Storm Financial Limited Assignment Report

Running head: COMPANY LAW
COMPANY LAW
Name of the Student:
Name of the University:
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1COMPANY LAW
1. ASIC v Cassimatis (No 8)
Overview of ASIC
The present assignment involves a case1 instituted by ASIC against Mrs. and Mr.
Cassamatis, Storm Financial Limited (Storm)’s executive directors that they had caused the
breaching of s180(1) of the Corporations Act 2001(Cth)2 by making and allowing Storm to give
advice only to some investors according to the ‘Storm model’ in such a way that caused the
company to breach some sections of the said Act like section 945A(1)3 as per Langford (2017)4.
This section that was repealed in the year of 2012 provided that financial service licensee like
Storm shall give advice to the clients as per sections 945A(1)(b) and 945A(1)(c)5.
ASIC started proceedings against the couple in 2010 for breaching of duties of care as
well as diligence as per s180(1)6. It was alleged that the directors caused the breach of their
duties when Storm was solvent and they were the only directors as well as shareholders of the
company.
ASIC further alleged that by allowing financial services to only vulnerable investors who
were about to retire, having limited income and assets and no chance to recover their financial
position in case of loss, Storm caused the breach of the then sections of the Act that reasonable
basis of financial advice to the retail clients. ASIC held that the directors breached s180(1) by
allowing Storm to give advice to the investors as per the model that caused Storm to infringe the
1 ASIC v Cassimatis (No 8) [2016] FCA 1023.
2 Corporations Act 2001(Cth) s180(1).
3 Corporations Act 2001(Cth) s945A(1).
4 Langford, R.T., (2017). Stakeholder Interests and the Duty of Care.
5 Corporations Act 2001(Cth) ss945A(1)(b), 945A(1)(c).
6 Corporations Act 2001(Cth) s180(1).

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Act and allowing Storm to give financial advice in such a way that again contravened the said
Act as per Baxt (2016)7.
These actions led the company to a risk of cancelling its AFSL, an order of ban and also
civil proceedings made by the investors and all these risks are reasonably foreseeable. It further
alleged that risk that can be suffered by the company will be more than what would be allowed
by a director acting carefully and diligently.
The court in this case applied the test of section 180(1)8 that whether the directors had
applied care and diligence like other while using their powers during the performance of their
duties as given in Vrisakis v Australian Securities Commission9. The court found that company
had breached the Act by allowing financial services as per the Storm Financial model of category
of vulnerable clients as identified by ASIC.
The court also while deciding the case noted that although the duty of diligence and care
sounds similar, the standard which must be followed by the officer or a director must be
according to the situation of the corporation as well as the position and responsibilities of the
director as per his position as per Hanrahan (2018)10. The court also referred to the case of
Shafron v Australian Securities and Investments Commission11 and held that nonexecutive
directors must not be subjected to the same level of the executive directors. Hence, breach of
section 180(1) by both of them was established in this case. It was held that both of them could
be also excused from contravention as per section 1317S12. As per this provision, a person is
relieved by the court for breaching a civil penalty, partly or wholly from his obligations provided
7 Baxt, B., 2016. Directors' counsel: Forgiving directors for breaches of duty. Company Director, 32(10), p.54.
8 Corporations Act 2001 (Cth) s 180(1).
9 Vrisakis v Australian Securities Commission (1993) 9 WAR 395.
10 Hanrahan, P., 2018. Directors' counsel: Law enforcement. Company Director, 34(11), p.36.
11 Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465.
12 Corporations Act 2001 (Cth) s1317S.

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the person has performed his task honestly and considering case scenario, the person could be
excused for the contravention in a fair way as given in ASIC v Adler13.
As per Tills and Wills (2016), The decision of this case not only supplied a reminder to
the directors about their duty to check the company’s conduct by taking into account the risk
benefit test but also provided deep insight in to liabilities of the directors14. Further, it can be
recommended that the company may adopt a different approach to alleviate any foreseeable
harm or loss to the company’s interest.
2. Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited (prov
liq apptd)
In Australian Securities and Investments Commission v Sino Australian Oil and Gas
Limited (prov liq apptd)15 popularly known as ASIC v Sino, it is decided by Federal Court
whether the administrator was validly appointed as per s436A of the Corporations Act
2001(Cth)16. Further, ASIC alleged that Sino had also contravened sections 728(1)(a), s 728(1)
(b), s 728(1)(c), s 1041H and s 674(2) of the Act17. While resolving the issue of appointing an
administrator to any company as per said section, the board of the company must pass a
resolution that the directors who are voting for such resolution that the company is already or
likely to be insolvent in near future have opined so. Further, it alleged that Mr Shao, the then
director plus executive director at that time was liable for the failure of the company to make
13 ASIC v Adler (2002) 42 ACSR 80.
14 Tills, M. and Wills, C., 2016. Corporate law: Directors found guilty of breaching duties following corporation's
breaches. Governance Directions, 68(10), p.624.
15 Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited (prov liq apptd) [2016]
FCA 42.
16Corporations Act 2001(Cth) s436A.
17 Corporations Act 2001(Cth) s728(1)(a), s 728(1)(b), s 728(1)(c), s 1041H and s 674(2).

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disclosure continuously as per section 674(2)18 and thereby breached section 674(2A)19. It further
alleged that he violated his duties as Sino’s director in many ways. It alleged that he breached
Section 180(1) of the Act20.
In this case, the Board of the company made a resolution for appointing the administrator
to the company. By doing it, the board approved that Company can turn insolvent in future. The
court decided that the appointment of the administrator was valid. Thus the court decided that the
administrators were authorized of getting their costs plus remuneration as per s 447E21 of the
Act. The court while deciding the case referred to case of ASIC v Healey & Ors22 that the director
must read the financial statements for ensuing that the information provided is perfect and hence
that scrutiny comprises of analyzing the matter.
The court referred to arguments made by Justice Goldberg in ASIC v Citrofresh
International Limited (No 2)23 that although a director never got involved in public company as
its director, this will not excuse from applying proper degree of care and skill as a company
director especially when he is the managing director or chief executive office.
In relation to act of Mr Shao, the court considered the case of ASIC v Maxwell & Ors24. In
this case, the court held that there are many cases where the directors will contravene their duties
to the company to allow the company to act contravening the provisions of the said Act. The
court in the case also held that it will be a mistake to consider that sections 180- 18225 are
regarding the general duties pertaining to the directors to conduct the company affairs according
18 Corporations Act 2001(Cth) s674(2).
19 Corporations Act 2001(Cth) s674(2A).
20 Corporations Act 2001(Cth) s180(1).
21 Corporations Act 2001(Cth) s447E.
22 ASIC v Healey & Ors [2011] FCA 717.
23 ASIC v Citrofresh International Limited (No 2) (2010).
24 ASIC v Maxwell & Ors [2006] NSWSC 1052.
25 Corporations Act 2001(Cth) ss180-182.

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to the law/ Act but they are not. It is said that once it is established that section 180(1) 26 is
breached, it should be based on jeopardy towards the corporation’s interest.
Further the court held that conduct of Mr Shao being the company’s director has made
him exposed to the civil penalties that can be imposed upon him for the contravening the
provision of the Act, for the cost as well as trouble incurred in the concerned legal proceeding.
Further, his conduct plainly jeopardized the interests of the company. Thus as per Bidie (2018), it
was held that since the director failed to take suitable actions to prevent detriment to the
company and his failure of doing so had made him breach his duties towards the company27.
Thus separate hearing was held for the penalties.
Thus it can be recommended that the directors of the company have the liabilities to act
in such a manner that they does not breach the duties enumerated in the provisions of the said
Act else they will be held liable for it, particularly during voluntary administration of the
company as per Hibberd and Kingston (2017)28.
26 Corporations Act 2001(Cth) s180(1).
27 Bidie, S.S., 2018. ‘Knowledge’as a mechanism to hold directors personally liable for adverse distributive
decisions under the Companies Act 71 of 2008. Journal of Corporate and Commercial Law and Practice, 4(1),
pp.1-46.
28 Hibberd, M. and Kingston, S., 2017. Voluntary administration-is your appointment valid?. Australian
Restructuring Insolvency & Turnaround Association Journal, 29(1), p.18.

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Bibliography
Books and Journals:
Baxt, B., 2016. Directors' counsel: Forgiving directors for breaches of duty. Company
Director, 32(10), p.54.
Bidie, S.S., 2018. ‘Knowledge’as a mechanism to hold directors personally liable for adverse
distributive decisions under the Companies Act 71 of 2008. Journal of Corporate and
Commercial Law and Practice, 4(1), pp.1-46.
Hibberd, M. and Kingston, S., 2017. Voluntary administration-is your appointment
valid?. Australian Restructuring Insolvency & Turnaround Association Journal, 29(1), p.18.
Langford, R.T., 2017. Stakeholder Interests and the Duty of Care.
Hanrahan, P., 2018. Directors' counsel: Law enforcement. Company Director, 34(11), p.36.
Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465
Tills, M. and Wills, C., 2016. Corporate law: Directors found guilty of breaching duties
following corporation's breaches. Governance Directions, 68(10), p.624.
Cases:
ASIC v Adler (2002) 42 ACSR 80
ASIC v Cassimatis (No 8) [2016] FCA 1023
ASIC v Citrofresh International Limited (No 2) (2010)
ASIC v Healey & Ors [2011] FCA 717

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ASIC v Maxwell & Ors [2006] NSWSC 1052
ASIC v Sino Australia Oil and Gas Limited (prov liq apptd) [2016] FCA 42
Vrisakis v Australian Securities Commission (1993) 9 WAR 395
Legislation:
Corporations Act 2001(Cth)