Analysis of Breach of Director's Duty under Corporation Law Framework

This report examines a case involving a breach of director's duties under the Corporation Act 2001, focusing on the actions of Mr. and Mrs. Cassimatis, directors of Storm Financial. The report discusses the duties of directors, as outlined in the Act, including the responsibilities to act in good faith, protect shareholder interests, and avoid personal gain. The analysis covers the court's decision in the Cassimatis case, the reasons behind the judgment, and the implications for corporate governance in Australia, particularly the role of ASIC. The report highlights how the directors failed to disclose risks to investors, leading to significant financial losses, and the court's interpretation of the relevant sections of the Corporation Act. The conclusion summarizes the significance of the case in clarifying the application of the Corporation Act and reinforcing the importance of director's duties.

Running head: CORPORATION LAW
Breach of Director’s duty
Name of the student:
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Author note

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Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Duties of the directors:...........................................................................................................2
Court’s decision:.....................................................................................................................3
Reasons:..................................................................................................................................4
Conclusion:................................................................................................................................4
Reference:..................................................................................................................................6

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Introduction:
The Corporation Act 2001 regulates the act of the directors and prescribed certain
provision in case the directors have failed to perform their duties properly. Many cases are
filed in Australia on breach of director’s duties and white collar crime. The case of
Cassimatis is one of them (Tills and Wills 2016). The directors of the company were alleged
to infringe the provision of the Corporation Act and failed to perform the duties of a director
properly. Considering the facts of the case, it has been proved that the directors of the
company had failed to act prudently and they had failed to protect the interest of the
shareholders.
Discussion:
Duties of the directors:
Mr. and Mrs. Cassimatis were the directors of Storm Company and a licence holder
of the Australian Financial Service. They had promoted a financial plan and requested the
investors to invest their money in it. However, they were aware of the uncertain consequence
of the plan but did not mentioned about it for earning extra benefit. It has been alleged that
the directors had not acted in good faith and after the financial crisis; they even did not paid
back to the investors.
The director’s duties have been prescribed under the Corporation Act 2001 and it
has been stated that every director should have to take all the reasonable approach or the
protection of the shareholders (Conaglen and Hill 2017). It is stated under section 180 of the
Corporation Act 2001 that the directors should not do anything for their personal interest and
they are obliged to act for the interest of the company and the shareholders. According to
section 181 of the Corporation Act 2001, every director should have to comply with their

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duties in good faith and they must not have any ulterior motive while performing their
business (Connor 2016). It has been observed in ASIC v Adler (2002) that it is the statutory
duty of the directors to be acted in good faith and in case of any breach, they will be held
liable under the Corporation Act 2001. It has also been observed that the directors should not
earn the benefit by any process that is unacceptable in nature. The same principle has been
followed in the case of ASIC v Maxwell & Ors [2006] NSWSC 1052. It has further been
observed in the case of Cassimatis that the directors had inappropriately misused their
position and therefore, they are also held liable under section 182 of the Corporation Act
2001 (Muscillo and Dawson 2016). It has been stated by the Act that a director should not
gain illegal advantage during the course of their business and if they held liable for the same,
will be charged under the provision of section 1317E of Corporation Act 2001. Mr.
Cassimatis had stated that they had not done anything bad as there are always market risks in
financial investment. However, it has been alleged against him that he had not mentioned
about the risks at the time of requesting the investors. In the case of Cassimatis, Justice
Edelman has been widened the grounds of the risk benefit. According to him, the term risk is
not limited up to economical benefit of the company; risk can be generated to any interest of
the company. The case of Cassimatis has certain positive effects on the corporate world of
Australia.
Court’s decision:
Justice Edelman has delivered prominent judgment over the Cassimatis’ case and
widened the principles lay down under certain specific sections of the Corporation Act 2001.
Further he has clarified the work of the ASIC and considered the important role of the
authority in case of the Australian corporations (Welch et al. 2016). The court was pleased to
pass their judgment against the Directors of the Storm Financial and the judgment is based on
certain reasons.

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Reasons:
According to section 180 (1) of the Corporation Act, every directors of the
companies should have to show due care and diligence to the shareholders (Chitimira 2015).
They are restricted to earn any illegal gain by hiding the risky nature of any company
generated plans. In this case, it has been observed that the directors of the company have
failed to comply with these rules. They had not narrated the risks related to the investment in
their newly generated plans and after the great financial crisis, all the moneys of the investors
were gone and many of them had become bankrupted due to this.
Further it was stated by the court that every director should have to give proper
advice to the client regarding any respective matters. This provision has been given under
section 945A [1] [c] of the Corporation Act 2001. However, Mr. Cassimatis had failed to
provide the same. However, this provision has been repealed in the year 2012. The downturn
of the company had compelled the investors to face a huge disaster as the directors had told
them that the nature of the plan is of double gearing and therefore, they had borrowed the
securities for their homes and marginal loan. After the disaster, they have lost their homes
and many of them came to the street. In Vrisakis v Australian Securities and Investments
Commission(1993) 9 WAR 395, it has been held that the directors should have to narrate all
the foreseeable risks to the investors but as per the testimony of the investors, Cassimatis had
failed to perform this duty and therefore, they are held liable under section 180 and section
181 of the Corporation Act and hence the decisions of the court was justified.
Conclusion:
To sum up, it can be stated that the case of Cassimatis had clarified the
applicability of the Corporation Act. The importance and power of the ASIC has also been

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widened in this case. The court has rightly observed and construed the provisions of the
Corporation Act regarding director’s duties.

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Reference:
Chitimira, H., 2015. The regulation of market manipulation in Australia: A historical
comparative perspective. PER: Potchefstroomse Elektroniese Regsblad, 18(2), pp.112-148.
Conaglen, M. and Hill, J.G., 2017. Directors’ Duties and Legal Safe Harbours: A
Comparative Analysis.
Connor, T., 2016. Should the Statutory Business Judgment Rule Apply to Directors'
Compliance Decisions?. COMPANY AND SECURITIES LAW JOURNAL, 34, pp.403-407.
Leibold, A., 2014. Extraterritorial Application of the FCPA Under International
Law. Willamette L. Rev., 51, p.225.
Muscillo, M. and Dawson, L., 2016. Avoiding defective disclosure in IPOs. Governance
Directions, 68(8), p.480.
Tills, M. and Wills, C., 2016. Corporate law: Directors found guilty of breaching duties
following corporation's breaches. Governance Directions, 68(10), p.624.
Welch, E.P., Saunders, R.S., Land, A.L., Turezyn, A.J. and Voss, J.C., 2016. Folk on the
Delaware General Corporation Law: Fundamentals. Wolters Kluwer Law & Business.