Company and Association Law Case Study

This case study examines the legal responsibilities of directors under the Corporation Act 2001 in Australia, focusing on the case of Mr. & Mrs. Cassimatis and their failure to disclose risks to shareholders. It discusses relevant laws, the application of these laws in court, and the implications of directors' duties, including the necessity of good faith and diligence in managing company affairs. The study highlights the importance of transparency and accountability in corporate governance.

Running head: COMPANY AND ASSOCIATION LAW
Company cases
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1COMPANY AND ASSOCIATION LAW
Part A
1. Issue:
There are two issues present in the case of the Cassimatis. The issues are as follows:
 whether the alleged Storm Company had breached any provisions of the
Corporation Act 2001 or not.
 whether the Directors of the company had complied every duty regarding the
Corporation Act or not.
It is to be clarify that Corporation Act is regulated the provisions of the company related
matters in Australia. Under the Act, numerous provisions are engraved that are pointing
out the liabilities of the directors in a company. There are certain conditions regarding the
director’s duties are mentioned under section 180 of the said Act. In the present case,
these issues are raised regarding the violation of those duties and necessary consequences
of it.
2. Relevant Laws:
Topic of the case is based on certain provision of the Corporation Act 20011. The subject
matter of the case is based on the director’s duty towards the stakeholders. Rules
regarding the same have been mentioned under the provision of section 180 of the said
Act2. There are certain sub-sections are included. As per section 180 (1) of the Act, a
director of a company must show necessary diligence while performing his duties and he
owes care to the shareholders and the other stakeholders3. In ASIC v Adler, certain
principles of the Corporation Act has been stated and a detailed version regarding the
1 Aroney, N., Gerangelos, P., Murray, S., & Stellios, J. (2015). The Constitution of the Commonwealth of
Australia: History, Principle and Interpretation. Cambridge University Press
2 Barnett, H. (2017). Constitutional and administrative law. Taylor & Francis.

2COMPANY AND ASSOCIATION LAW
relevant sections have been mentioned4. In the case, there was a breach made by the
Director of the company took place. The sections related to the case were section 9,
section 180, section 180 (1), section 182, section 182 (2) and section 183 of the
Corporation Act 2001. The meaning of the term care includes the reasonable supervision
on the shareholders in case of all circumstances. The applicability of the section in this
case is wide in nature. Reasonable supervision means he is not allowed to take any steps
that is wrong in nature or to feather his own nest. The director of a company should not
hide any facts from the shareholders or other stakeholders. Under section 184 of the
Corporation Act, it has been stated that the directors should have to perform their duties
in good faith. There shall be no bad intention or ulterior motive behind the acts of the
directors. It is not expected from the director of the company to misuse the post to earn
benefits.
In Corporation Act, there is a provision regarding section 1041H has been mentioned
that states the liability of the director in the finance sector. In ASIC v FMG (2011) 190
FCR 370, it was held that the director should not deceive the shareholders to gain certain
privileges in the financial service sector5. It is mentioned under the section that if any
person violate the principle laid down under the subsection, provision of the civil liability
will be applicable on him and he will be prosecuted under the provision of section 1041I
3 Berk, J., DeMarzo, P., Harford, J., Ford, G., Mollica, V., & Finch, N. (2013). Fundamentals of corporate
finance. Pearson Higher Education AU.
4 Chia, H. X., & Ramsay, I. (2015). Section 1322 as a Response to the Complexity of the Corporations Act 2001
(Cth).
5 Coffee Jr, J. C., Sale, H., & Henderson, M. T. (2015). Securities regulation: Cases and materials.

3COMPANY AND ASSOCIATION LAW
of the Corporation Act 20016. Certain pecuniary penalties will be imposed on the
directors under section 674 (2) of the said Act.
According to the wise interpretation of section 180 of the Act states that the provision
is also applicable on the sole directors of a company so that they could not use the same
as an excuse7. The reason behind the enactment is to secure the interest of the
shareholders. It is duty of the director to disclose all necessary information related to the
company as well as the risks of the company to shareholders and other interested person.
In ASIC v Macdonald [2009] MelbULawRw 34, it was observed by the Supreme Court if
the allegation against a director regarding non-disclosure of necessary documents has
been proved, he should be liable under section 180 of the Corporation Act 20018.
However, amount of loss is not mandatory in this case. In ASIC v Hellicar & Ors [2012]
HCA 17, it was held that the liabilities of section 180 are not comprised of certain
statutory duties only. Provision of section 945A of the Act is applicable in this case to
certain extent. However, the section has been repealed now.
3. Application:
In Australia, there are number of cases pending regarding the company matters9. As it
is a business country, company matters are placing in a most important position. There
6 Crane, A., & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age
of globalization. Oxford University Press.
7 Ferran, E., & Ho, L. C. (2014). Principles of corporate finance law. Oxford University Press.
8 Hargovan, A. (2017). Corporate law: Judicial guidance on de facto director liability for insolvent
trading. Governance Directions, 69(2), 111.
9 Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.

4COMPANY AND ASSOCIATION LAW
are number of cases where the various provisions of the Corporation Act prevail by the
decision of the courts10. The present case is one the most important cases in this regard
where the provision of director’s duty enlarged and the relevant sections are interpreted
and applied. The brief summary of the case is that Mr. & Mrs. Cassimates were the sole
director of the Storm company and published a scheme that attracts the creditors to invest
in this. However, he had failed to inform them about the risks of such investment and a
number of shareholders were invested their money in the fund. According to Australian
Security and Investigation commission, the whole project was drowned due to certain
financial crisis and a serious break down occurred in the company11. All the investors had
faced a lot of trouble and the directors were held liable under section 180 of the
Corporation Act for breach of director’s duty. Another allegation made against the
directors that they had not abided by all the provisions that should be maintained by the
director while performing their job.
It was stated by the ASIC that Mr. Cassimates wanted to gain certain benefits from
the Storm project and that is why he had convened the investors to invest money in it. The
problem arises as he had not inquire into the matter related to the background of the
shareholders and did not even stated about the risks that may take place in this regard12.
The shareholders had invested their money in it with a hope to gain some profit as the
company was a reputed company in the financial sector. As per the principle laid down
under the case of ASIC v FMG (2011) 190 FCR 370, a director must know about the
10 Hedges, J., Bird, H. L., Gilligan, G., Godwin, A., & Ramsay, I. (2016). An Empirical Analysis of Public
Enforcement of Directors’ Duties in Australia: Preliminary Findings.
11 Langford, R. T. (2015). Directors' Duties: Conflicts, Proactive Disclosure and S 181 of the Corporations Act.
12 Langford, R. T., Ramsay, I., & Welsh, M. A. (2015). The origins of company directors' statutory duty of care.

5COMPANY AND ASSOCIATION LAW
potential risks regarding the financial investment and it is his duty to inform the
shareholders regarding the same13. If he fails to perform the duties, he shall be held liable
for the breach of Director’s duties. As per the judgment made in ASIC v Macdonald
[2009] MelbULawRw 34, it can be stated that the directors of the Storm Company had
failed to disclose necessary documents to the shareholders and after the break down, they
had not shown possible care to them. There was no step had been taken by them to refund
the invested money and the effect of the act was detrimental in nature.
On the other hand, the directors of the company had expressed their view regarding
the exception of section 180 of the Corporation Act by stating the various aspects of the
sections and its applicability. It has been stated by them that they will not be liable under
section 180 as the section is not deal with the sole directors. It has been stated by them
that risks are the inevitable part of the financial business. It is common in nature and there
is no necessity to let the investors know about it. They knew the facts when they are
investing their money in the project. Therefore, the allegation made against by them was
vague in nature and they shall not be prosecuted under the provision of the Corporation
Act 2001.
However, in this case, there were many scopes to identify the various provision of the
Corporation Act 2001. The learned court had made an attempt to interpreted the relevant
provisions of the Corporation Act 2001 by citing many cases regarding the matter14. The
precedents of the cases were enlightened the provisions of the case too. It was observed
13 Pearson, G. (2016). Failure in corporate governance: financial planning and greed. Handbook on Corporate
Governance in Financial Institutions, 185.
14 Rahim, M. M., & Alam, S. (2014). Convergence of corporate social responsibility and corporate governance
in weak economies: The case of Bangladesh. Journal of Business Ethics, 121(4), 607-620.

6COMPANY AND ASSOCIATION LAW
by the Court that the main objective of section 180 is that the directors should have to
show minimum care to the shareholders and there was no provision regarding the specific
classes of directors15. Here the rules are applicable on every director including the sole
directors. As per the allegation made by ASIC and the evidences presented before the
court ion this regard, it can be stated that Mr. & Mrs. Cassimates had failed to perform
their duties properly and had failed to show sufficient care to the shareholders. They had
failed to make a balance between the risks and had failed to narrate the same to the
investors. It is an excuse that the investors must know about the risk of the investment. It
is the duty of him to state about the facts to the shareholders.
As regards the other allegation, there were sufficient prove regarding the fact that the
directors of the company had failed to meet the requirements of the Corporation Act and
did not tried to make an inquiry about the background of the investors. It had been stated
during the cross examination that the shareholders had to face serious mishap regarding
the break down and many of them became insolvent. However, there were the directors of
the company regarding the beneficiary of the shareholders had taken no attempt16.
4. Conclusion:
Therefore, the case can be concluded with the facts that there were every evidences
present against the directors of the company and regarding the violation of the necessary
provision of the Corporation Act 2001. The violated provisions were section 180(1),
section 182, and section 183 of the Corporation Act. Good faith had also not maintained
15 Roach, L. (2016). Company Law. Oxford University Press.
16 Sealy, L., & Worthington, S. (2013). Sealy & Worthington's Cases and Materials in Company Law. Oxford
University Press.

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by the directors of the company. The court was pleased to held the directors of the
company liable for the misconduct.
PART B
(a)
The second question is based on the proprietary company. Under the Corporation Act,
there are number of provisions made regarding the rules of the company. It is a common
rules regarding the proprietary company is that every partners of the company can be the
directors as well as the shareholders of the company and their activities will be regulated
by the constitution of the company17. The rules laid down under the constitution will be
applied on them and if there is any changes required regarding the constitution, the same
can be done as per the rules mentioned under the Corporation Act. The constitution of the
company can be changed by way of special resolution where there is a need of 755 of
votes as against the same. The constitution works as a communication between the
directors and the shareholders. Therefore, in case of the voting content, both the directors
and the shareholders are taking part in it18.
Section 201H of the Corporation act deals with the appointment process of the
directors of a proprietary company. It has been stated under the section that the directors
must meet the resolution process regarding the same and the other directors here can
appoint any of the director19. The notice of the appointment should be served within two
17 Sime, S., & Taylor, M. (2015). Company Law in Practice. Oxford University Press.
18 Tills, M., & Wills, C. (2016). Corporate law: Directors found guilty of breaching duties following
corporation's breaches. Governance Directions, 68(10), 624.
19 Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford
University Press, USA.

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months. Once a director is appointed, there are certain rules regarding his removal from
the post have been stated. The Corporation Act has stated certain strict provisions
regarding the norms of a proprietary company. It has been stated under the rule that the
director of a proprietary company can be removed from his post according to the
provision stated in the constitution of the company. In the present case, it can be observed
that the clause 9k prescribed certain procedures regarding the removal of the directors of
the company. The other directors of the company had decided to remove Kanye from his
post of directorship. It should be mentioned in this regard that the other directors of the
company can remove him if there is any express provision mentioned under the
constitution regarding the power of the directors to do so. Corporation Act deals with the
removal of directors of a proprietary company under the provision of the Section 203C.
However, there is a provision mentioned under the constitution of the company that if
during the removal process, all the requirements are not maintained, the same can be
violated the rules of the natural justice and could attract the provision of the unfair
dismissal laws. Under section 229H(1) of the Corporation Act has stated the voting
system of the shareholders regarding the removal of the directors by way of an
extraordinary general meeting. A notice should have been served under section 203D(2)
of the Corporation Act. As per the contention of section 249A of the said Act, all the
consenting shareholders and the directors should sign the notice. However, kanye was
removed from his post without maintaining all these rules and therefore, there is a scope
for him to take necessary steps regarding the same as against the directors and the
consenting members as a whole. It is necessary to state that the directors of a proprietary
company can be removed from his post if the ASIC form 484 has been filled up properly
in this regard. However, there is no mention about the fact that the same rule has been
followed in the case of Kanye.

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It has been stated earlier that the every director of the proprietary company has certain
shares in the company. These rights over the shares cannot be terminated for the facts that
he is no longer a director of the company20. Therefore, if there is any attempt made
regarding depriving Kanye from the rights that are accrued by him regarding the shares,
the same will be treated as illegal in nature. The share interest of the directors is
mentioned under section 196 of the Corporation Act 2001. If there is a violation regarding
the same can be made, Kanye has all the rights to claim damage from the other directors
of the company.
(b)
The second part of the question is based on the provision of the director’s duty. In
Corporation Act, there are certain provision regarding the breach of director’s duties is
mentioned. It is mentioned that the director of a company should show certain diligence not
only towards the shareholders, but to the other directors of the company too. The word
diligence means the persistent effort21. Every director of a company shall be under the
liability of certain facts that are particularly mentioned in the several provisions of the
Corporation Act. Every director should be under an obligation of section 181 of the
Corporation Act. Director holds an important part in case of the internal proceeding of a
company. Therefore, it is their duty to maintain a good communication link in between the
shareholders and the other staff. Therefore, good faith is necessary regarding the same. In
case of the Koala Pty Ltd, there is a lack regarding the requirements of these rules have been
20 Starbuck, William H. "Why corporate governance deserves serious and creative thought." The Academy of
Management Perspectives 28.1 (2014): 15-21.
21 Roach, L. (2016). Company Law. Oxford University Press.

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observed. As per the statements of the case, there is an applicability of the principles stated
under section 182 and section 183 has been observed22.
It has been mentioned under section 182 of the Corporation Act that should not
misuse his position at any cost and should maintain the good faith criteria regarding the
interest of the office. The composition of a company is inter-related to each other, and it is
the duty of the members of the company to look into the matters carefully so that there shall
not be any breach take place. During the office work, a director should not misbehave with
the other directors and should not do anything that can affect the interest of the company. The
directors are the part of the company and they should act diligently while dealing with the
affairs of the company23.
In the present case, two of the directors of the company, Keith and Kylie decided to
incorporate another company and the business nature of such company will be similar in
nature. It has also been decided by them that none of the other two directors of the present
company be the member or director of the company. There is a scope regarding the violation
of section 182 of the Corporation Act observed.
The relevant provision of the Corporation Act has stated that the director of a
company needs to disclose all the relevant facts and the documents to the other co-directors.
In the present case, there is a tendency regarding the hiding of the facts to incorporated
similar kinds of company by Kieth and Kylie observed and it has also been stated that the duo
directors were planned to avoid other two directors of the company.
22 Dawkins, Cedric E. "The principle of good faith: Toward substantive stakeholder engagement." Journal of
Business Ethics 121.2 (2014): 283-295.
23 Sealy, L., & Worthington, S. (2013). Sealy & Worthington's Cases and Materials in Company Law. Oxford
University Press.

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According to the provision of section 183 of the Corporation Act, a director of a
company should not gain unnecessary advantage during the performance of duties. It is their
duties to avoid any such work, where the interest of the company is directly involved.
However, in the present case, the same situation has been cropped up when both the directors
of the company have decided to set up another company without informing the other directors
of the company24.
If there is an allegation brought against the director of a company regarding the
violation of the norms of the Corporation Act and the same has been proved, he will be
prosecuted under section 1317E of the Corporation Act. Therefore, Khaled and Kylie can
bring action against the other directors under the similar provision of the Corporation Act.
24 Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.