Cooperation Law: ASIC v Parker Case Analysis and Implications

This case study examines the legal case of ASIC v Parker, focusing on the director's breaches of duty under the Australian Corporation Act 2001. The analysis delves into the specifics of the case, where a director approved a loan without proper due diligence, leading to a breach of his responsibilities. The document explores the duties of directors, including acting in good faith, avoiding conflicts of interest, and exercising reasonable care and diligence. It discusses relevant sections of the Corporation Act, such as sections 175, 180, 182, and 191, and highlights how the director's actions violated these provisions. The study further examines the decision of the court, which found the director liable for his actions, and the implications of the ruling, emphasizing the importance of director's duties and the powers of ASIC in enforcing corporate law. The case underscores the significance of prudent decision-making and the avoidance of conflicts of interest in corporate governance.

Running head: COOPERATION LAW
ASIC v Parker r [2003] 21 ACLC 888
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction:....................................................................................................................................2
Discussion:.......................................................................................................................................2
Brief facts:...................................................................................................................................2
Duties breached by Mr. Parker:...................................................................................................3
Decision:......................................................................................................................................6
Impact of the decision:.................................................................................................................7
Reference:........................................................................................................................................8

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Introduction:
In Australia, there are many incidents where the director of a company forgets their
duties and liabilities for the company and it often observes that the directors are engaging in
illegal business. They failed to secure the interest of the company and the shareholders as well.
In certain circumstances, conflicts of interest cropped up and the moral facts of the corporation
law has been denied. The corporative provision in Australia governs by Corporation Act 2001
(Knepper et al. 2016). According to this Act, there are certain provisions that deal with the duties
of the directors and all the provisions are applied mandatorily on the directors and on all the
corporations that incorporated within the territorial jurisdiction of Australia. In case, the directors
have failed to perform all their duties properly, they will be held liable for breach of duties.
Further, they could face criminal penalties and therefore, they are obliged to meet all the
requirements made by this Act. However, in Australia, there are many cases pending before the
court for breaching the provisions of the Corporation Act 2001. The acts of the directors made
conflicts of interest, which becomes affective for the interest of the companies. The present case
of ASIC v Parker r [2003] 21 ACLC 888 based on the same provision. This case will help to
understand the scope of Corporation Law and powers of Australian Securities and Investments
Commission.
Discussion:
Brief facts:
The main subject matter of the case is based on the outcome of the situation when a director has
failed to meet all the requirements made under Corporation Act 2001. This case is evolved with

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Mr. Parker who has failed to act as a prudent man and did not act in good faith. Further, it has
been observed that he has made a breach by approved a loan that was not made according to the
fair provision of the fixed loan condition. It has been observed that he had failed to meet all the
requirements made by the company’s Board of Directors. Further, it has been observed that Mr.
Parker has failed to make an enquiry regarding loan repayment history of the person to whom the
loan has been provided. Loan repayment history is important in order to approve a loan against a
person so that the loan repayment capacity of the person could be examined. An allegation has
been brought by the ASIC regarding the matter with the saying that the director of the alleged
company has failed to meet all the relevant provisions of Loan related law and the Corporation
Law as well.
Duties breached by Mr. Parker:
According to the general provision of law, the directors are obliged to promote the
interest of the companies and in case of any failure; they will be held liable for the same. The
interest of the company can be secured if the directors can avoid all the actual and potential
interests. It has been stated by the general principle of law that a director should always think
about the interest of the company and should disclose all the material personal interest for the
benefit of the company according to section 191 of the Corporation act 2001. Further, it has been
mentioned under section 182 of the Act, no director should have to misuse their position. Every
director should have to act in good faith and should take proper care and diligence while dealing
with the matters relating to the interest of the company. According to section 175 of the
Corporation Act, it is the duty of the directors to avoid all the conflicts of interest.
Directors are playing an important role in the daily work and transaction of the company.
They do all the important works and they are working as the mind of the company. Therefore,

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they hold an important position. Reputation of the company is very much depending on them and
therefore, they are not required to misuse their position and acting on behalf of their personal
interest. The duty of the directors is quite wide and the scope of the same is very risky. A
director has to take all the reasonable works for the protection of company’s interest and they
have to represent them as a prudent manner so the company’s interest could not be denied.
According to section 180 of the Act, a director should have to act with due care and
diligence. This means they should not take any process by which the interest of the company and
the shareholders could be suffered (Du Plessis, Hargovan and Harris 2018). However, it is the
duty of the directors to show all the relevant ground they are taking for the interest of the
company and they should have not taken any steps so that they can earn personal profit for them.
Further, according to Corporation Act, the directors should have to work in good faith and they
should not do their duties with a negative intention. The directors are the mind of the company
and therefore, they handle all the confidential information important for the interest of the
company. In these cases, they should not hand over the documents to another party. It has been
mentioned in section 176 of the Act that the directors are not allowed to take any extra benefit
from any third party and they should be reasonable enough while dealing with the company
affairs. The directors should be rational in all the circumstances. In addition to this, it could be
stated that the directors should not misuse their position. It has been mentioned under section 182
of the Act that no directors are allowed to work for their personal interest by denying the interest
of the company. It has been mentioned in ASIC v Adler, it has been observed by the court that
the alleged directors are failed to secure the interest of the company and they have worked for
their personal gain. They had procured all the loans for securing their position as a shareholder in
the company and therefore, they are held liable. Further, in ASIC v Cassimatis, it has been held

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that the directors of the company should have to analyze all the risk factors so that the interest of
the company and the shareholders could be secured. However, it has been stated in ASIC v Rich
that if the directors of the company could show all the facts that they have taken all the decisions
for the interest of the company and the court held them not guilty by maintaining the provision of
business judgment rule. According to the court, the duties of the directors are quite wide and they
have to work for the company and the shareholders. It has been stated by the court that in this
process, if they have to take certain risks and the aftermath effect of the same is adverse, they
will not be held liable for breach of duties, as their intention was to secure the interest of the
company.
Apart from the above mentioned provisions, there are certain other duties of the directors
of a company. They should avoid all the conflict of interest so that the company could make
profit and the interest of the shareholders could be secured. However, no specific definition of
conflict of interest has been provided under the Act (Samra 2016). It has been assumed that if
any director of the company is being personally benefitted from any business deal or he is
personally indulge with any business contract, conflict of interest cropped up. Further, if any
directors misused his position or transfer any documents for gaining personal profit, the notion of
conflict of interest arise there. In McGellin v Mount King Mining NL (1998) 144 FLR 228, it
has been observed that if a director has certain material personal interest in the firm or company,
he is required to show them all. For an instance, it can be stated that if they are holding certain
shares in the company, they are required to show them. This provision has been mentioned under
section 191 of the Corporation Act w2001. It has been mentioned that in case a director held
liable for securing his personal interest, they will have to face civil and criminal penalties and the
pecuniary penalties can be extended up to $200,000. In ASIC v Cassimatis, the court has held

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the directors of the alleged company, terminated their business license, and imposes certain
penalties for the same. Therefore, it can be stated that the directors are liable to act in good faith
and for the interest of the company and the shareholders. They are required to take all the
essential steps in this regard.
Decision:
In this present case, the court has rightly observed that the director has failed to meet all
the requirements stated in Corporation Act 2001. The director of the company has approved a
loan without verifying the repayment history of the person to whom the loan amount has been
granted. Further, it has been observed that the director has done the act without abiding by the
rules of the company’s Board of Director’s manual. Through this act, it can be stated that the
director had failed to act in good faith and he had failed to take due care and diligence to this
effect. Further, the alleged director has failed to show any reasonable cause in his behalf.
Therefore, it can be stated that he is not able to take the plea of business judgment rule. Further,
it can be stated that he had approved the loan by misusing his position, as all the requirements
have not been done or met by the director. This mentality of the director could hamper the
interest of the company and the interest of the shareholders will automatically comes at stake. In
addition to this, it has been alleged by the ASIC that the director has done the act for his personal
interest and he has earned good interest for him. however, this nature of acts attracted the
provision of section 175 of the Corporation Act and it can be stated that conflict of interest has
been raised in this matter (Jiang and Kim 2015). According to Harlowe’s Nominees Pty Ltd v
Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483, the director of the company has
failed to meet all the required provisions mentioned under Corporation Act. Further, as per the
judgment of ASIC v Maxwell (2006) 59 ACSR 373, it can be stated that no director should

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secure his personal interest, as this can give birth to conflict of interest. Therefore, it is
reasonable enough to held the alleged director under section 1317E of the Act. Further, he could
be disqualified from his position under section 206C of the Act.
Impact of the decision:
Once again, the velocity of the provisions on director’s duties under the Corporation Act
has been established by this case. it has been firmly observed by the court that no directors are
allowed to make any decision that goes against the policy of the company and make insecure the
interest of the company. Further, the duty grounds of the directors have been interpreted by the
learned court and the judgment of the court has proved the powers and enforceable rights of
ASIC regarding the investigation and inspection into the relevant matters and cases (Dignam and
Galanis 2016). In this case, it has been observed that the alleged director of the company has
failed to make a prudent step and act on behalf of the company. Further, he has failed to secure
the interest of the company. He has alo failed to avoid the chances of conflict of interest. He has
failed to act in good faith and he should have to face all the relevant penalties mentioned under
the Corporation Act to this effect.

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Reference:
ASIC v Adler 2002 NSWSC 171
ASIC v Cassimatis [2016] FCA 1023
ASIC v Maxwell (2006) 59 ACSR 373
ASIC v Rich [2009] 236 FLR 1
Corporation Act 2001 (Cth)
Dignam, A. and Galanis, M., 2016. The globalization of corporate governance. Routledge.
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate
governance. Cambridge University Press.
Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483
Jiang, F. and Kim, K.A., 2015. Corporate governance in China: A modern perspective.
Knepper, W.E., Bailey, D.A., Bowman, K.B., Eblin, R.L. and Lane, R.S., 2016. Duty of
Loyalty (Vol. 1). Liability of Corporate Officers and Directors.
McGellin v Mount King Mining NL (1998) 144 FLR 228
Samra, E., 2016. Corporate governance in Islamic financial institutions.

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