BA217 Company Law: ASIC v Alder - Analysis of Director's Duties Breach

This case study examines the ASIC v Alder case, where Rodney Alder, a non-executive director of HIH, breached his duties under the Corporations Act 2001. The case details how Alder facilitated an undocumented and unsecured loan, misused his position, and failed to act in good faith, leading to significant financial losses for HIH. The analysis covers contraventions of sections 180, 181, 182, and 183 of the Corporations Act, outlining the legal requirements for directors to act with care, diligence, and in the best interests of the company. The court found Alder liable, resulting in disqualification, fines, and imprisonment. The study underscores the importance of corporate governance and the critical role of directors in upholding their duties and obligations to maintain financial integrity and protect shareholder interests. Desklib offers a variety of solved assignments and past papers for students.

Running Head: COMPANY LAW 0
company law
Based on case study
MAY 23, 2018
Student details:

COMPANY LAW 1
Introduction
In the case of ASIC v Alder, HIH Casualty and General Insurance Ltd (HIHC) gave loan of $ 10 million
to the Pacific Eagle Equity Pty Ltd. (PEE) which is controlled by Alder. It was undocumented and unsecured
loan. Alder was a non-executive director and also a substantial shareholder of HIH. PEE became trustee of
the Australian Equities Unit Trust (AEUT). PEE purchased the shares of HIH of $4 million for good impression
on the stock market and sold them at the loss of $2 million. There was the contravention of the
Corporations Act, 2001 by the four defendants, Rodney Alder as a non-executive director and an officer of
HIH, Ray Williams as the founder and CEO of HIH and Dominic Fodera as CEO and director of HIH. It was
held that Alder breached the duties of directors or officers as per the Corporations Act, 2001. This case
shows an example for the breach of the duties and obligations of directors and officers of the organisation
of Australia (Keay, 2018).
Inappropriate behaviour of Alder in the capacity of officer-
In this case of ASIC v Alder, Alder was a director of HIH as well as an officer of wholly owned subsidiary.
It reflects that Alder took part in the decision making of business of company. Alder through PEE purchased
shares of $4 million to create a false impression of helping HIH to the stakeholders and stock market. Thus
Alder misled the shareholders of HIH, concerning the value of company. This loan caused the interest
conflict between own interest of Alder and the interest of company. Alder’s intention was to hiding the
facts. Alder was knowingly involved in the contravention of the Corporation Law and more specifically the
Corporations Act. Alder breached the statutory duties of director or duties of an officer (Latimer, 2012). As
an officer, Alder did not comply with the following requirements of the Corporations Act, 2001-
1. Act due to care and diligence.
2. Act in the good faith.
3. Avoid misuse of the important information.
4. Avoid misuse of position of an officer.
Contravention with the Corporations Act, 2001-
It was found by the court that Alder breached many duties of the director under section 180, 181, 182
and 183 of the Corporations Act (Lee, 2016). The Corporations Act, 2001 requires that-
1. Directors should act due to care and diligence.
2. Directors should act in good faith.

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3. The directors should not misuse the position of director.
4. The directors should not make inappropriate use of the information.
As per section 180 of the Corporations Act, directors are required to discharge their powers and duties
with care and diligence. In this case, a vigilant and diligent director would not have permitted HIHC to loan
of $10 million to Pacific Eagle Equity Pty Ltd to use loan amount to secure shares of HIH. Here intention of
the Alder was to secure the price of shares for own extensive shareholding. Alder also did not ensure the
safeguards to give security to HIHC. Thus Alder contravened the section 180 of the Corporations Act, 2001
(Schenone, 2017).
Section 181 of the Corporations Act states that the directors are required to perform duties and
obligations for specific purpose. They are required to act in good faith. There is a very close link between
obligation to act in good faith and specific purpose because if functions are performed without any specific
purpose then it will not be considered in the public interest. Alder took unsecured and undocumented loan
by the funds to acquire the shares of HIH. Thus Alder did not act in the good faith (bona fide). Alder
breached his duty under section 181 of the Corporations Act, 2001 (Baxt, 2015).
Further as per the section 182 of the Corporations Act, the directors should not misuse their position.
They are required to use their position in proper way. In the case of ASIC v Alder, Alder took unsecured and
undocumented loan of $10 million from HIHC. In this way Alder misused his position of director. As a CEO,
Williams also misused his position to take benefits for Alder. It was contravene of section 182 of the
Corporations Act, 2001 (Nicholson, 2018).
As per section 183 of the Corporations Act, the directors should not use information in improper way to
achieve benefit for own or for someone. Alder was liable for breach of the requirements of section 183
because his conduct involved specific information of poor financial position of company.
Furthermore, HIHC gave loan of $10 million illegally to PEE to secure shareholding in HIH and there was
no disclosure of this given loan to investment committees or other directors. The HIHC subscribed $10
million unit trust which was less than of the initial subscription. This was not in the interest of shareholders
as well as not in the interest of HIH and HIHC.
Punishment suffered by Alder due to conviction-
In the case of ASIC v Alder, The court found that Alder was liable for the contravention of numerous
sections of the Corporations Act (Bottomley, 2014). As per section 184 of the Corporations Act, the director
who breaches the requirements of section 181 or section 182 or section 183 of the Corporations Act is
liable for-

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1. Fine up to $200000, or
2. Maximum sentence up to five years, or
3. Both sentence and fine
In the given case, Alder was disqualified from the position of director for 20 years, imposed fine of
$900,000 and imprisonment of 5 years (Stefan, 2016).
Conclusion-
As per the above analysis, it is clear that it is a duty of company to make sure good corporate
governance. Further, the duties and obligations of directors are very important in an organisation. The
executive or non-executive directors are always required to perform their obligations as per minimum
standard. Furthermore, it is required that directors always should have knowledge of the business of
company. The director should be familiar with financial position of an organisation. They should not be
affected by the performance and position of the senior managers of the company.

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Reference
Baxt, R. (2015). Duties and Responsibilities of Directors and Officers. Australia: Australian institute of
company directors.
Keay, R.A. (2018). The Corporate Objective. Melbourne: The Hybrid Publisher.
Lee, P.W. (2016). Regulating Director’s duties with civil penalties: Taking a leaf from Australia’s Book.
Journal of Common law world review, 35(1), 1-23.
Latimer, P. (2012). Australian Business Law. Australia: CCH Australia ltd.
Nicholson, M. S. (2018). Duties and liabilities of corporate officers and directors. Cambridge: The Cambridge
press.
Schenone, S. (2017). Duties and Responsibilities of directors and company secretaries. Australia: Australia
University Press.
Bottomley, S. (2014). Australian Corporation Law. Australia: LexisNexis Butterworth.
Stefan, H. C. (2016). In Search of Corporate Accountability: Liabilities of Corporate Participants. Cambridge:
The Cambridge Press.