Corporate Law Report: Ardent Leisure's Corporate Governance Failures

This report provides a detailed analysis of corporate law principles, specifically focusing on the corporate governance failures of Ardent Leisure Pty Ltd in relation to the Dreamworld incident. It examines the company's failure to establish a risk management framework, as stipulated by the ASX, and the subsequent consequences of this failure, including the tragic accident at Dreamworld. The report discusses the responsibilities of the board of directors, their adherence to Section 180 of the Corporations Act 2001 (Cth), and the importance of acting in the best interests of the company. The analysis covers the 'if not, why not' rule of the ASX, the impact of the incident on the company's reputation and financial status, and the subsequent actions taken by the company. The report highlights the importance of corporate governance in ensuring accountability and protecting the interests of stakeholders, emphasizing the need for effective risk management and adherence to legal and ethical standards.

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

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Table of Contents
Question A.......................................................................................................................................2
Question B.......................................................................................................................................4
Question C.......................................................................................................................................5
Question D.......................................................................................................................................7
Reference List..................................................................................................................................9

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Question A
Corporate Governance refers to the process by which the corporations and the authorities
exercising control over the company are responsible for carrying out business operations in
manner that not only achieves the goal of the company but also cater to the need of the society
altogether. a good corporate governance practice enables the company to build up confidence in
the investors which in turn, encourages the investors to make significant investments in the
company1.
The ASX have laid out certain principles of good corporate governance practice and
recommends all the corporations to follow the principle in order to ensure the company goals as
well as the goals of the society are achieved. The ASX has stipulated under Principle 7 of the
Corporate Governance that every organization must establish an appropriate framework that
would recognize the risks associated with the business operations of the company and mitigate
the risks. The board of directors shall be considered as the members of such risk management
framework who shall engage in various processes that would be deployed on identification of a
risk, in order to mitigate such risk. In the event, the company fails to identify or mitigate the
risks, it would not only affect the reputation and good will of the company in the society but it
would also discourage the investors from making significant investments within the company.
In regards to the corporate governance practice of the company Ardent Leisure Pty Ltd in
relation to the Dream World project, it is perceived that the company is not only alleged to have
failed to identify the risks associated with its business operations but it has also failed to mitigate
the risks. The Board of the company has not taken any initiative to implement measures after the
1 Pearson, Gail. "Failure in corporate governance: financial planning and greed." Handbook on Corporate
Governance in Financial Institutions (2016): 185.

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Dream world incident that claimed lives of many patrons. This establishes the fact that the
company had failed to act in compliance with the Principle 7 of good corporate governance,
which required the company to identify the risks and mitigate the same.
The ASX has stipulated that the every company is required to establish a separate
committee that would be engaged in recognizing the risks associated with the business activities
carried out by the company2. Principle 7 of good corporate governance requires the Board to
examine the issues and implement precautionary measures with a view to mitigate the risks3. The
committee shall have three separate directors who are obligated to act in compliance with the
legal rules and are entitled to work independently.
From the above discussion it can be inferred that the company Ardent leisure failed to
establish a risk management committee as a result of which it as incapable of implementing any
effective measures to mitigate the risks that as associated with the Dream world theme park.
Apart from failing to establish a committee that would have identified the risks, the company had
failed to initiate any effective action to deal with the post accident in the Dream World theme
park. The Board of the company can be held responsible for the failure of the company to
recognize the risks and mitigate the same.
It is imperative for every listed company to incorporate principles with respect to good
corporate governance as it aims at ensuring the accountability of the employers and the
employees of the company4. It would further enable the company to attract the investors to make
significant investments in the company. Ardent Leisure had failed to establish risk management
2Council, ASX Corporate Governance, and A. S. Exchange. "Corporate governance principles and recommendations
. ASX Corporate Governance Council." (2014).
3 Price, John. "ASIC report: The director's role in corporate governance." Company Director 30.1 (2014): 12.
4Williams, Belinda Rachel, Simone Bingham, and Sonia Shimeld. "Corporate governance, the GFC and independent
directors." Managerial Auditing Journal 30.4/5 (2015): 324-346.

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committee and led to the causing of the accident and the company was unable to deal with the
circumstances even after the incident had taken place. Further, the ASX stipulates that an
occupier of any premises shall be responsible for any form of damage that takes place within the
premises whether such damage is caused to human life or any property, the occupier shall be
responsible to mitigate such risks. In case of Ardent Leisure, the company failed to act in
compliance with the statutory rules stipulated by ASX and failed to avert the accident causing
death of several patrons.
Question B
According to the rules stipulated by the ASX, every company is required to establish a
risk management committee that would be responsible for recognizing the risks and mitigate
them. The Board is required to implement effective measures with a view to mitigate the risks
that arises from the business operation carried out by the company. The ASX has established the
‘if not, why not’ rule according to which the listed companies are permitted to refuse the laws
stipulated by the ASX but the companies must provide adequate reasons for not accepting or
following the rules of the ASX5. If the company fails to provide necessary reasons for not
following the rules, it shall be entitled to penalties of $1000000 as was observed in Sino
Australia Oil and Gas Limited (Company) where the ASX imposed penalties on the company6.
As discussed above regarding the significance of the principle 7 of Corporate Governance
it can be inferred that the company Ardent leisure has failed to establish a risk management
framework that would identify the issues or risks associated with the business activities and
5 The Guardian. (2017) <https://www.theguardian.com › World › Australia › Dreamworld>.
6 Gilligan, George, et al. "Penalties Regimes to Counter Corporate Misconduct in Australia–Views of Governance
Professionals." (2017).

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implement necessary measures to mitigate such risks and issues7. The incident in the Dream
world could have been averted if the company had an effective risk management framework to
mitigate the risks, nevertheless, the company demonstrated a careless attitude towards the
business activity carried out by the company. With the establishment of the risk management
framework, the company would have been able to identify the socio-environment risks that were
present in the Dream World theme park8. Hence, it can be asserted that the failure on part of the
company is the sole reason for the occurrence of the Dream world incident.
The incident that occurred was solely because of the incompetence of the company
Ardent leisure that acted in contrary to the principle 7 of good governance. The incident not only
affected the financial status of the company but also affected the reputation and the goodwill of
the company in the society, which further had an adverse impact on the effectiveness and profits
of the company. The company became financially vulnerable owing to the financial loss it
suffered due to the occurrence of eth accident and the financial penalty that was imposed upon
the company by the ASX. The company had deliberately exposed itself to the risk that would not
have happened but for the company’s failure. The Dream World accident has adversely affected
the reputation and net value of the company largely.
Question C
The ASX stipulated that the Board of Directors of every organization is required to act in
the best interest of the company and ensure that they exercise due care and diligence while
carrying out the business operations within the company. The directors are further required to
7Young, Suzanne, and Vijaya Thayil. "Corporate social responsibility and corporate governance: Role of context in
international settings." Journal of Business Ethics 122.1 (2014): 1-24.
8Dreamworld’S Parent Ardent Leisure Is In Damage Control (2017) NewsComAu
http://www.news.com.au/finance/business/other-industries/dreamworld-parent-company-ardent-leisure-in-crisis-
after-fatal-theme-park-accident/news-story/00c3d7a283c19e05427f273bb3a44e39

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exhibit necessary skills and expertise while making the decisions, which must be taken, in good
faith and in the best interests of the company. Further, the directors are required to act in
compliance with the laws stipulated by the ASX with respect to the incorporation of good
corporate governance in a corporation.
The directorial duties discussed above are stipulated under section 180 of the
Corporations Act 2001 (Cth) which obligates the directors to act in good faith and in the best
interests of the company. The directors of the company are required to exercise due care and
diligence while making decisions taking into consideration that the sole objective of the board is
enhance the development of the organization. the directors who are incapable of making
decisions in the best interests of the company and they act in contrary to the interest and
development of the company, shall be subject to civil penalties as laid down under section 1317
of the Corporations Act 2001 (Cth). Further, the directors are prohibited by the Corporation Act
2001 (Cth) to act in the personal interest of the directors. In case of a conflict of interests, the
directors are required to give more priority to the interests of the company than their personal
interests9.
In the given case, it is established that the company Ardent leisure has failed to act in
compliance with section 180 of the Act as well as the laws laid down under the ASX with
respect to the good corporate governance. The Dream World incident was a result of the
incompetency of the directors to act in compliance with the laws while they were of sound mind
and capable of making decisions in the best interest of the company10. It is evident from the
conduct of the directors that they have infringed section 180 of the Corporations’ Act 2001 (Cth)
9 The Corporations Act 2001 (Cth).
10 Gilligan, George, et al. "Penalties Regimes to Counter Corporate Misconduct in Australia–Views of Governance
Professionals." (2017).

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and any prudent person would have acted in compliance with the laws stipulated by the ASX and
the common law with respect to the directorial duties and the implementation of the corporate
governance practice by the company. Hence, the directors of the Ardent leisure are entitled to
penalties owing to its failure to deal with the incident that occurred in the Dream world.
Question D
In the given case, it has been observed that the company Ardent leisure Pty ltd did not
initiate any actions after the occurrence of the Dream World accident. The company did not even
contact the families of the deceased patrons where it is the fundamental right of any company to
ensure that information with respect to any accidents caused due to a fault on part of the
company must be made to the families of the injured persons11. The company was required to
initiate effective measures to deal with the situation after the Dream world accident but it failed
to initiate any such actions instead it kept on providing explanations, trying to the shield its
failure to implement a good corporate governance practice.
After being subjected to severe criticisms from the media, the company initiated
necessary precautionary measures to ensure that such incident does not take place in the future.
The Dream world par remained closed for 45 days as the company and police authorities were
conducting thorough investigations to discover the primary cause of the accident and to deal with
the cause. However, the fact that the accident would not have taken place if the company had
established a risk management committee and mitigate the risks.
Ardent Leisure considers itself the as a leading entertainment company and it is a well-
known fact that the company was a leading entertainment company whose reputation was
11 Vakkur, Nicholas V., and Zulma J. Herrera. Corporate governance regulation: how poor management is
destroying the global economy. John Wiley & Sons, 2013.

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affected due to the Dream world incident. The criticisms that the company was subject to, led the
CEO of the company Deborah Thomas resign from her post as her position in company was
criticized owing to her incompetency to implement necessary and effective measures to deal with
the post accident circumstances in the Dream World Park. The shares and stocks of the company
have been adversely affected due to the incident in the Dream World Park. Due to the occurrence
of the accident in the Dream World, the company had to concentrate more on the damage control
measures and procedures. The investigation with respect to the accident had commenced
following, which the company is engaged in damage control measures and closed the ‘Thunder
River rapid’ ride that caused such accident. This entire phenomenon had caused deviation of the
company from the other business operations, thus resulting in decline in the shares and stocks of
the company12.
The company had taken an initiative to establish a risk management committee that
would serve the purpose of recognizing the risks associated with the business operations and
mitigate such risks. The company asserts that it has initiated precautionary measures that would
be implemented to ensure the safety in the business operations carried out by the company.
However, despite the incident that took place due to the incompetence of the company to
recognize the risks and mitigate them, the company persists to deny the fact that their policies
must be reformed. It asserted that it was because of their policies, the company was able to retain
the top position in the global entertainment industry.
12 Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and practices. Oxford
University Press, USA, 2015.

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Reference List
Booth, Simon A. Crisis management strategy: Competition and change in modern enterprises.
Routledge, 2015.
Council, ASX Corporate Governance, and A. S. Exchange. "Corporate governance principles
and recommendations . ASX Corporate Governance Council." (2014).
Dreamworld’S Parent Ardent Leisure Is In Damage Control (2017) NewsComAu
http://www.news.com.au/finance/business/other-industries/dreamworld-parent-company-ardent-
leisure-in-crisis-after-fatal-theme-park-accident/news-story/
00c3d7a283c19e05427f273bb3a44e39
Gilligan, George, et al. "Penalties Regimes to Counter Corporate Misconduct in Australia–Views
of Governance Professionals." (2017).
Glendon, A. Ian, Sharon Clarke, and Eugene McKenna. Human safety and risk management. Crc
Press, 2016.
Pearson, Gail. "Failure in corporate governance: financial planning and greed." Handbook on
Corporate Governance in Financial Institutions (2016): 185.
Price, John. "ASIC report: The director's role in corporate governance." Company Director 30.1
(2014): 12.
Pritchard, Carl L., and PMI-RMP PMP. Risk management: concepts and guidance. CRC Press,
2014.
The Corporations Act 2001 (Cth)

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The Guardian. (2017) <https://www.theguardian.com › World › Australia › Dreamworld>.
Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA, 2015.
Vakkur, Nicholas V., and Zulma J. Herrera. Corporate governance regulation: how poor
management is destroying the global economy. John Wiley & Sons, 2013.
Williams, Belinda Rachel, Simone Bingham, and Sonia Shimeld. "Corporate governance, the
GFC and independent directors." Managerial Auditing Journal 30.4/5 (2015): 324-346.
Young, Suzanne, and Vijaya Thayil. "Corporate social responsibility and corporate governance:
Role of context in international settings." Journal of Business Ethics 122.1 (2014): 1-24.