Analysis of ASIC v Sino Australia Oil and Gas Ltd: Director Duties

This case study provides a critical analysis of the ASIC v Sino Australia Oil and Gas Ltd case, focusing on violations of the Corporations Act 2001 (Cth) related to deceptive prospectus statements, failure to disclose circumstances impacting profit forecasts, and breaches of director duties. The analysis highlights the company's contravention of sections 728(1)(a), 728(1)(b), 728(1)(c), and 674(2) of the Act, as well as the second defendant's involvement in these breaches and violation of section 180(1). The Federal Court's decision was based on breaches of disclosure requirements under sections 710(1), 728, and 674, emphasizing the importance of continuous disclosure and accurate profit forecasts. The study also discusses the director's failure to act with due care and diligence under section 180, referencing relevant case law such as ASIC v Healey and ASIC v Citrofresh International Limited. The impact of the decision on Australian companies underscores the significance of timely and accurate disclosures, the duty of directors to act diligently, and the mandatory disclosure of material financial facts.

Business and
Corporation law
Name of the Student
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Author Note

ASIC v Sino Australia Oil and Gas Ltd (in liq) (2016) 115
ACSR 437

The company has committed a violation of the
Corporations Act 2001 (Cth) by making deceptive or
misleading statements in its prospectus,.

The company failed to disclose about circumstances that
resulted in impairment in the ability to anticipate profits.

The Non-English speaking director of the company is
alleged to have failed to perform his director duties under
the Corporations Act 2001 (Cth).
CASE INTRODUCTION

 the company made false representations in its
prospectus documents
 the company contravened section 728(1)(a) of
the Act
 the company committed a breach of section
728(1)(b)
 the first defendant violated section [728(1)(c)]
and section [674(2)] of the Act;
BREACH OF DUTIES OF FIRST
DEFENDANT

 Under section [674(2A)] of the Act, second
defendant was involved in the breach committed
by the first defendant of section [674(2)] of the
Act;
 the second defendant violated section [180(1)] of
the 2001 Act
 the Second defendant contravened section 180(1)
of the Act;
BREACH OF DUTIES OF SECOND
DEFENDANT

The Federal Court based its decision on the
following grounds:
 Breach of section [728(1) (a)]
 Breach of section [728 (1) (b)
 Breach of section [728 (1) (c)]
 Breach of section [674]
 Breach of section [1041 H] of the Corporations
Act 2001 (Cth).
Critical analysis of decision

Continuous disclosure and profit forecast:
 the company rendered services to consumers in remote areas in
China that led to the incline in transportation and staff costs.
 the company incurred lease expenses in the form of additional
equipment worth $2.6 million because of delay in receiving
delivery of capital equipment.
 the company faced unnecessary delay in receiving payments from
the Chinese state-owned enterprise customers.
 the company experienced successive delays during the initial
public offering, which led to an incline in the expenses.
Contd…

The court based its decision regarding
contravention of disclosure requirement with
reference to :
 section [710 (1)] of the Act:
 section [728] and s [710] of the Act,
 section [710] and [728 (1) (a, b, c) of the Act
 section 674(1) and (2) of the Act

Failure to know disclosure obligations:
 Duty to act with due care and diligence under
section [180] of the CA 2001 (Cth).
 This obligation of a director was also upheld in
the case of ASIC v Healey [2011] 196 FCR 291.

The court is correct in asserting that:
 Director failed to carry out his obligation
with due care and diligence
 This principle was upheld in the case of
ASIC v Citrofresh International Limited
(No 2) (2010) 77 ACSR 69; [2010] FCA
27.

Non-disclosure to Company Board about
Profit downgrade
 The significance of this legal disclosure
was highlighted in Re One.Tel Ltd (in liq)
and in ASIC v Rich [2003] 44 ACSR 682.
 Contravention of section [180] of the Act.

The decision given in the Sino’s case significantly
upheld:
 importance of timely and accurate disclosure
requirements;
 the duty of a director to act diligently with due care;
 the disclosure of material facts related to the
financial standing of an organization is mandatory;
IMPACT OF THE DECISION ON THE
OPERATION OF AUSTRALIAN
COMPANIES


Armour, J., 2014. The enforcement of director's duties in Australia: a
functional and empirical analysis (Doctoral dissertation, University of Oxford).

ASIC v Astra Resources PLC [2015] FCA 759 at [124-126].

ASIC v Citrofresh International Limited (No 2) (2010) 77 ACSR 69; [2010]
FCA 27

ASIC v Healey [2011] 196 FCR 291

ASIC v Rich [2003] 44 ACSR 682

ASIC v Sino Australia Oil and Gas Ltd (in liq) (2016) 115 ACSR 437

Banerjee, S. and Humphery-Jenner, M., 2016. Directors’ duties of care and the
value of auditing. Finance Research Letters, 19, pp.1-14.

Coffee Jr, J.C., Sale, H. and Henderson, M.T., 2015. Securities regulation:
Cases and materials.

Corporations Act 2001 (the Act)

Evidence Act 1995 (Cth)

Hannigan, B., 2015. Company law. Oxford University Press, USA.

Re One.Tel Ltd (in liq)

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles,
policies, and practices. Oxford University Press, USA.
REFERENCES