ASIC v Adler Case Analysis: Corporate Law (CLAW314) Assignment

This essay provides an in-depth analysis of the ASIC v Adler (2002) case, focusing on the contravention of corporate law by the defendants. The case revolves around nine transactions that breached provisions of the Corporations Act 2001 (Cth), including the improper use of funds and breaches of director's duties outlined in sections such as 180(1), 181, 182, 183, and 588G. The essay examines the key legal issues, the specific duties contravened by each defendant (Mr. Adler, Mr. Williams, and Mr. Fodera), and the penalties imposed. It also discusses the actions directors should have taken to comply with their duties and the role of the Australian Securities and Investment Commission (ASIC) in the prosecution. The analysis highlights the implications of the judgment, particularly its impact on director's duties and corporate governance in Australia, underscoring the importance of diligent conduct and adherence to the law to prevent corporate failures. The essay also considers available defenses and the involvement of ASIC in initiating and continuing legal proceedings against the defendants, and concludes with observations about the impact of the decision on corporate law compliance.

Running head: CORPORATE LAW
Corporate Law
Name of the Student
Name of the University
Author Note

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ASIC v Adler (2002) 41 ACSR 72
Background of the Case
This present proceeding has been instituted before the court in relation to the contravention of the laws
applicable to corporations operating in Australia four individuals listed as defendants in this present
proceeding. The alleged defendants held liable under this proceeding are as follows:
• Mr. Adler designated as the shareholder along with a non executive director of HIH,
• Mr. Williams designated as the CEO and the founder of the HIH,
• Mr. Fodera designated as CFO as well as the HIH, and
• The Adler Corporations Pty Ltd.
The plaintiff involved in this proceeding who has been conferred with the institution of the proceeding
was the Australian Securities and Investment Commission (ASIC).
In this proceeding, there were nine transactions pointed out by the ASIC to have been executed by the
individuals listed as defendants that have contravened provisions of the Corporations Act 2001 (Cth).
There have been a payment of 10 million dollars with respect to a unit in the trust solely controlled and
regulated by Mr. Adler who was also designated as a non executive director in the insurance company of
HIH by way of an unsecured loan. The transfer has been carried out by Mr. Fodera. The trust involved in
this incident has been regulated by Mr Adler through the Pacific Eagle Equity Pty (PEE) and Adler
Corporations. The assets within that trust has been managed by PEE which includes technology stocks.
The worth of these stocks were much below the amount of 10 million dollars. Certain portion of this
$10000000 has been utilised by PEE for the purpose of buying shares of HIH. There has been a
shareholding substantiation belonging to Adler Corporations in HIH. The extended loan has never been
approved or presented for approval towards the shareholders of the company.

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Key Legal Issues
In this present proceeding, the legal issues that were presented was whether any of the directors duties
inculcated within the Corporations Act 2001 (Cth) have been contravened by any of the directors who
have been listed as a defendant in the present proceeding. There has been a breach of s 260A, the
Corporations Act 2001 (Cth). There has also been a breach of the provisions contained in the sections
discussed as below:
• The provisions contained in s 180(1), the Corporations Act 2001 (Cth) that requires the director
to abide by the duty of acting in a diligent and careful manner while exercising their powers as a director.
• The provisions contained in s 181, the Corporations Act 2001 (Cth) that requires the director to
abide by the duty of carrying out their actions as a director in utmost good faith serving a proper purpose
for the company that ensure the best interest of the company.
• The provisions contained in s 182, the Corporations Act 2001 (Cth) that requires the director to
abide by the duty of abstaining from utilising designation as a manner which is improper for the
company.
• The provisions contained in s 183, the Corporations Act 2001 (Cth) that requires the director to
abide by the duty of utilising the information that they have accessed owing to their designation as a
director in a proper manner.
In this case, Mr Adler has contravened the provisions contained in s 180(1), s 181, s 182, s 183, the
Corporations Act 2001 (Cth). He has also breached the provisions contained in section 588G, the
Corporations Act 2001 (Cth)this is because he has been involved in the arrangement which has caused a
collapse within the largest insurance company operating in Australia causing the company to be declared
as insolvent.

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Mr Williams was also in contravention of his duties contained in s 180(1), s 182, the Corporations Act
2001 (Cth).this can be conserved from the fact that he has exhibited of failure in ensuring the institution
of adequate safeguard before allowing a loan of 10 million dollars without any security towards PEE.
There has been a breach of s 180(1), the Corporations Act 2001 (Cth) as committed by Mr Fodera owing
to his failure make a submission of the proposal before the board of the company or the committee with
respect to the investment for the approval of such a loan extended to PEE.
Penalties
Mr. Adler has been found to have reached all the duties that has been provided under the provisions of the
Corporations Act 2001 (Cth). There has been bundle of 3 punishments that the commission has been
seeking against Adler. The first punishment that has been sought for by the commission for Adler was the
disqualification to be affected for him for the purpose of prohibiting him from being designated in a
managing position in a corporation in future in accordance with s 206C & 206E, the Corporations Act
2001 (Cth). The second punishment that has been sought for by the commission for Adler was the
compensation as provided for in s 1317H, the Corporations Act 2001 (Cth). The third punishment that has
been sought for by the commission for Adler was a pecuniary penalty that has been provided under s
1317G, the Corporations Act 2001 (Cth). This is because of the fact that there has been a repeated breach
of the provisions of the law relating to corporations made by Adler in this present proceeding. All the
three directors has been subjected to compensation under the provisions mentioned in the law for
contravening their duties under the Corporations Act 2001 (Cth). There has been a pecuniary penalty
being imposed upon Adler amounting to 450000 dollars for Adler and the Adler Corporations. The
directors were also subjected to compensation as well as disqualification from carrying out there duties in
the management of any company. There were other criminal charges being imposed upon Mr Adler for
the purpose of deliberately breaching his duties and causing the company to be declared as insolvent.

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Probable Action that the Directors were to Undertake
There were certain actions that the directors involved in the case were required to ensure abidance. This
includes, the provisions contained in s 180(1), the Corporations Act 2001 (Cth) that requires the director
to abide by the duty of acting in a diligent and careful manner while exercising their powers as a director.
In this case all the directors involved where under an obligation to have acted in a diligent manner for the
purpose of continuing with their duties as a reasonable man with the exercise of proper care and
diligence. The provisions contained in s 181, the Corporations Act 2001 (Cth) that requires the director to
abide by the duty of carrying out their actions as a director in utmost good faith serving a proper purpose
for the company that ensure the best interest of the company. The directors in this case have been under
an obligation to abide by the provisions that have been contained in this section and should have
undertaken all their endeavours to ensure abidance with their duty act in all circumstances in good faith
and are to abide by the duties they have been owing with respect to their designation. The action that they
have been taking should have the effect for serving a purpose for the company. It needs to serve a
beneficial interest for the company they have been involved into. The provisions contained in s 182, the
Corporations Act 2001 (Cth) that requires the director to abide by the duty of abstaining from utilising
designation as a manner which is improper for the company. The directors involved in this case should
have continue to refrain from utilizing their position to ensure the personal benefit of the directors
compromising the well being of the company. The provisions contained in s 183, the Corporations Act
2001 (Cth) that requires the director to abide by the duty of utilising the information that they have
accessed owing to their designation as a director in a proper manner. The information that has been
available to Adler should have been used for a proper purpose of the company and not to reap personal
benefits from the same. Moreover, the directors might have acted in accordance with the provisions
contained in s 588G, the Corporations Act 2001 (Cth). This required them to refrain from continuing the
activities that has the probability of pushing the company towards insolvency. They should have been
acted in a manner that would have justified their action under the section 588H. This provide an immunity

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towards the directors for any of their actions taken in good faith causing detriment to the company
pushing it towards insolvency. For availing this immunity the directors would have taken actions in the
situation in a way that can be proved to be the best possible action that has the prospect to being taken
under the given set of situation. A defence under s 180(2), the Corporations Act 2001 (Cth) has also been
available towards the directors of the company if they can show that all their action have been taken in the
furtherance of their perspective to have caused benefits for the company. However, the directors in this
present proceeding has failed in their abidance towards the establishment of the their reasonable belief
that their actions where apparently proper with respect to the circumstance they have been put into.
Hence, their actions are not subjected to be extended with the protection under the defences that are
available under the provisions of the Corporations Act 2001 (Cth). Hence, the directors in this case were
held to be liable and to be imposed with penalty.
Involvement of ASIC
The Australian Securities and Investment Commissions were involved with the power initiate
prosecution or cause of prosecution to be initiated against a company or its directors. This section will
only come into application if it has been made evident towards the commission that after all the
investigation the person husband proven to have committed in offence or should be prosecuted for the
same. This section also empowers the commission to make a prosecution to be carried out continuously.
This power has been conferred upon the commission as per the provisions contained in s 49, the
Australian Securities and Investment Commissions Act 2001 (Cth). The commission is also empowered
for causing the initiation of a Civil proceeding against the directors or against any company if it has been
made clear to them that a fraud, negligent activities, misconduct or breach has been carried out. It
empowers the commission to make the initiation of the proceeding as well as make the proceeding to be
continued. This has been provided to the commission as per the provisions contained in s 50, the
Australian Securities and Investment Commissions Act 2001 (Cth). In this case, the ASIC has initiated
the proceeding against Adler and the other defendants when it has been meet cleared by there

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investigation that the company and the arrangement between the directors have been creating frauds and
misconduct.
Implications
There has been a contention that has been found in this judgment has been unique. The director namely
Mr. Fodero and Mr. Williams were not directly involved in any of the fraudulent activity that has been
carried out by Mr. Adler. However, they still were made to be held liable for all these fiasco because they
failed to prevent the same. In general senses, it might feel unjust but owing to the position they have been
holding in the company, this has been justified for the court to contend the same.
Observations
After this decisions there has been a stringent abidance of the directors duties that has been ensured. This
has caused the biggest collapse in the Australian corporation sector. This is because HIH was the largest
insurance company that has been operating in Australia. Moreover, after this decision the ASIC has
become more stringent in its endeavours to prevent the misconduct existing within the corporations and
the early detection of such discrepancies. This case has also enhanced the role of corporate governance in
the country and within the corporate sector to ensure proper adherence to the managerial rules of the
companies.

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Reference
ASIC v Adler (2002) 41 ACSR 72
The Australian Securities and Investment Commissions Act 2001 (Cth)
The Corporations Act 2001 (Cth)