HA3021 Corporations Law Group Assignment: ASIC v Padbury Mining

This group assignment analyzes the case of ASIC v Padbury Mining Limited (2016) FCA 990, focusing on breaches of the Corporations Act 2001 by Padbury Mining and its directors. The assignment examines the misleading and deceptive funding announcement made by Padbury regarding the Oakaj...Read More

1
Corporations Law;
Group Assignment
No. 5: ASIC v Padbury Mining
Limited (2016) FCA 990
Group Members:

2
Parties to the Case
Plaintiffs: Australian Securities
Investments Commission (ASIC)
Defendants: Padbury Mining Limited;
Mr Gary Stokes and Mr Terence Quinn
 Judge: Siopsis J, of the Federal Court of
Australia

3
Case Introduction
Background of the Case
Padbury Mining Limited a public company in Australia
had been trying to develop a deep-water port at
Oakajee in Western Australia and a railway network
between 2013 and early 2014. On 8th April 2014,
Padbury entered into a shareholders agreement with
several parties including Superkite Pty Limited that
agree to provide a $6billion funding to the
construction of the Oakajee project

4
Facts of the Case
 Padbury announced the ASX to the market that it had a
successful secured a $6Billion funding for the Oakajee
project but didn’t disclose the underlying pre-conditions
upon which the funding was obtained as well as the
company responsible for the funding obligation.
 - Padbury requested a halt on the company's trading
shares before the announcement
 - ASIC sued Padbury together with two of its directors; Mr.
Gary Stokes and Mr. Terence Quinn. Both directors were
responsible for the drafting of the publication and
authorization of its release

5
Legal Issues
Whether Padbury’s funding announcement was misleading and deceptive
to the market.
Whether the directors breached their duties for failure to authorize the
disclosure of the party responsible for the funding of the Oakajee project
and the pre-conditions upon which the funding depended.
Whether a penalty would be imposed on Mr. Stokes and Mr. Quinn for
breach company duties as provided under Corporations Act 2001.
Whether Mr. Stokes and Mr. Quinn were responsible for infringement by
the Padbury Limited of s 1041h of the Corporations Act.
Whether declarations for breach of duties would be granted to the ASIC.
Whether it was essential to disqualify Mr. Quinn and Mr. Stokes as directors
of a corporation for some time.

6
Breaches Of Director’s Duties Under
The Corporations’ Act 2001 (Cth)
Facts that led to charges against the
directors
 Directors took part in the drafting of a misleading announcement that was released to
the public on the 11th of April 2014.
 Conditions precedent given by Superkite Pty Limited at the time of signing of the
shareholders' agreement were not disclosed to the public.
 The directors failed to disclose the name of the party that was responsible for the project
funding in the drafting of the announcement to the Australian Stock Exchange.
 Mr. Stokes and Mr. Quinn failed to discharge their duties to the best interests of the
company.

7
Breaches of directors’ duties (CA)
1. Breach of section 180 - Duty of care and diligence; Mr. Stokes
and Mr. Quinn authorized the release of the ASX deceptive
announcement.
2. Breach of Section 1041H - misleading and deceptive information;
Padbury Limited drafted an announcement titled ‘Oakajee
Funding Secured’ without announcing the source.
3. Breach of Section 674(2)- breached its continuous disclosure
obligations; failing to inform the public of the existing conditions
which Superkite Pty Limited
4. Breach of Section 674(2A)- failure of disclosure of a necessary
provision to the public market; Mr. Stokes and Mr. Quinn did not
disclose the required information to the public

8
Analysis Of The Court’s Decision
 Padbury contravened sub-section 1041H of the Corporations Act 2001; procuring the
publication of an announcement by the ASX to the market which constituted
successful funding of $6Billion from a disclosed party. Padbury breached sub-section
674(2); not notifying ASX of the funding source and conditions presented to the
directors at the time the shareholders' agreement was signed.
 Mr. Wayne Stokes- the court found him to have contravened section 674(2A) for
involving himself in Padbury's contravention of section 674(2); drafting of the
deceptive announcement. Mr Stokes contravened section 180(1); failure to exercise
duties with the degree of care and diligence. ( same as Mr. Quinn).

9
 The court ordered Mr Stokes and Mr Quinn to pay a monetary
penalty of $25000 to the Commonwealth of Australia for acting in
contravention of subsection 180(1) and 674(2) of the Corporations
Act 2001.
 The court also ordered that the two directors be disqualified from
managing a corporation for three years from the court order date
 The two directors were ordered to pay ASIC’s costs of proceedings
in a fixed sum of $200,000.

10
 Judge Siopis J noted that it was essential to making declarations for
one; it would identify the wrongful conduct the defendants have
engaged. Secondly, the statements served to vindicate ASIC's
allegations on breach of Corporations Act and also to allow it to
perform its function as a regulator of corporate conduct.
 Mr. Stokes and Mr. Quinn admitted their authorization of the
misleading and deceptive announcement..
 The directors also ought to have been aware that Padbury had not
obtained any third party verification about the capacity of Superkite
Pty Limited to meet its funding responsibility

11
Relevance Of The Court’s
Decision
 ASIC v Padbury Mining Limited has continuously ensured the
development of corporate law and has also impacted positively on
the operation of companies in Australia; Failure to comply with the
Corporations Act of 2001 may result in prosecutions which are likely
to disqualify directors.
 The court decision is a constant and timely reminder to directors
about the importance of acting in care and diligence in the exercise of
their duties.
 The court decision assists ASIC to perform its obligations as a
regulator of corporate conduct and as a way to deter other
corporations from engaging in unlawful acts in the future.

12
Conclusion
When a misleading ASX announcement is made by an
entity, ASIC can prosecute the perpetrator and the
officers authorizing the announcement. Serious
consequences follow when the officers are pronounced
guilty as seen Padbury case of 2016.