Australian Corporate Law: A Case Study Analysis of ASIC v Cassimatis

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Corporations Law
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Executive summary
In this report, the case of ASIC vs Cassimatis is discussed by explains the background
of the case study and breaches of the duties of the directors. It consists of the director's
duties that are breached by setting the relevant facts. It includes the decision of the
court in regards to this case as per the Corporations Act, 2001 and the impact of the
decisions on the operations of the companies established in Australia.
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Table of Contents
Executive summary..........................................................................................................2
Introduction...................................................................................................................... 4
Case Introduction..........................................................................................................4
Breaches of Director's duties under the Corporations Act, 2001..................................4
Section 9- Director and their duties...............................................................................5
Section 180- Duty to act with care and due diligence...................................................5
Section 180(2) - The rule of the Business Judgement..................................................6
Section 181- Statutory duty to act in good faith............................................................6
Section 181- Improper use of the position....................................................................6
Section 183- Improper use of information.....................................................................6
Analysis of the Courts decisions...................................................................................7
Relevance and impact of the decision..........................................................................7
Conclusion....................................................................................................................... 8
References.......................................................................................................................9
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Introduction
For the company’s success and growth, the role of the directors of the company is
imperative as they are responsible for taking the business decisions for further company
growth and development. They are responsible to handle the business operations and
managing it in an appropriate manner and as per the provisions mentioned under the
Corporations Act, 2001. In this regard, the case study of ASIC vs Cassimatis is taken
into consideration. In this case, the issue is whether directors are accountable for the
breach of the duties of the directors. Directors are responsible for the management of
the daily operations of the business and exercise certain duties to the corporation.
Case Introduction
ASIC vs Cassimatis case, director of the Australian company Storm financial services.
The directors are liable for the breach of the duties of the director. The court observed
that the financial directors of the company are not performing their duties and
obligations towards the organization. Due to this, the organizational growth becomes
stable, which hampers the progress of the business in the society. As per the
Corporations Act, 2001 it is the responsibility of the financial director to perform the
company obligations and observe all the consequences that hamper the growth of the
company.
Further, as per the Corporation law, it is the duty of the director to govern the company
as per the corporate governance and consider the shareholder's rights. Cassimatis did
not perform their responsibilities towards the Storm Financial Company due to which the
company suffers a huge amount of loss. Cassimatis not consider the benefits of the
shareholders nor take any interest to maximize their benefits.
Breaches of Director's duties beneath the Corporations Act, 2001
The decisions, in this case, the court held that Cassimatis breaches the duties of the
directors under section 180 (duty to act in good faith and for the appropriate reason),
section 182 (duty not to misuse the position) and also under section 183 (duty not to
use the information in improper manner). The decision of the court is that the Mr. and
Mrs. Cassimatis are liable for the breach of the duties beneath Section 180 of the
Corporations Act, 2001. Penalty amounting $70,000 was imposed on each and
disqualification from managing the operations of the company for 7 years each. Also,
court passed the injunction order from holding an Australian Financial Services License
(AFSL) for 10 years each.
The case of ASIC vs Cassimatis is a very complicated case of the breaches of the
director’s duties under the Corporation Act, 2001. The directors of the company
breached the duties under section 9 (duties of the directors), Section 180 (duty to act
with care and due diligence), section 182 (duty to use the position is proper manner), all
these contract contraventions by the directors are discussed below:
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Section 9- Director and their duties
As per Section 9 of the act, it states that a director of the corporation is an individual
who is accountable to handle the place of the director (Hanrahan, 2018). It also includes
various people who act as a director without appointed in proper manner and act as a
director on behalf of another and under the instructions of any other person.
Duties of the director assist in protecting the shareholders from the director’s risk
towards the company; Shareholders have the risk of fraud, misconduct and have power
over the corporation assets by the directors for the fulfillment of their personal concern
and mismanagement and also to protect the shareholders against the incompetent
decisions of the directors for the corporation.
Further, Section 9 states that corporation executive who is basically the company
executives handle the company matters and at the senior position of the company
(Gitau, 2018). Such a person assists in making the decision of the company and has the
authority to take the financial decision in relation to the company that can impact the
financial standing of the company.
This also applied to this case, both Mr. and Mrs. Cassimatis not acted truthfully and also
held that no loss of capital occurred if both of them perform their duties and
responsibilities honestly.
ASIC vs Cassimatis case, the court states that any negligence and mistake are
considered as dishonest conduct.
Section 180- Duty to act with care and due diligence
As per Section 180(1), it states that the director or any other officer of the business
required to perform their authority and responsibility as per the standards of care and
diligence to perform as sensible person roles and responsibilities as per the
circumstances of the company to perform responsibilities of the company as a director.
Any director or an officer of the company exercise a high degree of control and
responsibilities over the company and allowed in taking effective and efficient steps in
making decisions.
Further, the director is the person who is responsible for performing the day to day
responsibilities of the company. In this case, a reasonable director is one who carries all
the business responsibilities in good faith. It is important that the directors think beyond
the financial consequences and consider all the harms that can cause due to their
action. Whether such harm to reputation or any loss of the license due to failure in the
comply with the laws of the company.
In this case, the court states that directors breached their duty to act with care and due
diligence who inappropriately advised to consider and use their home for the investment
purpose. The court states that any foreseeable harm to the company is not considered
as financial harm and includes all the harm that is related to the company. The
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corporation interest includes the reputation of the company on contravening the
provisions of the company law and also the risk related to the exposure towards the
breach of the company law.
Section 180(2) - The rule of the Business Judgement
As per Section 180(2), this section stated that the director or any other office make the
judgment rule by taking the judgment in good faith. In this, the officer informed that the
judgment was in the faithful interest of the company (Koh, 2019). As per the business
judgment rule, it gives the director safe defense from the business personal liability
which is beneficial and in the company best interest. This is because the decisions of
the business must be valid and are in good faith and their decisions are for the profit-
making.
In this case, the court held that Mr. and Mrs. Cassimatis breached the constitutional
responsibility of care that is declared under section 180(1). Firstly, the business
judgment of both the directors is not in the company benefit. They breach the law of the
company and also the threat of damage to the corporation's interest which includes
sanctions exposure.
Section 181- Statutory duty to act in good faith
In accordance with section 181, it depicts that any director of any officer of the company
must act in trust and perform the business operations by maintaining transparency
(Andrew, 2016). According to this section, if the director believes that they perform the
obligations for the company in god interest with the business by the disagreement of
personal interest.
In this case, it seems that the Mr. and Mrs. Cassimatis breach the provision of this
section to act in good faith and properly discharge their duties because they improperly
performed their duties for their individual importance.
Section 181- Improper use of the position
This section restricts the officers or the company employees to improperly use the
powers to gain advantages for themselves (Langford, 2019).
In ASIC vs Carramatis case, the court mentioned that advice provided in such a manner
which cause harm to the storm and also contravene the provisions of the Corporation
Act. Mr. and Mrs. Cassimatis reveal the foreseeable harm which can cause a greater
risk that to which a director and required for acting with due diligence which would
permit storm to be exposed. In this case, the Court also held that the inappropriately
used the authority to act as director
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Section 183- Improper use of information
It states that if any person who may or may not be the director gets any information
must not misuse the information to gain a benefit by causing the failure of the company
(Conaglen, 2013).
Analysis of the Courts decisions
The decision of the court is that the company interest includes the shareholder's interest
as well. Section 180 abide the directors with the duties and obligations of the company
as per the law. The directors do not provide only financial harm, but also the reputation
and the reputation of the company. In this case, the court noticed that Storm has broken
the provisions of the Corporation law by providing the budgetary model to the customers
and make the directors responsible for the breach of the duties.
Cases
In the case of Howard Smith Ltd v Ampol Petroleum Ltd, the court held that directors
enact the decisions against the wishes of the majority of the shareholders.
In the case of Coleman v Myers, the court held that directors possess the fiduciary
duties for some of the shareholders because of the private connection among them as
some of the shareholders are depend upon the advice of the board of directors for the
speculation purpose.
In the case of Provident International Corporation v International Leasing Corp
Ltd, the court held that the directors must think about the interest of the future as well
as the present shareholders of the company.
In the case of Shafron v Australian Securities and Investments Commission (2012)
247 CLR 465, states by the High Court held that those duties are not only confined that
are given under section 180(1) but also the concern the responsibilities within the
company that is liable to be performed by the officer.
Relevance and impact of the decision
The Australian Court of Tribunals filed a case against the executive directors of the
Storm Financial Company to file a case under Section 180 of the Corporations Act,
2001 for the breach of the major responsibilities. The presence of the financial problems
is normal in the businesses, but it becomes the responsibility of the management to
adopt the strict policies and take necessary action to eliminate such issues and risk so
as to protect the business from future contingencies.
With the development of Australian Corporations Law and the impact of this court
decision is abide by the directors to perform the business operations in a fair and
transparent manner. The judgment, in this case, is that it is important that the directors
must continuously inform about the company activities that must be familiar with the
business fundamentals. This abides the directors to consider the interest of the
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company before taking any decisions and develop the understandings must perform the
duties of the director on a rational basis in good faith for the continuous enlargement of
the corporation.
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Conclusion
At the end of this report, it generates understanding regarding the Corporation law of
Australia and the duties of the directors that are associated with Mr. and Mrs.
Cassimatis who are liable for the contraventions. Due to such action, they disqualify for
managing the company affairs for 7 years each. Directors are accountable for the small
errors of decision so as to promote the risk-averse process of decision making. So, it is
important that the directors must perform their duties which are in the company interest.
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References
 Andrew. Keay, L. L. B. (2016). Directors'duties. Jordan Publishing Limited.
 Conaglen, M., (2013). Interaction between Statutory and General Law Duties
Concerning Company Director Conflicts, Company and Securities Law Journal,
31(7), 403-422
 Gitau, S.W. (2018). Codification of the common law principle of duty of care and
skill of directors under the Companies Act, 2015 (Doctoral dissertation,
UNIVERSITY OF NAIROBI).
 Golding, G., (2012). Tightening the screws on directors: Care, delegation and
reliance, UNSWLJ, 35, 266
 Hanrahan, P.A.M.E.L.A. (2018). Legal framework governing aspects of the
Australian superannuation system. Background Paper, 25.
 Hoque, Z. and Pearson, D. (2018). Accountability reform, parliamentary oversight
and the role of performance audit in Australia. VALUE FOR MONEY,175.
 Koh, P. (2019). Power Allocation and the Role of Shareholders-A Comparative
Examination. Berkeley Business Law Journal, 15(2), 409.
 Langford, R. T. (2019). Company Directors' Duties and Conflicts of Interest.
Oxford University Press.
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