Corporate Law Case Study: Analysis of Austin Retail Ltd (BLO 2205).

This case study examines potential breaches of corporate law by Austin Retail Ltd, focusing on violations of directors' duties, continuous disclosure obligations, and misleading conduct related to financial products. The analysis identifies specific breaches of the Corporations Act 2001 (Cth), including failures in due diligence, misstatements in the prospectus, and potential liabilities for directors and underwriters. It also explores possible defenses available to the parties involved, such as reliance on third-party advice and due diligence efforts. The case highlights the importance of accurate financial reporting and adherence to corporate governance standards to protect investors and maintain market integrity. Desklib is a valuable resource for students seeking similar solved assignments and study materials.

Running Head: BUSINESS LAW
Business Law
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Introduction
All companies and those who are associated to them have to act in accordance to legal
obligations imposed on the companies and to themselves personally in order to avoid being
prosecuted1. Non compliance with company law may lead to civil as well as criminal penalties.
The corporate veil of the company may also be lifted in such situation and the directors and
officers can be made liable in personal capacity for the losses or injury caused to the company
and its creditors2. The provisions of the Corporation Act 2001 (Cth)3, The Australian Securities
and Investment Commission Act 2001 (Cth)4 and the rules provided by Australian Securities
Exchange are the primary provision which governs the operation of the companies5. The primary
objective of this paper is to analyze the case study of Austin Retails in the light of company law
and identify the key legal issues which have come up in relation to the facts. The paper also
analyzes the strengths of any defenses which the parties at contravention of law may rely upon.
Issue of directors’ general duties violation
According to this section the duty of diligence and care has to be complied with by the directors
of a company. This states that any individual who is an officer of a particular company in
Australia require to be in a diligent and careful sense of mind while serving the company. In the
case ASIC v Australian Property Custodian Holdings Limited [2013] FCA 1342, it was stated by
the judge that if sufficient enquiry regarding to the advice provided by a third party have not
been made by the directors or the directors have not made further investigation into the advice
1 Li, G, Riley, S. Applied Corporate Law: A Bilingual Approach LexisNexis 1st Edition 2009.
2 Harris J, Corporations Law, LexisNexis Study Guide 1st edition 2008
3 Corporation Act 2001 (Cth)
4 The Australian Securities and Investment Commission Act 2001 (Cth)
5 Lipton, P., and Herzberg, A., Welsh, M, Understanding Company Law, 18 edition Thomson Reuters 2018.

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like a reasonable director in same position the duty under section 180 is breached. Such duties
have provided legal ways to find out the obedience of the director regarding the duty. According
to which, the director needs to perform like any reasonable director in a similar situation. If the
individual fails to fall within the proceedings of a sensible director, it would result in the
violation of the duty and diligence and care. It is being clearly stated that it was Bob’s duty being
the director and sales manager of the company, under section 180 imposed on him. But, he was
seen not making any particular enquiry in this matter of forward book of orders which comes
under the guidance of the manager of sales. If any responsible director was allotted similar tasks
in the company like Austin then he must have made sure that he responded sincerely then Bob,
and if he had any doubts regarding the report then he would have looked into the matter and
made enquires himself. Therefore, Bob is found disobedient, and he has dishonored the
requirements under section 180(1) of CA. Further adding bob was seen violating legal
provisions and no responsible director of a company would do such things.
Continuous Disclosure Obligation
The applications related to this section are only applicable on a listed disclosing entity in
Australia, where it is mandatory for the organizations to notify the market operators present
which are the ASIC or ASX according to the listing rules, the advise needs to be given in relation
to any particular event or matter which occurs to the information which is supplied to the
market6.
As said in subsection 674(2) of CA, that this is only applicable on a disclosing entity and the
company has all the required notification regarding the fact that under this judgments, there duty
is to notify the market operators regarding the information which are not obtainable and which
6 Cassidy J., Corporations Law Text and Essential Cases. Federation Press, 4th edition Sydney 2013

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would be later expected by a sensible person when accessible to have a major effect on the price
and the values of the shares of the company7. The market operator needs to be informed about
such information under obligations of the law. In the case where the section has not been
observed with it can cause a violation of civil penalty provision under the section 1317E and also
an offense is made under section 1311(1)8. However, it is also discussed in sec. 674(2A) that if
an individual is found in any sort of involvement in making the company violate the obligation
under this section will himself be responsible for the breach of this section. In the case above, it
was said that Austin issued a prospectus for raising the capital for the company. But, the data
provided by the catalog was said to be incorrect and it came to the company’s notice that it was
wrong. Going through the rules provided in the section, it is the responsibility of Austin to notify
the ASX about all the changes in certain circumstances which according to a sensible individual
would affect the price of the shares issued through the company. Where it came to the notice that
the amount mentioned in their forward book of orders shows more amounts then the amount they
actually presented, it was the responsibility of the company itself to notify the ASX regarding
this matter. However, no such information was given to the ASX and so the provisions of s 674
were violated by the company itself. In this case, the directors of the company who led it towards
such a violation will also be responsible in this situation.
Misleading and deceptive conduct in relation to financial product
A security is a form of financial product as mentioned in s. 764A of the CA. It has been given by
the provisions of the section 1041H, that no individual is given the access to get involved in such
7 Harris J, Butterworths Questions and Answers Corporations Law:, LexisNexis, 3rd Edition Sydney 2009.
8 Fitzpatrick, Symes, Veljanovski, Parker, Business and Corporations Law; LexisNexis 3rd edition 2017

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a behavior regarding service or financial product that might be deceptive or misleading in
Australia9. In the situation where this particular section is violated it is stated as civil penalty
provision. According to this situation, the company has not provided proper information on time
regarding the prospectus for offering securities, which might have an effect on its share price,
and this conduct will be regarded to be misleading and deceptive or mislead or deceive.
Misstatements and omission form a disclosure document
According to section 728 of the Act, if an individual tries to offer securities under a disclosing
documents, must not under any condition attempt such offer if there is a misleading or deceptive
statement within the documents. Also, if a new situation arises which needs to be identified soon
after the disclosure document gets registered and the securities should not be offered, it has also
been issued by the provisions in the subsection 782(2) that a misleading statements is considered
to be made by an individual regarding the future issues if the individual is seen not to have a
sensible base for the statement given. It is mentioned in the subsection 728(3) that it is a crime
done by an individual where a violation of the subsection 728(1) is unfavorable to the investors10.
It is made very clear that the provisions of the stated subsection have been breached by the
company. This was due to the wrong information which was provided by the prospectus.
According to the forward book of orders, the projection of the money was excess of $25 million
in the upcoming three years but was actually 15 million. Therefore, this section was violated.
Later, there were even more changes occurring in which the projected sum was reduced to $7
million in upcoming three years. Therefore, violation of the section of the CA is clearly seen.
9 Davenport, S and Parker D, Business and Law in Australia, Thomson Reuters, 2012
10 Graw, Parker, Whitford, Sangkuhl and Do, Understanding Business Law 7th ed LexisNexis Butterworths, 2015.

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The underwriter of this company will also be responsible if the documents are defective. In this
situation, Dendy Securities Ltd, who is the underwriter of Austin, would be responsible in case
defective documents are provided. The violation of the section is discussed in the case of
Australian Securities and Investment Commission v Sino Australia Oil And Gas Limited (in liq)
[2016] FC11.
Right to rely on third party advice
As per the provisions of the section where any director or officer of an organization has put
reliance on the advice provided by a professional, an expert or any other employee of the
organization and he reasonably believes such advice to be true then he has the right to legally
rely on such advice to base his actions12 . According to the case study of Austin we come to
know that, it has issued a prospectus by which it wants to raise $12 Million for which it has
issued 12 million shares at $1 a share. The legal necessity of the CA states that the prospectus
was lodged by ASIC. But, the estimation provided by it was incorrect. The reason for this was
the poor conduct of research which was done related to the given information which was done
through the consultants itself and the statement was given to Bob Brown who was the sales
manager of Austin. In the given circumstances it is further provided that Bob stated had a doubt
in which he thought that the suggestion which was given to him was wrong, he further did not
tried to enquire the matter personally nor did he put efforts to question this report to the DB
consultants. In such circumstances, it is been clear that Bob who was an officer of the company
did not obey the requirements which had been provided under s. 189 of the CA. When the advice
was been given to him being the officer of the company it was his duty to find out that the
11 Australian Securities and Investment Commission v Sino Australia Oil And Gas Limited (in liq) [2016] FC.
12 Vermeesch,R B, Lindgren, K E, Business Law of Australia Butterworths, 12th Edition, 2011.

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information given to him was correct or not. Even though he had a doubt but did not make any
question related to this matter, by which it is been said that his actions are not sensible, and he
has no right to rely on the advice of DB consultants.
Available Defenses
According to the CA, the company who issued the shares, including the underwriter and the
directors or any other individual who approved the provided statement in relation to the
prospectus is said to be responsible to any investors who had to face any sort of loss because of
defects in the prospectus. A prospectus is said to be imperfect if there is deceptive or misleading
information given in it. It is also imperfect is there is any exception regarding information have
been made and new changes are not revealed. We also come to know that Austin, Bob, DB
consultants and Dendy Securities were also responsible for the imperfect document. Few
statutory defenses are also appropriate for them in this situation. The first one states that,
according to the due diligence where the entire sensible enquiry are been done by an individual
before sensibly believing that no exception or deception and misleading statements in the
prospectus can be a defense13. The second one states that, sensible dependence is put on another
individual will be a defense according to s. 18914. But, Bob was not seen to act according to s.
189 and also the underwriters were unable to do that. DB consultants have actually made the
report on poorly conducted research and thus these defenses are not appropriate in the
circumstances.
Conclusion
13 Tomasic, R.,Jackson, J.,Woellner, R., Corporations Law - Principles, Policy and Process 4th Edition Butterworths.,
Sydney, 2002.
14 Latimer, P, Australian Business Law CC, 2017 Edition.

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The paper can be concluded by stating that it has highlighted the legal issues which have
emerged from the case study of Austin retails. The primary finding of the paper is that the
prospectus which has been issued by the company was not correct in relation to the provisions of
section 738 of the CA. In addition as the situation has adversely affected the investors an offence
has been committed by the officers of the company. The Underwriters, The Company, its
officers and DB consultants who prepared the report are all liable for the breach of this section.
Further the officer of the company Bob has not acted in accordance with the duties imposed on
him under section 180 of the CA. he cannot rely on the defense provided under section 189 of
the CA in relation to making reasonable reliance on other persons’ advice.

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Bibliography
Australian Securities and Investment Commission v Sino Australia Oil And Gas Limited (in liq)
[2016] FC.
Cassidy J., Corporations Law Text and Essential Cases. Federation Press, 4th edition Sydney
2013
Corporation Act 2001 (Cth)
Davenport, S and Parker D, Business and Law in Australia, Thomson Reuters, 2012
Fitzpatrick, Symes, Veljanovski, Parker, Business and Corporations Law; LexisNexis 3rd edition
2017
Graw, Parker, Whitford, Sangkuhl and Do, Understanding Business Law 7th ed LexisNexis
Butterworths, 2015.
Harris J, Butterworths Questions and Answers Corporations Law:, LexisNexis, 3rd Edition
Sydney 2009.
Harris J, Corporations Law, LexisNexis Study Guide 1st edition 2008
Latimer, P, Australian Business Law CC, 2017 Edition.
Li, G, Riley, S. Applied Corporate Law: A Bilingual Approach LexisNexis 1st Edition 2009.
Lipton, P., and Herzberg, A., Welsh, M, Understanding Company Law, 18 edition Thomson
Reuters 2018.
The Australian Securities and Investment Commission Act 2001 (Cth)
Tomasic, R.,Jackson, J.,Woellner, R., Corporations Law - Principles, Policy and Process 4th
Edition Butterworths., Sydney, 2002.
Vermeesch,R B, Lindgren, K E, Business Law of Australia Butterworths, 12th Edition, 2011.