Analysis of ASIC v Adler: A Corporate Law Case Study

This case study analyzes the ASIC v Adler case, focusing on the contravention of corporate law by directors and officers. The case involves HIH Insurance, Mr. Adler, and related parties, highlighting issues such as related party transactions, financial assistance, and breaches of directors' duties as per the Corporations Act 1998. The analysis covers the primary legal issues, including sections 180, 181, 182, 183, 208, and 260A of the Corporations Act. It details the penalties imposed on the involved parties, including director disqualifications and fines. The study further explores the actions required of directors when a company becomes insolvent and explains ASIC's involvement, as well as the roles of other authorities. The document also presents interesting observations from relevant literature and reflects on the case's implications for corporate governance in Australia, emphasizing the importance of ethical conduct and compliance with the law by company directors and officers. Finally, the case study emphasizes the importance of the Corporation Act and the consequences for not following the appropriate duties as per the act.

CORPORATE LAW

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Explaining the case and parties involved in this case with describing their positions ...............1
Primary legal issues in relation to officers and the directors duties within the case...................1
Penalties charged to the parties in the case..................................................................................2
Actions that are to be taken by the directors and the officers at the time when it was been
discovered that the company had become insolvent ...................................................................3
Describing Why was ASIC is involved and where there are any other authorities are involved
in the case?...................................................................................................................................3
Interesting Observation and comments from writers relevant to this case study........................4
Reflection with regards to this case and describing what does it teach us about the expectation
of those who manage companies in Australia..............................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Explaining the case and parties involved in this case with describing their positions
In the month of June 2000, HIH insurance has paid an amount of $10 million for the unit
in the trust which was been controlled by Mr. Adler. At that time he was managing the company
as a non-executive director. Adler has controlled a trust through the Adler corporation and the
Pacific Eagle Equity Pty. The Adler corporation was been considered as the PEE's sole member
or the shareholder. The asset within the trust which is managed by PEE were counted as the
technology stocks and such stocks were worth as substantially than the value of $10 million
(Saunders, 2019). PEE has made use of the part amounted to $10 million for purchasing the HIH
shares. Alder corporation also had the substantial shareholding in the HIH and no approval was
been received for loan. ASIC had commenced its proceedings against Adler, Fodera and
Williams for contravening related party transaction, duty provisions of the directors as per the
corporation law 1998 and the financial assistance.
Primary legal issues in relation to officers and the directors duties within the case.
In the judgement of HIH and HIHC were been held within the circumstances that are
found to as contravened by the parties as follows:
 a. s 208 of corporation law states the laws relating to the related party financial benefits
enjoyed by the parties without the approval of shareholder by paying of $ 10 Million to
the AEUT in circumstances.
 b. s 260 A includes the rules in relation to the financial assistance for purchasing of the
shares under corporation law by making payment of the amount equates to $ 10 million
that is been followed by purchasing of the shares by AEUT from the part of $ 10 million
under the [182], [355], [183].
 Section 180 of Corporation law provisioned the duty of directors to act with due diligence
and care which means that the officers and the directors must discharge their powers with
proper care (Directors Duties and ASIC v Adler, 2018).
 Section 181 of Act reflect that the directors should have to make the decisions in a good
faith towards the best interest of an enterprise without the personal interest.
 Section 182 of the Corporation Law provides for avoiding the improper use of the
position within which it has been provisioned that any director, employee and the officer
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of an entity should not have to utilize their position inappropriately for achieving an
advantages regarding their personal interest.
 Section 183, relates to avoiding the improper use of an information under which the any
member of an entity must not utilize an information inappropriately for the purpose of
gaining personal benefits that causes detriment to company.
Mr Adler and Adler corporation along with the Fodera and Williams were been found to
relevantly involved in the contraventions as placing them in breach of the ss 209(2) and 260D (2)
of corporation law, [199], [217] and [369].
Mr Adler contravened the part of his directorial duties or as a officer under sub section
180, 181, 182 and 183 of corporation law (Ramsay and Saunders, 2018). Similarly, Mr Williams
and Fodera has also contravened their duties that they were been owing to HIH and HIHC under
the sub section 180, 182 and 180(1) of corporation law through their involvement in payment of
$ 10 million.
Penalties charged to the parties in the case
In the Judgement of Tribunal, Adler was disqualified as the director for any of the
company for the period of the twenty years in addition to some amount of fines. As he had been
found guilty and failed in relation to acting as the responsible director of the HIH and had not
acted in a good faith on behalf of the company, and contrary to it, he had also kept his personal
financial interest on priority of the company's interest (Case Study: ASIC Vs Adler, 2018). Adler
had committed the serious offences and had displayed the lack of the commercial morality.
Breach of corporation law is been counted as the punishable offense. Adler and Williams had
contravened several sections of act that clearly states the responsibilities and the duties of
directors within an enterprise.
In supreme Court, Williams was been disqualified as of becoming a director of any
company for the period of ten years. Williams was been founded as guilty for breaching section
180 and 182 of corporation Act and the other convictions that were made against associates. The
decision of court has passed a clear statement to the other the people who are having the similar
intentions. The message passed in this case was been counted as the example and the caution for
the other directors of several companies regarding the consequences for not following the
appropriate duties as per the act. Thus, it has been stated by the court that all the persons working
in the organization must follow and respect the corporation Act and must work within the
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interest of company by keeping their personal interest aside. It was also made clear to all the
individuals that they must follow legislations and the laws appropriately for the persons who
violates laws and are dealing with heavy amount of the penalties.
Actions that are to be taken by the directors and the officers at the time when it was been
discovered that the company had become insolvent
There are certain regulations provisioned under the corporation Act regarding
responsibilities of the directors at the time when its company becomes insolvent. Director must
take a strict action against towards putting the interest of the creditors on the priority in
consideration to ceasing the trade and safeguarding the assets the assets of the company (Keay
and Loughrey, 2019). This interest must come above the the interest of members, shareholders
and the other directors. Calling for the meeting of creditor and the shareholders should be
organised by the directors within which all the details regarding the passing of the resolution and
disposing off an organizations asset for meeting the liability of the company. The directors
should deliver all the records of the business in timely and accurate manner. At the time of
insolvency, directors must act in best interest of holding company and the duties towards its
creditors must be followed in accordance with the corporation Act. The act clearly stated that
directors must consider the creditors interest as their first liability which is to be met by them in
case of insolvency so that they could be able to approach the insolvency in a better way.
Describing Why was ASIC is involved and where there are any other authorities are involved in
the case?
In the case of Adler, ASIC is involved because Adler issue the ten million dollars to
Pacific Eagle Equity without being knowledge of any other directors. As a result, Adler also
intended to create some false impression to the stock market and there is a rapid expansion of the
company. Therefore, due to sudden collapse of HIH because of unsupervised delegation of
authority, underpricing and false reports that directly affect the shareholders, policy holders and
other professional groups. Thus, this extreme or massive loss grabs the attention of parliament
and that is why, they instructed ASIC in order to look deeper into a matter in order to collect the
exact information (Saunders, 2019). So , involving Australian Security and Investment
commission into the case is quite beneficial because it reach towards correct result.
In the case of Adler, there are other authorities also involves such as Ray Williams. He
was the founder and Chief Executive Officer of HIH, who authorize the payment without
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comply with right procedure and he did not know the exact truth of a matter. So he is also
involved in the matter. On the other side, Dominic Fodera who was the director and Chief
Financial officer of HIH is also involved in the case. Such that he is liable because he make a
transfer of Ten million dollars due to which the company faces the problem of deterioration and
as a result, the court charge heavy penalties in order to violating the Corporation Act.
Interesting Observation and comments from writers relevant to this case study
In the case of ASIC v Adler (2002) 41 ACSR 72 the observation which is examined is in
respective of the misuse of position which is committed by Adler in respect of investing ten
million dollars funds by renaming it for personal benefits. It is examined that not only Adler but
also the other partner as William and Fodera are doing the same things. They all three violates
the terms and condition of the company by not fulfilling the directors duty in respective of not
managing the company information or the transaction which is related to party (Wan, 2015). In
this perspective the observation arises in respective of the financial benefits which is raised by
HIH to PEE in which the Adler is the sole shareholder.
From this relevant case study it is interpreted that under the Corporations Law, 1998, if
any person violates any of the condition or breach of any duty which they had to followed in
respect of carrying the directors post than they are to be penalized according to the crime
committed. Thus, as per this case study, it is interesting to know that the major fact regarding
punishing Adler, William and Fodera under Corporation Law is stipulated in respect of heavy
penalties. Adler is disqualified from the post of director for twenty years and William was
disqualified for 10 years. The major punishment for Adler arises as he is the non executive
directors of the HIH and hold most important information regarding their working strategy.
Thus, being the director, the major role is that they cannot use the company monetary benefits
for their personal use. As they had to work for the interest of the company and not for improving
their own personal condition by investing funds in their own personal account. Thus, there are
various important observation which reflect the rights and duties mentioned under the
Corporation Law.
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Reflection with regards to this case and describing what does it teach us about the expectation of
those who manage companies in Australia
As the case is al about laws and regulation and I personally was so interested when
reading this case. It is so because in Australia, there are many cases where the directors misused
the position and as a result, court has charge heavy penalties over them and this spoil their career
as well. In addition to this, I also learn that there are different duties and responsibilities of
directors n every company and they should never misused their position as well. Further, I also
learn that if an individual has worn intension while sitting in a position, then they definitely
breach the law which sometimes ruin their entire life. The same is done in the case of Adler vs
ASIC.
Moreover, from the case, I also taught that if a person is in any position then they never
misused them and also maintain their impression in the market as well. This further helps to
creates positive impression upon their peers and juniors (Viven-Wilksch, 2015). Beside this,
every company should comply with the Corporation Act, so that it will help to run smoothly in
this competitive market. As in the case, I also analysed that Adler misuse his position because of
his personal advantage which is completely not fair and that is why, the court also penalised
them as well. Thus, it teaches, never breach the law not even for own personal use.
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REFERENCES
Books and Journals
Keay, A. and Loughrey, J., 2019. The concept of business judgment. Legal Studies. 39(1). p
Ramsay, I. and Saunders, B., 2018. An Analysis of the Enforcement of the Statutory Duty of
Care by the Australian Securities and Investments Commission. Company and Securities
Law Journal. 36(6). pp.497-521.
Saunders, B. B., 2019. Causation in Securities and Financial Product Disclosure Cases: An
Analysis and Critique. Federal Law Review. p.0067205X19856499.
Viven-Wilksch, J., 2015. The adventures of good faith: can legal history and international
developments provide guidelines for Australia?. Alternative Law Journal. 40(2). pp.89-92.
Wan, W.Y., 2015. Directors’ defence of reliance on professional advisers under Anglo-
Australian law. Common Law World Review. 44(1). pp.71-93.
Online
Case Study: ASIC Vs Adler. 2018
[Online]. Available through : <https://www.totalassignmenthelp.com/free-sample/case-
study-asic-vs-adler>.
Directors Duties and ASIC v Adler. 2018 [Online]. Available through :
<http://www.tved.net.au/index.cfm?
SimpleDisplay=PaperDisplay.cfm&PaperDisplay=http://www.tved.net.au/PublicPapers/
June_2002,_Lawyers_Education_Channel,_Directors_Duties_and_ASIC_v_Adler.html>.
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