BAC302 Corporations Law: ERH Transport Services Fraud Case Study

This case study delves into the fraud charges against Mr. Edward Harold Pye, director of ERH Transport Services Pty Ltd, for breaching his duties under Section 184 of the Corporations Act. The analysis examines the allegations of dishonest misuse of position involving the transfer of company funds, referencing relevant legal precedents and sections of the Corporations Act 2001. It discusses the director's obligations to act in good faith, for the company's best interests, and avoid personal gain, as well as the potential criminal penalties for breaches. The study considers the liquidator's report alleging misappropriation and compares the director's actions against the expected standards of conduct, ultimately highlighting the ongoing prosecution of the case by the Commonwealth Director of Public Prosecutions. Desklib provides access to similar case studies and solved assignments for students.

Running head: ERH TRANSPORT SERVICES PTY LTD- FRAUD CHARGES ON TRIAL
Erh Transport Services Pty Ltd- Fraud Charges on Trial
Name of the Student
Name of the University
Author Note

1ERH TRANSPORT SERVICES PTY LTD- FRAUD CHARGES ON TRIAL
Introduction
Mr Edward Harold Pye, who was a businessman and the director of ERH Transport
Services Pty Ltd, was accused and charged for breaching his duties as a director of the ERH
Transport Services Pty Ltd. The Australian Securities and Investments Commission in an
investigation alleged that the accused had committed breach on two occasion, which involved
approximately $575,000. The article published about this incident indicates that Mr Edward
Harold Pye was charged for breaching his duty as a director. The accused went to the Ipswich
Magistrate Court after being charged for the incident.
Analysis
The case of Mr Edward Harold Pye revolves around the breaches of duties of director.
The director was alleged to misuse his position dishonestly to transfer amount of $550,000
and $25000 to a person and himself from the funds of ERH Transport Services Pty Ltd after
an investigation by ASIC. Under Section 184 of the Corporations Act he was charged, which
requires that a director of a corporation shall be deemed to commit an offence if they are
intentionally dishonest to the corporation and exercise their position or power in a way that
goes against the best interest of the company (Asic.gov.au 2018).This study will analyse the
facts of the case with the explanation of relevant laws and its outcome.
In the year 2014, the sole director of ERH Transport Services Pty Ltd, Mr Pye,
causing dishonest use of his position transferred the amount from the fund of the company on
two occasions, firstly, to his account and secondly to the account of another person. ASIC on
its investigation charged him for breaching his duty as a director. They claimed that Pye used
his position with an intention to gain advantage for himself. A supplementary report was first
lodged by the liquidator of the company, Mr Ward, alleging a misappropriation of the funds

2ERH TRANSPORT SERVICES PTY LTD- FRAUD CHARGES ON TRIAL
of REH Transport Services Pty Ltd. Edward Harold Pye had caused a detriment to the
company by his act.
The director of a company is expected to act with due diligence with a good faith for
the best interest of the company (Fisse, 2018). Section 182 of the Corporations Act 2001
imposes an obligation on the director which requires them to exercise his power, skills and
duties for the good faith of the corporation. If a director fails to exercise his duty for the
proper purpose and place their personal interest before the best interest of the company, he
shall be deemed to commit a breach of his duty. Section 184 of the Act prohibits the director
to indirectly or directly gain an advantage from using his position to himself or anyone else.
A director who causes such gain of advantage shall be said to commit an offence. A director
of a company owe such duties to the company as a whole, namely, the duty to act in good
faith and intention, to act for the best interest of the company, to use his power and position
for the advantage of the company and not for oneself. Section 184 of the Corporations Act
not only prohibits but also imposes some criminal penalties for the breach of duty of the
director to act for proper purpose and good faith. To determine whether a director has caused
a breach of duty the legal purpose of the power or position of the director and the actual use
of such power shall be identified and compared.
It was alleged by the liquidator Mr Ward that the funds which were transferred from
the fund of the company to the account of Mr. Edward Harold Pye and another person was
not justified and for the benefit of the company. In the case of The Australian Metropolitan
Life Assurance Co Ltd v Ure, the court formulated that for the purpose of this section, good
faith and proper purpose should indicate the honestly in the act of director while exercising
his power which was conferred to him in the course of his duty. Mr Pye failed to satisfy this
requirement as he acted for gaining an advantage to himself using his position. Considering

3ERH TRANSPORT SERVICES PTY LTD- FRAUD CHARGES ON TRIAL
the fact ASIC charged the director. The matter is being prosecuted by the Commonwealth
director of Public Prosecution.

4ERH TRANSPORT SERVICES PTY LTD- FRAUD CHARGES ON TRIAL
References:
Asic.gov.au (2018). [ebook] Asic.gov.au. Available at: https://asic.gov.au/about-asic/news-
centre/find-a-media-release/2018-releases/18-152mr-former-company-director-
charged-with-breaching-his-director-duties/ [Accessed 10 Oct. 2018].
Corporations Act 2001
Fisse, B. (2018). [ebook] Aic.gov.au. Available at:
https://aic.gov.au/sites/default/files/publications/proceedings/downloads/10-fisse.pdf
[Accessed 10 Oct. 2018].
The Australian Metropolitan Life Assurance Co Ltd v Ure [1923] HCA 29; 33 CLR 199; 30
ALR 53