisions are implemented in order to ensure that parties are not able to issues
securities without issuing relevant documents with them, which could lead to misleading
the public.18 This judgement shows that failure to comply with these duties can impose
criminal penalties on the director along with civil obligations.
The directors have to make sure that they fulfil their obligations, which are included in
these sections to ensure that they did not harm the interest of parties by engaging in
practices that are misleading or deceptive. Furthermore, this case also highlighted the
importance of director duties while establishing accessory liabilities. They have to ensure
that when they take business judgements, then they must maintain “care and diligence”
which is a part of their duties which allow them to avoid legal penalties. The importance of
acting in “good faith” is also crucial for directors since their actions affect a large number of
stakeholders based on which they should not act selfishly.19 They should give priority to
the interest of the company and ensure that compliance with relevant laws is maintained
by them avoid engaging in illegal practices. This case shows that importance of
compliance with these duties along with the potential consequences which are a result of
non-compliance with these guidelines.
17 Robin Hui Huang and Nicholas Calcina Howson, Enforcement of Corporate and Securities Law
(Cambridge University Press, 2017).
18 Ed Batrouney, ‘Are the legal risks faced by company directors in Australia intolerable?’, (2016) (159)
Victorian Bar News 68.
19 Edmund Thomas Finnane and Jason Harris, Corporations Legislation 2019 (Thomson Reuters, 2019).

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CONCLUSION
The above discussion highlighted the role of director duties and importance of comply with
policies by directors to ensure that they avoid the imposition of penalties on their
operations. While issuing the securities, compliance with guidelines is mandatory for
directors, or else they should be held liable in a suit. In case the directors did not stop
other parties from ensuring compliance with these policies, then they can be held liable as
an accessory as well. The court provided in the judgement of this case that violation of
these policies resulted in harming the interest of the company and the general public due
to which civil as well as criminal penalties can be imposed. When directors are aware
regarding the imposition of certain guidelines on their decisions such as mandatory
disclosure requirements, then they can discharge their duties by ensuring compliance with
those policies. In case the provisions of these duties are not meet accordingly by directors,
then they can face the consequences as per the provisions gave under the CA. In this
case, the duties that were violated by Ms Gore based on which the appeal was rejected by
the court and the previous judgement was prevailed by the court.

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BIBLIOGRAPHY
A Articles/Books/Reports
Batrouney, Ed, ‘Are the legal risks faced by company directors in Australia intolerable?’,
(2016) (159) Victorian Bar News 68.
Finnane, Edmund Thomas and Jason Harris, Corporations Legislation 2019 (Thomson
Reuters, 2019).
Hedges, Jasper, Helen Bird, George Gilligan, Andrew Godwin, and Ian Ramsay, ‘The
Policy and Practice of Enforcement of Directors' Duties by Statutory Agencies in Australia:
An Empirical Analysis’, (2017) 40 (3) Melbourne University Law Review 905-966.
Huang, Robin Hui and Nicholas Calcina Howson, Enforcement of Corporate and Securities
Law (Cambridge University Press, 2017).
Seck, Katrina, ‘Employment: Accountant liable as third party accessory to client's fair work
breaches’, (2017) (35) LSJ: Law Society of NSW Journal 78.
Solaiman, SM and Abu Noman M Atahar Ali, ‘The most serious offenses and penalties
concerning unsafe foods under the Food Safety Laws in Bangladesh, India, and Australia:
a critical analysis’, (2015) 70 Food & Drug LJ 409.
B Cases
ASIC v Adler [2002] NSWSC 171
Giorgianni v The Queen [1985] HCA 29
Gore v ASIC [2017] FCAFC 13
Yorke v Lucas [1985] HCA 65
C Legislation
Australian Securities and Investments Commission Act 2001 (Cth)
Corporations Act 2001 (Cth)
D Others

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Ashurst, Full Federal Court clarifies criminal fault position (2017) <
https://www.ashurst.com/en/news-and-insights/insights/whats-new-full-federal-court-
clarifies-criminal-fault-position-171003/>.
ASIC, Decision on application of Criminal Code in civil proceedings under Corporations
Act (2017) < https://asic.gov.au/about-asic/news-centre/find-a-media-release/2017-
releases/17-192mr-decision-on-application-of-criminal-code-in-civil-proceedings-under-
corporations-act/>.
Austlii, Corporations Act 2001 – Sect 727 (2019) <
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s727.html >.
GTLaw, Insights (2017) < https://www.gtlaw.com.au/insights/case-updates-june-2017>.
Hallandwilcox, Gore no more – ASIC not required to prove intention in civil penalty
proceedings (2017) < https://hallandwilcox.com.au/gore-no-asic-not-required-prove-
intention-civil-penalty-proceedings/>.
Jade, Gore v Australian Securities and Investments Commission (2017) < https://jade.io/j/?
a=outline&id=520906 >.
Wolters Kluwer. (2019) Corporations Act 2001, Section 180 Care And Diligence — Civil
Obligation Only (2019) <
https://iknow.cch.com.au/document/atagUio485896sl14504541/corporations-act-2001-
section-180-care-and-diligence-civil-obligation-only>.