Breach of Director Duties: HA3021 Corporations Law Case Analysis

This report provides a comprehensive analysis of the Corporations Law case ASIC v Australian Property Custodian Holdings Limited (No 3) [2013] FCA 1342, focusing on breaches of director duties. The case involves amendments to the company's constitution without member approval, leading to the imposition of new fees and personal benefits for the directors. The analysis covers the case background, the duties breached under the Corporations Act 2001 (Cth), including sections 180, 181, 182, 601FC, 601FD, and 208. The report highlights the court's decision, which found both the company and directors liable for violating these duties, and discusses the case's relevance for Australian corporations, emphasizing the importance of compliance with the Corporations Act, obtaining member approval for constitutional changes, and upholding director duties of care, good faith, and proper use of position. The report concludes with a summary of the key findings and their implications for corporate governance.

Corporations
Law
ASIC V AUSTRALIAN PROPERTY CUSTODIAN
HOLDINGS LIMITED (NO 3) [2013] FCA 1342

Introduction
 The ASIC v Australian Property Custodian
Holdings Limited (No 3) is a recent case in
which issues regarding breach of director duties
were raised.
 The case highlighted the importance of
compliance with duties for the responsible
entities (REs) operating in Australia.
 The case also emphasis on the importance of
director duties.

Introduction
 The legal issues in this case raised due to
amendments in the Constitution of the
company which were made without prior
approval of members.
 Directors misused their position and acted
unfair to gain personal benefits.
 The facts, duties breached and decision of this
case will be evaluated along with its relevance
on corporations operating in Australia.

Case Background
 In July 2006, the directors of the RE made
changes in the Constitution of the company.
 These amendments introduced two new fees
which include listing and removal fees.
 The calculations of these fees were conducted
by determining 2.5 percent the gross assets
value of the company whereas previously it was
calculated by evaluating the price of the units
(Austlii, 2013).

Case Background
 The directors did not made asked for prior
approval of the members while making these
changes.
 The lawyer of the company provided that
changes can be made without approval in case
the rights of members are not affected.
 However, the directors did not take the prior
permission of the members.

Case Background
 The deed in which the amendments were
introduced were not dated until August 2006.
 This decision was taken so that the amended
constitution and supplementary PDS could be
lodged to the ASIC (Jade, 2013).
 A listing fee was paid by the directors in 2007
regarding the changes which are made in the
constitution.

Case Background
 Based on these changes, the company and one
director, Mr Lewski gained substantial profits.
 Mr Lewski owned all the equity in the company
along with his family members.
 The fees imposed by the company was
triggered multiple times after the amendments
were made.

Duties breached
 Section 180 of the Corporations Act 2001 (Cth)
provides that directors should maintain care
and diligence.
 They have to ensure that a standard is
maintained by them which a reasonable person
will maintain in the position (AICD, 2017).
 Section 181 provides that they should act in
good faith.

Duties breached
 Directors owe a fiduciary duty to focus on the
interest of the company rather than fulfilling
their personal benefits.
 Section 182 provides that they should not use
their position improperly.
 The directors operate at the highest position in
a company based on which they have immense
powers to take decisions.

Duties breached
 They should avoid misusing their position by
taking business decisions which could be
detrimental for the company and its members.
 Section 601FC imposes duty on a reasonable
entity to act honestly while maintaining a
degree of care and diligence.
 Section 601FD imposes same duties on the
officers of a RE. Subsection 1 (b) requires them
to maintain a standard of care and diligence
(Austlii, 2018).

Duties breached
 Prior approval of members is necessary while
making amendments in the constitution of a
company as given under section 601GC.
 The prior approval is also necessary when
parties are gaining financial benefits from
related parties transactions as given under
section 208.
 All these duties were violated by the company
and its directors in the given case.

Duties breached
 The company did not complied with section
601FC since a standard was not maintained and
approval of members were not taken.
 The company failed to act honestly and notify
its members regarding the changes which are
made in its constitution (Jade, 2013).
 Section 208 was also violated since prior
permission was not taken before making related
party transaction by the company.