Breaches of Corporation Law by Retail Food Group: Potential Class Action and ASIC's Role

This paper discusses the potential class action against Retail Food Group for breaching Corporation Law and ASIC's role in investigating such matters. It also highlights the breaches of Corporation Law and the potential penalties for directors.

Running Head: BUSINESS LAW
Business Law
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Author Note

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Answer to first question
It has been seen in the case study that Retail Food Group may soon be subjected to a class action
from its shareholders with respect to allegations regarding misleading investors towards the
effects of the business model of the company to store owners. The class action may be covered
by any shareholder who has purchased the shares of the company between 2nd June 2015 and 28
February 2017. There is a belief that when an announcement has been made on 2nd June 2015
the company knowledge or had reasons to know that the business model proposed by them
would exploit the franchises. In addition there were also a few actions which the company had
indulged into since the announcement had been made, which would have surely had an impact
on the franchises and was a kind of information which would material affect the share price of
the company and was not available to the public. Under the Corporation Act 2001 (Cth) it is a
requirement of a listed company with the ASX under the provisions of section 728 to ensure that
no omission is made or any misstatement has been included in the prospects document. In
addition to this provision under the provisions of section 674 it is the obligation of the
organisation to continuously disclose any situation which would have had an effect on the price
of its shares according to a reasonable person and is not generally available to the public. There
has been a significant decline in the share price of the company as reports had been provided by
Fairfax media that the company was involved in a secret deal with one of its former director’s
Alicia Atkinson. In this situation also although nothing has been specifically alleged there can be
breach of duties by the directors under section 181 which provides that the directors of a
company have to act in good faith and for the best interest of the company. It has been further
identified that this deal with the company of which former director has not been disclosed in the

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Annual report of the company since the last 4 years. This situation may also lead to the breach of
disclosure obligations of a listed organisation. It has been further seen that because of this
situation the company has suffered significant losses and it had to close about 200 stores and
reported a loss of $87.8 million in the first half of 2018. The deal with the former director’s
company known as Exit 57 had been highlighted only when the latter collapsed financially last
year (Danckert, 2018). Where a loss to the company or shareholders has been identified due to
the breach of duties by the directors the corporate veil of the company may be lifted and the
directors may be personally liable with respect to the losses which have been incurred by the
shareholders of the company. In this situation it has been seen that the share price of the
company has significantly declined and as a result substantial losses have been incurred by the
shareholders who invested in the shares of the company. In case it is proved that the directors of
the company have violated any duty which was imposed on them by law in relation to the
company they may be liable for any losses with the shareholders have borne in relation to the fall
in share price of the company.
Answer to question 2
The matters which have been discussed above are primarily related to corporation law. The
organisation which investigates into such matters in Australia is known as the Australian
Securities and Investment Commission. This is an independent regulatory body which had been
brought to existence through the provisions of the Australian Securities and Investment
Commission Act 2001. Another organisation which may be concerned in relation to the situation
is the Australian Securities Exchange. The Australian Securities Exchange imposes corporate
governance principles for organisations which are listed with it in Australia (Lipton, Herzberg &
Welsh, 2018). Any company which does not follow the corporate governance issues provided by

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the Australian securities exchange has to give a written notice to the organisation that why are
they not adopting the rules laid down by the ASX. The ASIC is an independent government body
in Australia which acts as the country’s primary corporate regulator. The primary purpose of this
body is to regulate and impose financial and company services law to protect Australian
creditors, investors and consumers. The body had been established on 1st July 1998 and its scope
and authority had been determined to the above identified legislation. The body directly reports
to the treasurer and is responsible for the purpose of Administrative all parts of the Corporation
Act 2001. The key areas of responsibility of this body include financial services, corporate
governance, derivatives and securities, Consumer Protection, financial literacy and insurance.
The organisation has been involved in punishing various operations which have been found to
have violated the provisions of the Corporation Act. In the given situation it is the role of the
body to make investigation into the matter that weather the provisions of section 728, 674 and
directors duties have been violated in the above discuss situation or not. In case it is found that
any members of the members of the food retail group have not complied with the provisions of
the Corporation Act the body has the authority to initiate proceedings against the organisation
and its directors in the court of law (Fitzpatrick et al., 2017). The vision of the ASIC is to ensure
economic growth by making provisions for the markets to be able to fund the economy. In
relation to its funcstions and the purpose of contributing to the financial well being of
Australians the organisation promotes the confidence and trust of the consumers and investors. It
also ensures efficient and fair markets and provides appropriate registration services. The
functions of the body include facilitating improving and maintaining the functioning of the
financial systems and the organisations which operate within it. It also operates to enhance
informed and confident participation by consumers and investors in the financial system. The

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organisation also enforces and provides effect to the law and tries to effectively administrate
legal requirements by involving low level of procedural needs. Therefore in order to comply with
its functions it is the duty of the Australian Securities and Investment Commission to investigate
into the above discussed matter (Graw et al., 2015).
Answer to question 3
Several beaches of Corporation law as provided by the Corporation Act 2001 which has been
identified in the first section of this paper mane have been potentially made by the organisation
and its directors. These breaches include section 728 to ensure that no omission is made or any
misstatement has been included in the prospects document. Section 674 where it is the obligation
of the organisation to continuously disclose any situation which would have had an effect on the
price of its shares according to a reasonable person and is not generally available to the public
may also be violated. Provisions of duties of directors under the provisions of 180-183 which
includes due diligence and care, to act in good faith and proper purpose, not to misuse position
and not to misuse information have been violate. In the given situation for civil and criminal
sanctions are both applicable in relation to the allegations in case they have actually been made.
It has been provided by the provisions of section 1317 E of the Corporation Act that where the
directors have violated the duties imposed on them by the Act they may be liable under the
provisions of civil penalty and in relation to such provisions may have to pay a pecuniary penalty
and may also be barred in the future from managing a company within Australia. The provisions
for barring a director from managing operation in Australia are provided under section 206C of
the Act. The court has the right to decide in this situation that to how much time the suspension
of the directors has to be done with respect to the circumstances in which the violation of duty
have been made by them. In addition it has been provided through the provisions of section

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1317S that where the breach of directors duties have led to losses incurred by the shareholders
directors may be personally liable to compensate for such losses. One of the primary cases in
Australia where the same kind of situation was seen is the case of Australian Securities and
Investment Commission v Sino Australia Oil and Gas Limited (in liq) [2016] FC. In this case
also the ASIC was able to make a successful claim against the company who had made a
statements and omissions in a prospectus document and had misled the public in relation to
material information which may have had a considerable effect on the share price of the
company if they would have been this close to the public. The court suspended the wrongdoing
direct from managing corporations in the country for 20 years.

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References
Corporation Act 2001 (Cth)
Danckert, S. (2018). Troubled Retail Food Group faces potential class action. The Sydney
Morning Herald. Retrieved 21 April 2018, from
https://www.smh.com.au/business/consumer-affairs/troubled-retail-food-group-faces-
potential-class-action-20180306-p4z32w.html
Fitzpatrick, Symes, Veljanovski, Parker (2017), Business and Corporations Law; LexisNexis 3rd
edition
Graw, Parker, Whitford, Sangkuhl and Do (2015), Understanding Business Law 7th ed
LexisNexis Butterworths.
Lipton, P., and Herzberg, A., Welsh, M, (2018) Understanding Company Law, 18 edition
Thomson Reuters.
Our role | ASIC - Australian Securities and Investments Commission. (2018). Asic.gov.au.
Retrieved 21 April 2018, from http://asic.gov.au/about-asic/what-we-do/our-role/