Corporate Law Assignment: Analysis of Austin Retail Ltd. Case Study

This report analyzes a corporate law case study involving Austin Retail Ltd., focusing on several key legal issues. The analysis centers on the application of the Corporations Act 2001 (Cth) and addresses issues such as disclosure obligations related to financial statements, the issuance of shares, misleading and deceptive conduct in the advertisement of financial products, and the extent to which directors can rely on expert advice. The case study highlights the responsibilities of directors and officers, emphasizing their duty of care and diligence, as defined by the Corporations Act. The report examines the implications of non-compliance with the Act, including potential fines and penalties, and the importance of continuous disclosure to regulatory bodies like the ASX and ASIC. The analysis covers the provisions related to misstatements in disclosure documents and misleading conduct concerning financial products. The report concludes by applying these legal principles to the facts of the case, assessing the actions of company officers and directors, and determining whether breaches of the Corporations Act have occurred.

Running Head: CORPORATE LAW
CORPORATE LAW
Name of the Student:
Name of the University:
Author Note

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Issue:
In the given scenario, the issues that exist are related to disclosure obligations of financial
statements, issue of shares, misleading and deceptive conduct in relation to advertisement of
financial products and the right of directors to rely on the expert advice provided by experts and
competent personnel. All these issues have been identified in context of the case study of Austin
Retail Ltd.
Rule:
The law which governs the conduct and the operations of businesses in Australia is the
Corporations Act 2001 (Cth)1. This act provides the liabilities, right and duties of the people who
are in charge of the operations of the business and management of the affairs of the company. It
can be stated that after the incorporation of a company, a company enjoys separate legal
existence. This principle of separate legal entity of a company had been established in the
landmark English case Salomon v Salomon. However, company only enjoys separate artificial
existence; it has to rely on human help for conducting its operations2.
This legislation provides that any director or officer of an organization has the obligation to
ensure that the company or organization in consideration complies with the provisions as
provided in the aforementioned act3. If any of the persons who are in charge of managing the
affairs of the company fail to comply with the provisions of the Corporations Act, fines and
penalties are imposed on the company and on the directors or officers on some occasions.
1 Corporations Act 2001 (Cth)
2 Bottomley S, Hall K, Spender P, and Nosworthy B, Contemporary Australian Corporate Law 1st edition 2017
Sydney Cambridge
3 Harris, J. Hargovan, A. Adams, M., Australian Corporate Law LexisNexis Butterworths 5th edition, 2015.

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It has been specifically provided in section 189 of the Corporations Act 2001 that an officer or
director of the company can rely on the expert and professional advice provided if it is believed
by the director of the company that the advice provided by the expert was within the expertise of
the director. The reliance on the expert advice provided by an expert is considered to be
reasonable and accepted in the court as a ground of defense if it is established that the reliance
had been made in good faith, the director had made an independent assessment of the
information that he relied upon and the reliance was reasonable4.
Section 180(1) of the Corporations Act 2001(Cth) lays down the provisions of the breach of
duties of directors5. In accordance with this section it can be stated that directors or the officers
of the company have the duty of care and diligence while discharging their duties. The duty of
diligence and care of directors are assessed by the perspective of any reasonable person acting in
the same circumstances and the position of directors. In the case ASIC v Australian Property
Custodian Holdings Limited [2013] FCA 1342, it had been held by the court that a director
cannot be considered to have acted with due care and diligence if it is established that he did not
make any personal enquiries about the truth and genuinely of the information which had been
provided by the outsider and on which he relied6. A director has the statutory duty of
discharging his duties as any reasonable director acting in his position would have done. If it is
established that any other director would have discharged their duties with additional care and
diligence such director would be held to have breached his duty according to the provisions of
section 180(1).
4 Baxt, R., and Fletcher, K.L., Fridman, S., Corporations and Associations Cases and Materials on, Butterworths,
Australia, 10th edition, 2008
5 Corporations Act 2001 (Cth)s180(1)
6 ASIC v Australian Property Custodian Holdings Limited [2013] FCA 1342

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Further in accordance with section 674 of the Corporations Act 2001 it can be stated that every
organization and company has the responsibility to inform the ASX or ASIC in relation to
information that is available to participants of the market7. The ASIC and ASX are independent
government bodies which act as market operators8. It has been provided in subsection 674(2) of
the Corporations Act that this section would be applicable to a disclosing entity9. This section
states that companies and corporations have the duty of informing the market operators about
any information which is not readily available to the public and is expected by a person,
reasonable in nature to have material effect on the price and value of the companies’ securities
when such information is disclosed to the public. It can therefore be stated that the market
operator has to be notified about the information as discussed above as per the provisions of law.
Any contravention of this section imposes a civil penalty as per the provisions of section 1317e
on the contravening party10. It has been clearly specified in section 674(2) of the Corporations
Act 2001 that any person who is responsible for making the company breach the obligation of
the company to continuously disclose information will personally liable for Contravening the
provisions of this section. Contravention of the provisions of this section can also be considered
to be an offense under 1311(1) of the CA11.
Section 728 of the Corporations Act 2001 lays the down the provisions of misstatements and
omission from a document of disclosure. It can be stated in accordance with this section that any
person who indulges in offer securities by a disclosure document must not disclose any
document which he suspects to contain deceptive and misleading statements12. In case a new
7 Corporations Act 2001 (Cth) s674
8 Austin R.P. & Ramsay, I., Ford's Principles of Corporations Law, Butterworths, Australia, 16th edition, 2014.
9 Corporations Act 2001 (Cth) s674(2)
10 Corporations Act 2001 (Cth) s1317e
11 Corporations Act 2001 (Cth) s1311(1)
12 Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, Sydney, 9th edition 2013

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situation arises after the disclosure document has been lodged the person concerned must not
offer any securities. In subsection 728(2), it has been clearly provided that any person who
produces any statements in relation to future matter without having reasonable grounds to
believe that the statements made in relation to the future matter to come true would be held to
have provided a misstatement13. In accordance with subsection 728(3) it can be mentioned that
any person who contravenes the provisions of subsection 728(1), such person would be held to
have committed an offense as such misstatement is reasonably believed to hae adverse impacts
on the investors. The case Australian Securities and Investment Commission v Sino Australia
Oil and Gas Limited (in liq) [2016] FCA 934 discussed the provisions of misstatements as
provided in the aforementioned section14.
In section 764 (a) of the Corporations Act 2001 it has been clearly provided that a security of a
company is a form of financial product15. Section 1041 of the CA deals with the provisions of
misleading and deceptive conduct in relation to financial product. In subsection 1041H it has
been clearly provided that any person who is associated with a company must not indulge in any
conduct which is likely to deceive and mislead the audience specially when such conduct is in
relation to the financial products and services of the company16. It can be further stated that if
any company fails to notify about the financial situation of the company which is likely to have
an impact on the price of the shares, such conduct can be considered to be misleading and
deceptive or likely to mislead and deceptive. In case of breach of this section a civil penalty in
imposed on the person who engages in misleading or deceptive conduct17.
13 Baxt, R., and Fletcher, K.L., Fridman, S., Corporations and Associations Cases and Materials on, Butterworths,
Australia, 10th edition, 2008.
14 Australian Securities and Investment Commission v Sino Australia Oil and Gas Limited (in liq) [2016] FCA 934
15 Corporations Act 2001 (Cth)s764(a)
16 Corporations Act 2001 (Cth) s1041H
17 Hanrahan, P., Ramsay I., Stapledon G., Commercial Applications of Company Law. Oxford 18th edition 2017

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Under the provisions of Corporations Act 2001 any person who consented to the issue of
statements which are related to the prospects of the company, and director and underwriter of the
offer is personally liable to the investors for the losses incurred by the investors due to the
mistakes in the prospects of the company18. A prospectus of a company would be considered to
be defective if such prospectus contains misleading and deceptive information. A prospectus can
also be considered to e defective if it contains any omission related to change of situation which
has not been disclosed.
Application:
Thus by analyzing the facts of the case which has been provided through the given scenario, it
can be stated that Austin issued prospectus for the purpose of raising twelve million dollars. The
company issued shares for raising the capital. In accordance with the provisions of the
Corporations Act the prospectus had been lodged with the ASIC. However, it later turned out
that the Prospectus issues was faulty as the information contained in it was incorrect. Bob,
commercial sales manager of Austin had relied on the information based on the research which
had been poorly conducted by DB Consultants. However, in this given scenario it is been clearly
provided that the sales manager Bob Brown had an intuition that the information that had been
provided to him was erroneous however, he did not make any effort to inspect the validity of the
report provided by DB consultants, neither did he make enquiries into the matter personally.
Therefore, in accordance with the provisions of section 189, it is clearly evident that Bob Brown,
an officer of the company failed to comply with provisions of the aforementioned section. It can
be stated that for claiming valid reliance, he had a duty to be reasonably sure that the information
provided to him through the report was accurate. However, his failure to make personal enquiries
18 Redmond, P., Companies and Securities Law - Commentary and Materials, Law Book Co., Sydney, 5th, 2009.

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about the correctness of the report provided by DB consultants, in spite of having a suspicion
clearly indicate that his action was not reasonable and therefore he cannot claim his right to rely
on the expert advice
Further it is evident in the given set of circumstances that by virtue of being the Sales Manager
of the company Austin he had a duty under section 180 of the Corporations Act to act with due
care and diligence. However, he did not inspect the forward book of orders personally which can
be considered to be within the scope of a sales manager. It can be stated in reliance with the
provisions as provided in section 180 that any reasonable director or officer of Austin, acting in
the same circumstance and in the same position as Bob Brown, would have taken additional care
to inspect the forward books of orders and make personal enquiries when he had a suspicion that
the information was not accurate. Thus in this case it can be illustrated that Bob Brown breached
his duty of diligence and care as provided in provided in section 180 of the Corporations Act.
Further in accordance with the provision as provided in sub section 180(1) of the CA, it can be
stated that Bob can be held to personally liable as he was responsible for making the Company
breach the legal provisions of the CA.
In this case study, it is evident that the company Austin had issued a prospectus to raise capital
for the company. The prospects that had been issued by Austin was incorrect and the company
had become aware that the information contained in the prospectus was incorrect. Therefore
according to the provisions as provided in section 674(2) of the CA it can be analyzed that
Austin had the obligation and responsibility to inform the ASX about the change in the
circumstances of their financial prospects. Any reasonable person would have felt that the
change in the financial prospects would adversely impact the price of the shares issued by the
company. In this given case study the forward book of orders had been showing an amount

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which exceeded the original amount and therefore, it was the duty of the company to inform the
ASX about the matter. However Austin did not notify ASX about the same and subsequently
breached the provisions of the section 674 of the Corporations Act 2001. Further it can be stated
that the directors who had been responsible for making the company breach the duty of
continuous disclosure as provided in section 674 would also be liable personally.
Further in this give scenario, it is evident that the directors of the company breached the
provisions section 728. This can be substantiated by the fact that information which had been
contained in the prospectus in relations to the future matters of the company was incorrect. The
company projected the forward book of orders to be 25 million for the next three years where as
in reality it was only 15 million in reality. Dendy Securities, who were underwriters of Austin
Ltd would also be liable in the given circumstance.
The company had also breached the provisions of section 1041H as it did not notify about the
present financial situation of the company and thus engaged in misleading and deceptive
conduct.
The two defenses can be available to the company under section 180(1) and 189 of the CA
provide the defense of due care and diligence and right to rely on expert advice. However these
defences would not be applicable due to the reasons discussed above.
Conclusion
Thus in conclusion, it can be stated that Austin, Bob Brown, DB consultants and Dendy
securities could all be held liable for the incorrect disclosure of documents.

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Bibliography:
Corporation Act 2001 (Cth)
ASIC v Australian Property Custodian Holdings Limited [2013] FCA 1342
Australian Securities and Investment Commission v Sino Australia Oil and Gas Limited (in liq)
[2016] FCA 934
Bottomley S, Hall K, Spender P, and Nosworthy B, Contemporary Australian Corporate Law 1st
edition 2017 Sydney Cambridge
Harris, J. Hargovan, A. Adams, M., Australian Corporate Law LexisNexis Butterworths 5th
edition, 2015.
Austin R.P. & Ramsay, I., Ford's Principles of Corporations Law, Butterworths, Australia, 16th
edition, 2014.
Baxt, R., and Fletcher, K.L., Fridman, S., Corporations and Associations Cases and Materials on,
Butterworths, Australia, 10th edition, 2008.
Hanrahan, P., Ramsay I., Stapledon G., Commercial Applications of Company Law. Oxford 18th
edition 2017
Redmond, P., Companies and Securities Law - Commentary and Materials, Law Book Co.,
Sydney, 5th, 2009.
Parker, Clarke, Veljanovski, Posthouwer, Corporate Law, Palgrave 1st edition 2012

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Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, Sydney, 9th edition
2013