Detailed Analysis of Company Law Issues: ASIC v Cassimatis Case Report

This report provides a comprehensive analysis of the Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA 1023 case, focusing on key aspects of company law. The report delves into the legal issues surrounding directors' duties under the Corporations Act, particularly section 180(1), which pertains to the duty of care and diligence. It examines the arguments presented by both ASIC and the Cassimatises, highlighting the interpretation of directors' responsibilities and the application of public duties. The report also outlines the court's decision, emphasizing the breach of duties and the penalties imposed. Furthermore, the report explores the legal framework for the removal of directors, referencing relevant sections of the Corporations Act 2001, including sections 203A-203F. It details the procedures for resignation, removal by members, and other circumstances leading to a director's departure from a company. The report also discusses the specific requirements for public and proprietary companies in relation to director removal, ensuring a clear understanding of corporate governance principles and practices.

Company Law

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
1. Legal issues..............................................................................................................................1
2. Relevant laws...........................................................................................................................2
3. Arguments made between parties of above case.....................................................................3
4. Stating decision of this case.....................................................................................................3
PART B...........................................................................................................................................4
A..................................................................................................................................................7
B...................................................................................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Company law is providing an expert solution in all aspects of share capital to private or
public companies. A company is nothing but when a group of people who are coming together or
contributing money for common purpose and incorporating themselves into a legal entity to form
a company for a specific resolution (Christiansen, 2016). While establishing any company, it is
essential for individual to comply with all rules and regulations which are comply under
Companies Act. Company is considered as legal entity and having a unique feature if it is
compare with other entities. In this case law on Australian Securities and Investment
Commission (ASIC) v Cassimatis (No. 8) [2016] FCA 1023 has been discussed. Further one case
law has been discussed in detail so that issues between parties can be resolve.
PART A
1. Legal issues
Corporation Act impose a number of additional fiduciary duties on director who are
incorporating companies. Government of Queensland had established number of companies for
special purpose which are operating under the auspicious of departments. When individual is
appointed as director of company, then they must be complying with Corporation Act which are
telling about roles and responsibilities. Although those people who are appointed for the
governments boards are not specifically bound to follow rules which are written in Corporation
Act. Below mention are some duties which has been discussed in parallel common law duties
which must be adhere by government board (Dignam and Hicks, 2011). While conducting any
business, directors are required to; act in good faith, have to avoid improper use of position, do
not provide unauthenticated information to employees and many more. If any director is found
with that anyone is breaching statutory duties, then duty will be imposed on them which are
described in Corporation act. Penalty amount is up to $2,00,000. This penalty is described in
both common and Corporation act. Moreover, it may also require that officer will held liable to
compensate some amount of profit or in some cases directors may also disqualify from
organisation.
In given case scenario, Storm Financial Limited was an Australian Financial service
license holder who is providing services according to model which was made by Mr Cassimatis,
he was the one of two director of Storm. This model is related with client’s borrowings which
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was against equity while purchasing homes, using funds to invest in index funds or maintaining a
cash reserve ratio. This concept was applied to clients of Storm and due to this investor had
suffered from losses when Global financial crises arises.
The proceeding between ASIC and Mr & Mrs Cassematis (directors of Storm) were
commenced in 2010. ASIC were alleged that director had breach their duties under section
180(1) of Corporation Act. They had broken duties in that circumstances where Storm was
solvent and Mr and Mrs Cassimatis was only the director and shareholder and there was no
dispute the directors and managed accordance with wishes of shareholders.
ASIC v Cassimatis, legal issues were that company as a “stepping stone” are found with
that directors have breached their duty under section 180 of corporation act. Section 180 states
legal duties and responsibilities of directors which has to comply by them in order to perform
their business functions (Australia: A Storm Warning – Directors duties in tightly held
companies, 2017). In company, directors have to act with reasonable care and diligence. This
would require that director must exercise their duties with rational care in crucial situation also.
Accordingly, in certain cases, directors must exercise their power and discharge their duties and
delegate to another reasonable person who were already administrator of company in crucial
situation and having same responsibility which are held by existing director. But there is one rule
of business judgement which provide protection to directors while breaching their duty.
2. Relevant laws
There are many laws which are written in Corporation Act and providing civil obligation
to director in which they cannot pass unnecessary information to employees. Section 183 of
mentioned act, states that if director is providing any illegal information or other officer or
employee, then they must not comply to use as advantage for someone else or for themselves
which is causing damage to them. But section 184(3), provide that if this information’s are used
for the purpose of dishonestly, then directors or officers or employees are committing a criminal
offence.
As per provision of Corporation Act, section 182 provides civil obligation which
prohibits that any director, employees, or officer, or secretary are misusing their position which
is causing damage to else or themselves. For this section 184(2), specifies that these people are
committing an offence if their position are used as dishonestly.
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Section 191 of above act, it is a responsibility or duty of director who are having personal
interest in the affairs of company should give notice of interest, until and unless it is specifies
under exceptions (Druckman, Peterson and Slothuus, 2013). In this notice, it should include all
details of nature and up to what extent of interest is there and should be kept in the meetings of
director as that it can be applicable as soon as possible and other administrator are become aware
about this.
With reference to given case scenario, Mr and Mrs Cassimatis had breached his duty
under corporation act and providing financial services according to model to the group of
vulnerable clients which has been identified by ASIC. For this directors had broken their duties
in regard to care and diligence.
3. Arguments made between parties of above case
Storm Waning is an important issue which provide clear warning to director in context of
section 180(1). When considering that whether director had breached their obligation under
section 180(1), court will look upon that existing director will be replaced by new administrator.
Through this, court will see that whether they are acted as existing director or not or have to
apply different approach to perform their roles and responsibilities.
For understanding the decision of Edelman, then it must first examine section 180(1). In
this directors, employees or officers having owe several number of duties towards their
organisation. One of the main duty is exercise within care and diligence.
Arguments between parties are that, director of company argued that, duty which is owed
to them can be considered as a private duty (Dykstra and Sherman, 2011). It also consists of an
ability which is laid drawn by ASIC to apply public sanctions as well as enforcement. Moreover,
they also argued that if company is solvent, interest of company will be on shareholders.
In contrast to this, ASIC argued that section 180 creates an independent public duty
which require consideration of “general norm of conduct” and is not limited to the interest of
corporation. It is considered as duty of director towards interest of public.
4. Stating decision of this case
The judgment of court is that, ASIC believes Emmanuel and Julie Cassimatis, they are
responsible for Storm offering a commoditised financial advice services to their clients. An
advice is that ‘one size fits all’ financial advice. It means that they are providing same solution to
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all customers whether their issues are different from each other. It is their responsibility to help
each individual on the basis of their financial circumstances that’s what said in “Storm Model”.
ASIC’s case is that model of Storm is causing Storm to:
1. When there is breach of responsibility, then it has to provide;
 Efficient, honest and fair solution in regard to financial services, and
 Give advice according to the need of individual circumstances.
2. Providing false and misleading information advices which were issued to Storm’s clients;
and
3. Providing negligent financial advice to their clients and breaching their contractual duties
to exercise them with reasonable care and skills.
Court reject the application of ASIC submission which is breach by Storm and it was
sufficient to establish breach of duty under section 180(1) by director.
 The duties were covered under section 180(1) which are owed solely to company.
Judgment of court dealt with liability issues only. The penalties will be imposed on the
basis of hearings which will take place in future. Emmanuel and Julie is paying penalty for
instance and they found with that they had breach the duties. The amount which has been
implemented by court is up to $2,00,000. Further, these both persons are disqualified from
managing company for a particular period if court thinks that; it is necessary. Along with this,
Bothe Cassematis and Emmanuel are preventing from holding an Australian financial service
license and provide services within country, this can also implement by court.
ASIC was successful in their proceedings. Any penalties which is paid by Cassimatises
will not form the part of investor reimbursement under Corporation act 2001 and it should
require that this to be rewarded to commonwealth government.
PART B
There are rules and regulations which has been framed under Corporation Act 2001 while
removing of any director. If any company want to remove any director from their position, then
they must comply with existing rules and regulations which are written on acts. General rules are
that company constitution are dealing with resignation or removal of director. Along with this
there are many opportunities where companies can fill their casual vacancies when director is
leaving organisation. Section 203A-203F of corporation act 2001 provide legal framework for
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resignation, removal of director or retirement. Below mention are some requirements which has
been explained for particular types of companies.
How director can resign from office, directors are having authority to given notice on
written to company registered office (Gennari and Messina, 2014). Alternatively, they are also
having option to give written notice of resignation to Australian Securities and Investment
Commission (ASIC). It is significant for administrator if they are resigning from organisation,
then they have to follow all formalities which are provided by organisation or act.
There are several ways in which director can leave or be removed from business entity
such as; resignation, removal by members, breach of provision which is set put by constitution
(for example, unsound mind, not attending meeting commonly from three to six months or
failing to declare about their interest towards company), bankruptcy, death or disqualification
from managing a business.
In public company director can be also removed by members. In simple words, members
or shareholders are having authority to remove director by passing resolution under section 203D
(1). If a director is belonging from particular class of shareholder or debenture holder, then
resolution to remove them will not take place until and unless replacement representative has
been appointed in place of them. The board or other directors of company cannot remove
administrator. Any request or resolution or notice of director which purports the to remove
another administrator is considered as void under section 203E. This means that, there should be
prenuptial agreement, which states that if director resign from office if other administrator
request on it and these are not legally effectives. It is duty of director if they want to remove any
director, then resolution for meeting notice must be given at least two months before meeting is
to be held under section 203D (2). If a company is calling for a meeting after getting the notice,
resolution can also be passed if notice has been given for less than two months.
There is also another proprietary company where executives can be remove from
organisation by passing resolution. Director may also remove from organisation by majority
administrator, if this is allowed by constitution (Hutchinson and Duncan, 2012). If a person is
executive director, then it is essential for organisation to carefully read the terms and conditions
which is related with employment, unfair dismissal or natural justice requirements.
There are basically three types of disqualification where directors are removing for
organisation.
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Automatic disqualification – In this director automatically disqualify from company
when they have committed any offence which are of serious in nature.
ASIC disqualification – They can disqualify person up to seven years.
Court disqualification – The court is having authority to disqualify director for a
specific period, if they think that it is essential to take this action.
When company is passing resolution, then it is considered as formal way where
organisation is taking decision. There are two types of resolution i.e. ordinary and special. Under
Corporation Act 2001, most of the decision which are taken by company are essential to pass
resolution where consent of other directors is necessary to take. Ordinary resolution is not
specifically defined under mentioned act but it need only simple majority i.e. more than 50% of
votes must be cast in favour should be passed. There is some decision which can be taken at
meeting while passing ordinary resolution such as; election or re-election of director,
appointment of auditor, increasing or decreasing number of director, for taking strategic or
commercial decision and many more.
Special resolution, this required when certain need of changes is required in companies.
For example, if company wants to change in their memorandum of association, change in
company name or etc. are require to pass special resolution (Kershaw, 2012). If a meeting is held
under special resolution, then it is crucial that notice must include all essential requirements
which are required to be presented in meeting. It should clearly state that when meeting is to be
held, proxy information which are required to set in a standard form. While passing a special
resolution, there must be at least 75% of votes must be there and it should be in favour.
Passing a special resolution without holding a meeting is conducted in proprietary, then it
can also pass signing a single document. But where a partnership hold share together, then it
must be sign by each of them. For this resolution passed will considered when there is a sign of
last member. It means, members who are presenting in a meeting must be agree upon to pass
specific resolution for which it has been conducted (Kidholm and et. al., 2012). Further, 75%
threshold votes will apply when meeting is conducted physically; 100% of votes are needed to
pass resolution without holding any meeting.
In given case scenario, Koala Pty ltd company is operating a business who is selling soft
toys across the world. There are siblings who are working in organisation Khaled, Kanye, Keith
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and Kylie and one director is Koala who are holding 25 ordinary shares individually. As per
clause 9K of constitution of Koala all person is liable to work at all times.
In organisation, meeting was conducted among Khaled, Keith and Kylie which are
passing resolution and in this Kanye is voted against the resolution. After meeting is held, it was
resolved that Koala Pty Ltd requires additional capital in order to purchase more stock, Kahled is
issuing 25 ordinary shares, Keith 25 ordinary shares and 25 ordinary shares to Kylie and their
consideration was 1000$ for each share.
In May 2017, extraordinary general meeting was held by company where special
resolution is passed for removing Clause 9K which is covered in constitution. In the same
meeting, second resolution was also passed to remove Kanye as a director. After a period of
time, Keith and Kylie decided to establish a new business whose name is called Koala2 and in
which they will be shareholders and directors of organisation. To run this organisation, they are
purchasing products from local source and selling to foreign markets and earning so much
profits.
A.
According to Corporation Act 2001, any director cannot replace other administer until
and unless it is covering under specific law. If they want to disqualify any director, then there
should be agreement between them (López-Alt, Tromer and Vaikuntanathan, 2012). Further, if
director is appointed to represent their interest for particular shareholder or debenture holder,
then resolution will not take place until and unless replacement of their director has been
appointed.
In given case, if directors Khaled, Keith and Kylie wants to remove Kanye, then they
have to serve notice period to other directors also. So that their consent can be taken regarding
this. While removing any director, it is essential to pass special resolution where vote there
should be 75% of vote caste must be in favour. So according to this provision, Kanye will not
become successful because there are three other directors who is voting against him.
Apart from this, in a single meeting double special resolution can be pass. But for this,
consent of all board of directors must be there. In addition to this all directors should be in
favoured whatever concerned is there in meeting.
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B.
As per provision of Corporation Act 2001, two director of same company cannot start
their business. While starting any business, it is essential for them too concerned with other
because they are using company name. If action would be taken by Khaled or Kanye will get
successful because Keith and Kylie are using previous company name and running their business
continuously. It will be considered as illegal because they are already director of existing
company (Reidenberg and et. al., 2013). If they are commencing any new business, then they
have to give notice to existing directors and have to take permission for them to run new
business.
Apart from this, it will be beneficial for Khaled or Kanye if they file suit against them
because Keith and Kylie is running business with the name of old company. For this they are
also entitle to get compensation amount from them. If Keith and Kylie wants to run their new
business, then they are having opportunity to do agreement with old entity, that some amount of
percentage profit should be share with them.
CONCLUSION
It can be concluded from report that, if directors are not executing their duties in
appropriate manner it contravenes under any act, then they are liable to compensate loss amount
to other party. Along with this, they have to comply with all those rules and regulations in which
they can operate their business. Further, there is also provision regarding removal of director, it
is crucial for entities to properly comply with them so that they can replace any director with all
formalities which are associated with them.
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Cassimatis civil penalty proceeding. 2017. [Online]. Available through:
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