Analysis of Corporate Law Case: ASIC v Australian Property Custodian

This report provides a detailed analysis of the corporate law case, Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) [2013] FCA 1342. The case revolves around the responsibilities of directors in managing an investment scheme, particularly focusing on their duties to act in the company's best interest, for a proper purpose, and in good faith. The court examined whether the test for 'best interest' is objective or subjective and addressed the duty of undivided loyalty to scheme members. The analysis also covers the implications of conflicts of interest and the required course of action. Furthermore, the report delves into the statutory duty of care and diligence under section 180 of the Corporations Act 2001 (Cth). The case involved allegations of contraventions of the Corporations Act 2001 (Cth), including breaches of duties by directors and related party transactions. The court ruled in favor of the ASIC, finding the defendants guilty of the alleged contraventions, emphasizing the importance of providing sufficient time for important matters, conducting voting formally, and not relying solely on legal advice. The case underscores the heightened standards expected of directors, particularly those of professional trustees, in ensuring consistent compliance with legal procedures.

Running head: CORPORATE LAW
Corporate Law
Name of the student
Name of the university
Author note

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INTRODUCTION
The case of Australian Securities and Investments Commission v Australian Property
Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers
appointed) (No 3) [2013] FCA 1342 is in relation to corporation law and the duties of manages
to responsibly manage an investment scheme of a disclosing entity. The court in this case had to
analyze the meaning of best interest n relation to the statutory duties to act in the company’s best
interest proper purpose and good faith. The court had to determine whether the test for best
interest is objective or subjective in nature. In this case the duty of undivided loyalty to members
of scheme was also at stake. The directors’ duty when there is a conflict of interest and the
course of action which needs to be taken in such situation had also been analyzed by the court in
this case. The statutory duty which is provided under section 10 of the Corporation Act 2001
(Cth) which is to exercise care and diligence also had to be analyzed by the court n relation to the
standard of care and diligence which would satisfy the duty. The paper analyzes the facts of this
case, the decision of the court and the importance of the decision in Australian company law.
CASE INTRODUCTION AND FACTS
This case has been initiated by the Australian Securities and Investment Commission
alleging that the six defendants in this case had made contraventions on relation to the provisions
of a Corporation Act 2001 (Cth). Allegations had been made by the ASIC that provisions of s
601FC as provided in part 5C of the CA related to “the duties imposed on a responsible entity of
a managed investment scheme” had been breached by the defendants. The ASIC further alleged
that the duties which an officer of such entity has in relation to a responsible entity under s
601FD have been breached by the directors of the company. In addition allegations had been

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made by the ASIC that rules which prohibit related parties transaction indulged into by
responsible entity prior to taking approval under the provisions of section 208 of the CA from the
member along with the prohibition which directors of a responsible entity involved in the breach
of section 208 as per section 209 have also been contravened. The first defendant in this case was
Australian Property Custodian Holdings Limited. The other five defendants were the directors of
the first defendant at all relevant times. They are namely William Lionel Lewski, Mark Frederick
Butler, Kim Samuel Jaques,, Michael Richard Lewis Wooldridge and Peter John Clarke.
In this case a resolution had been passed by the directors of the responsible entity by
which they wanted to make many amendments to the constitution of the company. In relation to
the amendments the directors wanted to add two new fees a listing and a removal fee. There was
a clause in the constitution of the responsible entity cannot be amended without the approval of
the members in case such alterations was in relation to favour or benefit of the responsible entity.
Reference had also been made by the constitution in relation to section 601GC of the CA through
which changes in relation to a constitution could be made without taking approval from the
members only in situation where there was reasonable consideration on the part of the company
the right of the members would not be affected adversely by the change. An advice had been
provided by the lawyer of the responsible entity which suggested that the amendment without the
members’ approval may be valid even if there is benefit of the responsible entity. Allegations
had been made by the ASIC that the company and one of its shareholders was to be provided
with significant gains in relation to the amendment of the constitution. This is because all the
equity in the RE was held by one of the directors Mr Lewski and his family. This was further
proved by the facts that the fees provisions could have been trigged a multiple times. In relation
to the amendment of the constitution there was an agreement by the board to pay the RE.

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Duties breached by the directors
 The directors have the duty to act with bona fide intensions in the best interest of the
company under the provisions of section 181 of the CA.
 It is the duty of the directors in situation of a conflict of interest that they give importance
to the benefits of the members of the company and not pursue personal interest when the
company is solvent and in case of insolvency the directors must give importance to the
creditors of the company.
 The directors have to act for a proper purpose which means to indulge in actions which
are in relation to achieving the goals of the company. These actions should be indulged in
with observance of bona fide intensions.
 The directors also have a duty under which they must discharge their obligations with
proper care and diligence as per the provisions under section 180(1) of the Act
 When the directors are managing an professional entity their actions must comply with
the standard of diligence and care of a professional
 In this case the directors acted for personal interest and also were not careful while
disposing their organizational responsibility
Decision – Discussion and Analysis
The case had been ruled in the favour of the ASIC by the court ruling that the defendants were
guilty of the alleged contraventions. It had been stated by the federal court that with respect to
the passing of the resolution for lodgement in the year 2006 the responsibility contravened some
of its duties as per section 601FC(1), which included acting in the best interest of the members,
exercising reasonable care and complying with the provisions of the constitution. It had been

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stated by the court that the company also violated the provisions of section 208 of the CA which
is in relation to restriction of related parties transactions. The breach was in relation to the
payments which had been given as listing fee to the responsible entity. A further breach of in
relation to section 601FC had been found by the court in this case where the listing fee had been
paid to the responsible entity.
When the resolution had been passed with respect to the lodgement, the court in this case came
to a conclusion that the defendant directors in context have violated the statutory duties imposed
in them via the provisions of section 601FD which also takes into consideration the duty
imposed by the law to act towards the interest of the members of the company and also of
deploying reasonable care. It had been stated by the court in this case that the involvement of the
directors where the company violated section 208 resulted in the breach of section 209 of the
CA. A further breach in relation to the provisions of section 601FD had been found by the court
in relation to the payment of the listing fees.
The court took into consideration various relevant facts which include the following.
In the given situation it was provided to the court that in the meeting which took place in 2006
only 15 minutes have been provided by the directors in consideration of the amendment of the
constitution. The court came to the finding that such time provided was not adequate. It was
stated by the court in this case that the evidence provides that the directors did not address the
issue in a reasonable manner through the application of diligence and care of a standard of a
director in their position. The court held that they should have provided sufficient time for the
purpose of important matters like this and not doing so will account to the breach of duty. Any

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reasonable director who is placed in such a position would have ensured that reasonable time is
provided to consider the issue related to the amendment of the constitution.
In this case it had also been stated by the court that the process of voting has to be conducted in a
formal manner rather than have a collegiate approach in relation to it. Where it is found that any
particular director does not indulge in the process of voting such information has to be formed
the part of the meeting minutes. In the given situation submission had been made by two of the
defendant directors that they had not indulged in the process of voting. However the court did
not accept such submission as stated that it can only be taken into consideration when such
information has been written down in the meeting minutes.
It was further held by the court that where the legal advices which have been provided is
unequivocal in nature as it was in the present case it is a requirement on the part of the directors
to look for more legal advice, member approval or judicial discretion. If this is not done it does
not make it reasonable on the part of the directors to reply upon such legal advice as it was found
by the court in the case. Further as provided by the facts of the case the resolution in relation to
the alternation of the constitution had been taken in July and further in august a resolution to
lodge the constitution had been taken. In this resolution the deed of amendment had been
assented and signed. The court with respect to such facts was of a view that stated that there was
a duty imposed on the directors via which they needed take reasonable care towards the latter
resolution and even in case where the issue was related to the responsible entity being paid the
listing fee down the track. The court stated that a director cannot assume that their responsibility
in relation to a particular matter has come to an end via the virtue of a reasonable resolution as
per the case of Australian Securities and Investments Commission v Fortesque Metals Group Ltd

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and Another (No 5) (2009) 264 ALR. The court clarified that the duty of taking reasonable care
is not limited to a particular instance but is ongoing in nature.
It had been stated by the court with respect to the provisions of section 601FD(1)(b) and section
180(1) of the CA and the directors on context that the a standard of care which needs to be
applied in situation where a company is a professional trustee, depicting out to the public the
same and being paid for such reason is going to the “often more exacting”. This finding was in
compliance with Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170.
Implication of the case
 In this case it was made clear that the directors of the responsible entity in context must
not make an assumption that the ASIC will limit its claim in relation to the responsible
entity only. Much more is expected of a director of a professional trustee as compared to
a director of any other kind of company operating in Australia. The directors gave to
consistently ensure that they are carrying out repeated compliance with the legal
procedure.
 The case implies that the directors should have provided sufficient time for the purpose of
important matters like amendment of constitution and not doing so will account to the
breach of duty. Any reasonable director who is placed in such a position would have
ensured that reasonable time is provided to consider the issue related to the amendment of
the constitution.
 The case also suggests that the process of voting has to be conducted in a formal manner
rather than have a collegiate approach in relation to it. Where it is found that any

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particular director does not indulge in the process of voting such information has to be
formed the part of the meeting minutes.
 Where the legal advice which have been provided is unequivocal in nature as it was in the
present case it is a requirement on the part of the directors to look for more legal advice,
member approval or judicial discretion. If this is not done it does not make it reasonable
on the part of the directors to reply upon such legal advice
 The case also reaffirms that the duty of exercise reasonable care is ongoing.

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References
Australian Securities and Investments Commission v Australian Property Custodian Holdings
Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3)
[2013] FCA 1342
Australian Securities and Investments Commission v Fortesque Metals Group Ltd and Another
(No 5) (2009) 264 ALR
Australian Securities and Investments Commission, In the Matter of QLS Superannuation Pty
Ltd v Parker (2003) 21 ACLC 888
Corporation Act 2001 (Cth)
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170