Corporate Law: Case Study Analysis, Application of Law, and Discussion

This comprehensive case study delves into various aspects of corporate law, examining three distinct scenarios. The first case study focuses on the duties of directors, particularly the business judgment rule, and the implications of relying on external consultants. The second case study explores insider trading, the misuse of confidential information, and the breach of fiduciary duties by a director. The assignment analyzes relevant sections of the Corporations Act 2001, including director's duties, and the consequences of such breaches. Finally, the third case study discusses the duties of directors and the importance of informed decision-making. The analysis considers both executive and non-executive director responsibilities, with references to relevant case laws and statutory provisions. The document provides a detailed examination of legal principles and their application in real-world corporate scenarios.

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

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Table of Contents
Case Study 1....................................................................................................................................0
Case study 2.....................................................................................................................................3
Part A...............................................................................................................................................3
Part B...............................................................................................................................................5
Case 3...............................................................................................................................................6
Scenario A........................................................................................................................................7
Scenario B........................................................................................................................................8
References......................................................................................................................................10

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Case Study 1
As per the given case the directors of Uninest Ltd relied on the opinion of Neales, the
board of directors of the company passed a resolution so as to grant interest free loan to one of
the directors, Gilligan.
Pursuant to the above, Gilligan was issued the requisite shares. It is seen in the case study
that Neales is a consultant who is working for Uninest and she has taken many decision on
behalf of the company (Hahn, Peter and Meziane Lasfer 2015). Therefore, the directors of the
company relied on the decisions of the Neales and passed a resolution granting to lend Gilligan a
sum of $30 million which is interest free. It is seen that this strategy is formulated so that there is
significant rise in the price of the shares and thus it will make Urbanlodge Ltd difficult to take
over the management of the company (Hung and Humphry 2015).
The Corporations Act ,2001, which lays down the duties of the directors of the companies
which is subject to a business judgment rule and in pursuant to which the director is required to
make decision in good faith and for a valid purpose. There should not is any personal interest in
relation to the judgment (Lanis, Roman and Grant Richardson 2012). The directors shall convey
to the rest every aspect to the decision so that they are able to believe on appropriateness. They
shall believe that the decisions are taken care of in the best interest of the business.
As per Section 180, of the Act all the directors and other officers shall exercise their
powers to disclose the powers so that they are able to discharge their duties with care and
diligence. Section 181 of the Act provides that the directors shall on good faith undertake the
interests of the company and for a valid purpose (Richardson et al., 2013).

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The Court has applied the business rule in supplied a statutory support. In the case of
Australian Securities and Investment Commission v. Mariner Corporation Ltd. (2015) it is seen
that in order to ascertain the breach of duty it is essential to assess that the application of the
business judgement rule is illustrated as per Section 180 (1) of the Act (Sealy, Len and Sarah
Worthington 2013).
The following is taken into consideration for determining the liability:
 The surrounding circumstances and the terms of constitution and the nature of business
and composition of the board.
 The role of the directors and the responsibilities that are distributed with other officers,
reporting systems and other requirements of company.
 The applicable legal Constitution
In the above scenario the company in order to avoid the takeover and to lend a large amount
of amount to one of the directors so as to enable him to make a purchase the share of the
company at a higher rate. It can be seen that the comapny took thsi decision on the advice of teh
consultant Neales.This shows that the director has failed to exercise diligence or care in doing
the correction action. Thus, the resolution was passed for granting interest free loan to one of the
directors of the company was completely based on the decision of Neales. All the directors relied
upon the decision of Neales and have failed to take the decision by application of their own skills
and experience (Van den Berghe and Lutgart 2012).
In the case, the court in ASIC v. Rich (2009) says that both the directors and officers of the
company are under an obligation to inform them on what decision they have taken. In light of the
above case law and the judicial pronouncement it can be stated that the directors failed to comply

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with the business judgement rule as they did not inform themselves about the subject matter and
relied only on the opinion of Neales.
Thus it was the breach the duty of care and diligence. Further, these laws are equally
applicable on to the officers and hence, Neales is also s liable as he also failed to assess all the
aspects of the decision (Austin and Ramsay 2012).

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Case Study 2
In the case study, Primo is one of the construction companies, who has been working
with Land stock. Shane was the director as well as shareholder of Primo is appraised with the
fact that Land stock is soon going to call for tenders in respect to building a warehouse around a
major port. Shane in between formulates a new company in the name of Iconstruct
Limited .Shane did not inform the directors of Primo about the new company and submits a
tender to Land stock for construction of the said warehouse. Shane was aware about the tender
quotation which was submitted on behalf of Primo and this was submitted at a lower price in the
submission by Iconstruct Ltd (Cassidy ,Corporations Law Text and Essential Cases 2013).
Part A
As per section 183(1) of the Act specifically prohibits a director or other officers from
improperly using a confidential information for personal interest or against the interest of the
corporate. In the case of ASIC v. Stephen William Vizard (2005) the court refrains the director
from using an information which was obtained during the course of his position of director in the
company for an improper use (Ciro and Symes 2013). This section is equally applicable on
directors who are currently holding the position in the corporate or who have held such a position
in the past. While dealing with a case under this section, court also takes into consideration the
character of the director or officer being assessed. In the case of Australian Competition and
Consumer Commission v. ABB Transmission and Distribution Ltd (2002) a contrary view was
taken by the court, stating that nature of offence shall be the primary consideration, rather than
the character of the person.

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Apart from this specific duty under Section 183, a director is also imposed with Fiduciary
duties which are directly owed to the company (Davenport and Parker 2012). The duty of director
is base on the trust and faith and in pursuance to this duty, directors shall not indulge in
situations where they are not able to act in best interest of the company or there arises a situation
of conflict of interest. In the case of Fodare Pty Ltd. v. Shearn (2011) it was opined by the court
that under the fiduciary duty, a director is under an obligation to always act for a proper purpose
with reasonable care and diligence and shall not in any instance improperly use the position.
The act considers it as an offence which shall be specifically established on the basis of
following elements:
 Possession of confidential information which may have material impact on the operations
or profitability of corporate.
 Such an information is not generally available
 The concerned person is involved in trading, where the said confidential information is
highly relevant.
In pursuance to the same, it can be stated that the Shane had acted in breach of the duty
enumerated in Section 183(1) of the Act as well as is liable for the offence of Insider Trading. In
the present case, Shane was occupying the position of Director in Primo Ltd., and because of this
information was aware of the price quotation which the company was going to bid before
Landstock.
These facts clearly establish that Shane has conducted the offence of Insider Trading.
Moreover, he has also acted to breach the general duties of acting in good faith and with loyalty.

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In addition, he has also breached the duty to not make improper use of information or position
which one has owing to his/her position in the company (Fisher , Anderson and Dickfos 2017).
Part B
Section 1043B – J of the Act provide for certain statutory exceptions which includes
insurance underwriters or disclosing the information in pursuance to a legal obligation. Further,
Section 1044A of the Act also states that communication of an information in the normal course,
with no intention of contravention shall also account for a valid defence to the offence of insider
trading.
The Act provides for penalty for committing this offence which could be upto $450,000
fine and/ or 10 years of imprisonment. Thus, the liability imposed for committing this offence is
criminal in nature (Harris, Hargovan and Adams 2013). Recently, in the year 2016 the court dealt
with the case of a Sydney stockbroker in the name of Oliver Curtis who imprisoned for insider
trading. It was ascertained that he had made illegal profits to the tune of $1.4million. In this case,
it was also stated that the nature of offence reduces the consideration which is laid on the good
character of the offender. Thus, in the present case though this is one of the first instances Shane
has undertaken such a criminal action; the liability shall not be reduced (Fitzpatrick et al. 2014).
On the other hand, the breach of general duties imposed by the Act shall impose civil
obligations, the court may require payment of pecuniary penalty which could be upto $200,000
to the Commonwealth and compensation to the concerned company for an amount of which loss
has been sustained by the business (Hanrahan, Ramsay and Stapledon, 2013).

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Case Study 3
The given factual scenario involves Dronebotics Ltd. which is a start up and is indulged
in manufacturing as well as supplying of autonomous drone systems. These drone systems
operate with the usage of automatic flying robots and are programmed to accomplish the tasks of
monitoring, inspecting, surveying and then returning to base station. Another company in the
name of CorpGain Ltd. approaches Dronebotics Ltd for procuring the autonomous drone
systems. CorpGain is into agribusiness and intends to use this system for inspection of towering
grain silos. It has been ascertained that this is a very dangerous task for being performed by the
employees and also imposes an obligation to comply with strict safety regulations (Hoad,
Richard and Ian Ramsay 2013).
Frank and Diane, the two executive directors of the company are keen on taking up the
project, in order to make expansion in different industries. It has been noted that the two
mentioned directors have the tendency to take risks while undertaking business operations and
hence are of the opinion to enter into the agreement. On the other hand, Ron and Kelly are the
other two non-executive directors, who are of the opinion that entering into this agreement is not
feasible for their current level of business. It is being argued by them that their present
technological capability is not enough to effectively undertake the complex task as required by
CorpGain Ltd, and shall also require considerable cost as well as research for developing suitable
software. It is important to note that Ron and Kelly are experts who submit report to the board in
respect to feasibility of the projects with the current level of operations (Li and Riley, 2012).

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Scenario A
Director's of a corporate owe obligation both under general law as well as relevant statute
and this classification further enables the court to determine appropriate remedies which are
available. In equity, the director's are under an obligation of fiduciary relationship which sets a
high standard of loyalty. These duties have been further incorporated into the Act in the form of
General Duties of Director. Section 181, 182 and 183 of the Act imposes a general duty on the
directors. In the recent case of Jaques v. AIG Australia Ltd. (2014) it was opined by the court
that both executive and non-executive directors are under an obligation to abide the legal
requirements of the position of directors, however, have certain distinctions in the manner they
are expected to play their respective roles (Lipton, Herzberg and Welsh 2014).
Thus, in pursuance to Section 180 (1) the directors are required to comply with the
business judgment rule, in pursuance to which statutory duty of care and diligence shall be
completely complied with by the parties. In pursuance to the same, directors are under an
obligation to be informed about the subject matter to the decision to the extent it leads to
development of a reasonable belief that the decision is appropriate.
However, in the present case, Frank and Diane, in spite of being the executive directors
failed to exercise this duty. This could be established from the fact that both of them refused to
attend the meeting wherein the experts had opined that entering into a contract with CorpGain
shall not be a feasible decision. Moreover, they also did not read the report which clearly
elaborated upon the opinion of experts. Thus, this clearly establishes that Frank and Diane did
not completely inform themselves about the decision to enter into a contract with CorpGain.

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In the case of ASIC v. Healey & Ors. (2011) it was opined by the court that every
director shall be considered accountable for decisions undertaken by the board. The courts of the
nation have adopted a consistent approach towards duties of the director and have opined that
each of them shall strictly make every effort to maintain high standards in performing their
duties. It is important to note that Ron and Kelly made every effort to assess the decision of
entering into a contract with CorpGain and in pursuance to the same attended the concerned
meeting to be informed about decision of the experts. However, they lacked in consistently
exercising care and diligence while undertaking their decisions. The fact that their decision was
influenced by the dominant opinion of Frank and Diane, leads us to conclude that they were not
able to effectively fulfill the requirements of their duty.
Scenario B
In the event the experts are of the opinion that the project is feasible to be undertaken
considering the current level of technology, it would be rightful of the parties to given their
assent to the decision. However, if in such an event also Frank and Diane fail to inform
themselves about the aspects of judgment, they shall be considered to have failed to exercise
their respective duty (Redmond, 2013).
Further, as mentioned in the facts of the case the drone system is supplied to CorpGain.
While using the same they face a technical difficulty, which makes it impossible to be used. It is
then found that the technological abilities of the company is not competent fulfill the required
task. It can be stated that in the opinion of court every director is accountable for the decision
being undertaken by the entire board, as it is based on the consent of individual directors.
However, some of the defenses which could be raised by the director are Honest and Reasonable

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director Defense. In pursuance to this defense, it could be argued by Ron and Kelly that they had
taken the decision relying upon the advice of experts and had acted in a reasonable manner.
Further, in pursuance to the decision of ASIC v. Rich (2003) it can be stated that the directors
also have the right to raise a defense on the basis of Business Judgment Rule as enumerated in
Section 180(2) of the Act. It has been referred to as the safe harbor which intends to protect the
directors which have taken use of opportunities which were subject to some form of risk (Parker,
et al.2012). Thus, Ron and Kelly shall be entitled to raise a defense in the given circumstance, as
also opined in the case of ASIC v. Adler (2002).