Corporation and Business Law: ASIC v Sino Australia Oil and Gas Ltd, Exclusion Clauses and Misrepresentation

CORPORATION AND BUSINESS LAW
Corporation and Business Law
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1CORPORATION AND BUSINESS LAW
Part A
Case: Australian Securities and Investment Commission v Sino Australia
Oil and Gas Limited (in liq) [2016] FCA 934
Introduction
The case of Australian Securities and Investment Commission v Sino Australia Oil and
Gas Limited (in liq) [2016] FCA 934 has been selected for this part of the assignment. The
case has been selected as it has two years since the case has been decided and the same is
concerned with the director’s duties. This case resulted in a decision in favour of ASIC
incurring a penalty on Sino of $80000 accompanied by a suspension for its director for a
period of 20 years prohibiting him from being in the management of a company registered
under the ASX. It has been contended by the court in this case that the company and its
director has breached several provisions of the Corporations Act 2001. In this case the
director had lead the company to get involved in illicit activities owing to his poor
understanding of English and failed to abide by the disclosure requirements as are mandatory
in Australia.
The issue in this case has been initiated with the company raised an amount of 13.6
million form a public hearing and the prospectus issued for that purpose had failed to abide
by the disclosure requirement as provided for under the Corporations Act. The failure to
abide by the disclosure requirements had affected the worth of the shares drastically. The
director was also alleged to have attempted to make a transfer of the whole cash holding of
the company amounting to $7.5 million to China, which has failed because of injunction
obtained by ASIC freezing the bank account of the company.

2CORPORATION AND BUSINESS LAW
A liquidator has been appointed by the court in this case and had contended that the
company is liable to have breached section 674(2), 728(1) and 1041H and the director has
contravened section 180(1) and 674(2) of the Corporations Act.
Duties Breached
In this case, the ASIC has forwarded an allegation against the director of the company to
have indulged into actions which are violative of section 180(1) of the Corporations Act.
Section 180(1) of this Act requires a director to be diligent and to exercise due care to a level
of a reasonable person while exercising his duties as a director. However, in this case the
director had failed to maintain that degree of care while discharging his duties.
The director in this case has also contravened the provision of section 728(1)(a) of the Act
by making a misstatement in the prospectus. The disclosure requirements provided by the
provisions contained in section 674(2) has also been breached by the director in this case,
which has affected the worth of the shares materially.
The director was also alleged to have violated the provisions contained in section 728(1)
(b) of the Act for the failure to disclose the loan, which has been extended to the Chinese
Subsidiary and section 728(1)(c) for failure to disclose an accurate profit forecast in the
prospectus.
The Director’s contravention of several provisions of the Act points towards the directors
failure to act in a reasonable manner exercising due care and diligence. This makes him liable
for the violation of section 180(1) of the Corporations Act.
Decision
The court in this case while analysing the allegation of contravention of section 674(2)
held that the director has failed to disclose the negative growth in the profit of the company
and the increased expenditure in the leased equipment, which information was not supposed