Corporate Law Case Study Analysis

This case study examines the legal issues surrounding the Australian Securities and Investment Commission's (ASIC) actions against the directors of Storm Financial Limited. It discusses the breach of duties under the Corporations Act 2001, focusing on the responsibilities of directors in maintaining diligence and ethical standards. The analysis includes a second part addressing the implications of company name usage and the rights of directors in corporate governance. The study highlights the importance of compliance with corporate laws to prevent legal disputes and ensure proper management practices.

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Part A
Issue
The issue was basically between the Australian Securities and Investment Commission
(ASIC) and the directors of Storm Financial Limited (SFL). It was basically due to the fact
that it was considered that the directors, i.e. Mr. And Mrs. Cassimatis were not following
their respective duties with diligence and with Ethical aspects. Before the financial crisis
struck the world economy, SFL was under good amount of profits, having revenue of $77
million and the value of gross assets, crossing $120 million. According to Mr. And Mrs.
Cassimatis, this case is unique in the Australian Corporate History, namely because of the
three factors:
1. The allegation of breach regarding the care and diligence rely upon the single
provision of the Companies Act 2001.
2. The breach regarding the same had occurred, when both were the only shareholders of
the company and the company was in full solvency.
3. There has been no dispute that both of them were not handling the company with best
interests, even during the time of recession. (Federal Court of Australia, 2016)
According to the provisions of the Companies Act, the directors of the company, who are the
sole shareholders of a solvent company, could not really breach the section 180(1), by a
course of conduct, which is highly likely to contravene provisions of the Corporation Act.
Hence, it can be said that the main issue regarding the situation of a solvency company was
regarding the car and diligence of the directors of the company, who were the sole
shareholders of the company. (ASIC, 2016)
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Law
As per the Section 180(1) of the Corporations Act 2001, the directors of the company should
discharge all its duty with due respect and care. It should be done with proper diligence as in
the absence of the same; it would become difficult for the company to operate its activities
with full professionalism. Coming to the professionalism of the whole scenario, the directors
of the company were not doing their respective duties in an appropriate manner and hence, it
was required by the corporations act or the law to intervene in the situation. (ASIC, 2015)
Apart from this the other law, which is applicable in this scenario is the Section 945A (1) (B),
related to the direct contravention of the directors of the company. (ASIC, 2015)
Application
Coming to the application of the both the laws, in the current scenario, it should be noted in
the absences of these laws, the company would not be able to make sure that it is actually
making any sort of an issue, with the current situation. As the lawmakers of the country had
stated that in the presence of a solvent company, the directors of the company should make
sure that all their activities are taken place with due care and diligence. Proper ethics are to be
followed in the most effective manner and hence, it became an important point for most of
the current situation to make sure that all these cases do not arise in the long run. (ASIC,
2015)
The main point of comparison in this scenario has been because of the comparison, being
made regarding the situations before and after the period of recession. It is because of this
reasons that the higher authorities are taking an action against the company, as both the
directors of the company are not performing its respective activities with the utmost care.
This has been under the scrutiny of the law and therefore, it is to be noted that in the presence
of these laws, all the companies would be required to make sure that all the necessary laws
and rules are to be effectively followed by them. Hence, it can be said that all the companies,
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be it a public or a private company, should make sure that their management is taking up
decisions effectively with proper care and diligence, as in the presence of the same, the
company should be operating its activities in the best possible manner and no fraudulent
activities are conducted in the long run. (Commonwealth Consolidated Acts, 2014)
Conclusion
In order to conclude, it can be said that, in the presence of these laws, all the companies will
have to make sure that they are complying with the laws, efficiently as in the presence of
these laws, all the activities of the company will be labelled. In the present scenario as well, it
can be said that Mr. And Mrs. Casemates, did not break any law, as there was no sign of non-
diligence and all the work and activities were done with proper care. Hence, it can be said
that in the presence of these laws, no company will be able to execute its activities as it will
lead them to have a non-existent scenario for the perfection of the company in leading the
best example. Therefore, it can be said that the Corporations Act, does play an important role
in keeping a check on all the companies under them. (Australian Government, 2017)
Part B
Issue
In this particular case, Kanye is being directed to leave the company as he had opposed the
other directors or the siblings of the same. For this reason, he even had held a meeting with
the other directors of the company and had given a proposal to become the managing director
of the company. Due to some grievances with the family, he had called for a board meeting
and had suggested himself to be the managing director of the company. For this reason, the
remaining partners of the Koala Ltd. Were even more against him and had stated for a fact
that he should be terminated from the company. Following this, the remaining partners of the
company had called for a board meeting, where all the current partners were present and it
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was decided that the company will issue additional shares and 25 shares were open to be
purchased for $1,000 each. And the remaining 75 shares were distributed amongst Keith,
Kylie and Khaled. Significantly, there was no share distribution to Kanye, which stated that
the company is taking away the shares from him and making it available to others. Koala Ltd.
as per the new formation, Kanye would not be a part of the company. (ASIC, 2016)
Not only this, the company also had held a meeting, where the remaining directors of the
company had stated that the kanye would not be the part of the company anymore and had
passed a resolution accordingly. After the meeting was concluded, the remaining directors
even stated that they would distribute the dividends of the company and along with it had
increased their respective salaries, or director’s remuneration. After this meeting, Keith and
Kylie had even initiated the process of having a new company, which would aid them to sell
their respective products across the world. This wills double their respective profits and
hence, the proposal was readily accepted by both the directors of the company. They had
named the new company as koala2 Ltd. The main objective of the company was to buy the
products from the local sources and sell the product to the foreign market. Therefore, one of
the major reasons for the company to make profits was the fact that the company would be
engaging itself in the process of buying the local items and selling the same in the
international market. (afr, 2017)
a. Coming to the current scenario, Kanye would not go against the current directors of
the company as it becomes difficult to go against the majority. The decision was taken
by the remaining directors of the company. And hence the majority was against
Kanye and his deed of going against the company, the higher authority had discovered
that the current directors of the company are following the protocol to make sure that
they are taking this decision in the benefit of the company as a whole. Therefore, it
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can be said that, the Corporations Act allows the directors of the company to go
against its team if the majority allows for the same. According to the Section 12, the
director can oppose the decision as taken, but if the majority of the management is
favouring one decision, it is important to follow the same and hence, Kanye cannot
really go against the management of the company. Therefore, it can be said that the
Kanye would not be part of the company Koala Ltd. anymore.
b. Kanye was already not a part of the company when the new organization was formed.
So therefore, it can be said that Kanye did not really have any rights towards the
company. As the new company was formed, Kanye was not even in the management
of the company and hence, he cannot enforce his decision or opinion anyway towards
the decision making process of the company. Considering the situation of Khaled, he
can go against both of his siblings only because of the fact that they are using the
same name of the company. Though there is no objection that in no way the other two
partners, Keith and Kylie, can open a partnership company, yet it is not allowed for
them to use the same name as of the existing company. Therefore, Khaled can
actually take the company to the court, as the name Koala has already being in use.
And even if they had to use the name, proper prior permission is to be taken from the
existing company in order to make sure that there is no confusion with the parties
dealing in with the same. Either they should have included Khaled in the new
company, or prior permission was to be taken effectively from the existing
shareholders of Koala Ltd.
Conclusion
In order to conclude, we can say that it is important for any company to make sure that in
order to use the name of any company, it is important to be aware of the fact that prior
permission is to be taken from the management of the parent company. In the absence of the
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same, the existent management can take certain action against the same. Therefore, it was an
important thing to be observed, with the help of which the second company as formed would
only be able to execute its operations successfully. Koala Ltd. being the parent company can
take an action against Koala2 Ltd. as it would be leading the breaching of the law. This
breaching of law would be considered as an offence and legal action would be taken against
the concerned parties, i.e. Koala2 Ltd. (O’Dwyer, 2016)
Bibliography
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Australian Government. (2017). Australian Securities and Investments Commission Act 2001.
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