Business Law Assignment - Corporations Act and Director Duties

This Business Law assignment analyzes a hypothetical ILAC question involving director liability under the Corporations Act 2001. The assignment examines the responsibilities of directors, focusing on the duty of care and diligence, and the consequences of failing to meet these obligations, including potential actions by ASIC. The case study involves issues such as misleading information, financial mismanagement, and the application of the business judgment rule. It also analyzes a real-world case, Vocational Limited, discussing breaches of the Corporations Act, misleading statements, and the roles and responsibilities of key personnel, including the CEO, Chair, and CFO, in relation to information disclosure and compliance. The assignment further explores the application of the business judgment rule in such cases.

BUSINESS LAW ASSIGNMENT 1
BUSINESS LAW ASSIGNMENT
Student’s Name
Course
Professor’s Name
University
Date
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BUSINESS LAW ASSIGNMENT 2
HYPOTHETICAL ILAC QUESTION:
It is clear from the case that the main issue is molarity. Brad is a very irresponsible
partner of the business. He made misleading information when he told Elena and Jack regarding
the illiquidity of IDesign. As a result , he made the company Digital10 to make the acquisition
of IDesign regardless of the fact that it was not a profitable business. In addition , instead of
working on improving the company , Brad went further to waste more money on drugs and
gambling . This led to the ultimate liquidation of Digital 10. According to the Corporations Act
2001, directors and officers in an organization ought to discharge their duties in a way that is
considered as beneficial to the organization to the company .
The test of duty and care as contained in the Act offers a collective application of
the principles with respect to the individual directors . In this case bot the objective part as
well as the subjective elements have been applied . Therefore , irrespective of the fact that all
the directors had similar duties , the assessment of standards of conduct only accounted for
the individual circumstances of each director . As earlier indicated , the Corporations Act
clearly codifies the obligations of the directors . Therefore, the directors were liable on the
fact that the never tool reasonable diligent steps on becoming informed regarding the
matter and further had personal financial dealings . This resulted in the director having
irrational basis to believe that the decisions were of the best interests of the company at the
time.
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BUSINESS LAW ASSIGNMENT 3
The fundamental issue in this case is to whether directors of such companies are
required to use their mind to conduct careful review of the financial statements in order to
properly determine their authenticity . This would have further helped in ensuring that
information provided was consistent with their knowledge of company affairs . However,
they omitted some material known to the, as well as material that was supposed to be
known to them .
In this case , Brad was not able to discharge his obligations for the benefit of the
company and as a result he gave way to various self-dealings thus leading to the downfall of the
company . In addition , Elena had suspicions regarding Brad’s activities but chose not to disclose
anything to Jack which demonstrate neglect on her side. Therefore, we can conclude that Brad
was liable for the liquidations of the company . Elena was also liable for turning a blind eye on
her suspicions.
ASIC was encouraged to take a number of administrative , civil and criminal actions
in relations to director misconducts . A cooperative framework to deal with ASIC might
benefit a person in multiple ways .For instance; early notification or a cooperative approach
during such an investigation will usually be relevant to the consideration of what kind of
actions would be necessary to pursue and what kind of remedies would be better to seek. In
any case involved by ASIC , the court always offers due credit for any cooperation received
from the person or entity against who such proceedings are brought .
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BUSINESS LAW ASSIGNMENT 4
Question 1
(a)“Digital 10” is not registered but “IDesign” is already registered.
(b) Name: VOCATION LIMITED
ACN: 166 631 330
Locality of registered office: NORTH SYDNEY NSW 2060.
Question 2
(a) The court determined that Vocational Limited breached its obligation under section
180 (1) of the Corporations Act by failing to work out a degree of care and diligence
that they could have exercised reasonably during an appropriate period to withhold
and suspend evidence and further determine whether the company was essential to
disclose such evidence in compliance with Listing rule 3.1. However , the court didn’t
find the company as a liable accessory for the contravention of section 674(2)
(Finney, 2017). The court further turned down the contention by ASIC that
understanding of the fundamental facts , rather than knowledge that withholding or
suspending information was substantial on the grounds that it was not adequate to
establish liability under section 674(2A) of the Corporations Act .
(b) Lodgment of a defective Cleansing Notice -In relation to share placement ,
Vocation wen ahead and lodged a “Cleansing notice” in compliance with Section
708A(5), which contained misleading information concerning the company’s
compliance with disclosure obligations. Nevertheless , the court declined to
consider Vocation as liable for this , as there was no sufficient evidence that the
defendant had prior knowledge of the matter , as required by the law. Generally, is
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BUSINESS LAW ASSIGNMENT 5
was found that the diretors failed to properly inform themselves of the key
issues by constantly relying in information provided to them by senior
management .
(c) Vocational Limited made misleading information as well as deceptive statements
while at the same omitting information that was necessary for disclosure . As a result, it
went against the constant disclosure requirements under the corporations Act 2001(Cth).
Second, the company made statement that were not accurate resulting to losses
particularly on the persons that had bought shares during the period between 27
November 2013 and 4 December 2014
Question 3:
(a)Mark Hutchinson (CEO), John Dawkins (Chair), and Manvinder Gréwal (CFO).
(b) ASIC argued that Vocation acted in contravention of s 674(2) of the Corporations Act
2001 (Cth) by not being notified about the concealment and suspension information.
Question 4:
(a) Mark Hutchinson was the CEO of the company and thus he was in a better position to
ensure that everything went the right manner .One of his major responsibilities was to
offer the board with prompt and accurate information that ASX.
(b) Yes, A director can be considered as liable under s180 for a company’s breach of the Act
even if they don’t have actual familiarity regarding the infringement . This is a lesser
threshold than other provisions of individual liability such as section 674(2A).
In relation to s 180 and the relevant findings of breach :
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BUSINESS LAW ASSIGNMENT 6
 It is important for a CEO to adequately understand the nature as well as the
scope of various business issues.
 The management ought to provide the board with the necessary records that
would enable the board to gather appropriate information . Such information
would assist the board to discharge its duties .
 The management must further analyze the information more critically and
scrutinize all the assumptions based on the guidelines provided.
Question 5:
(a) The business judgement rule is only pertinent in only one corporations Act – duty of care
and diligence . Other requirements such as section 180(2) often lead to liability issues for
the managements but the judgment rule is not applicable. A new wide-ranging defense
can be used to overcome such limitations together with those of other provisions thus
creating an environment where reasonable risk taking is encouraged .
(b) In determining the case , the court looked into the decision In ASIC v Fortescue Metals to
affirm that verdicts regarding compliance with the requirement of the corporations Act , .
This included the choice of making the right disclosure as part of business judgement
defense. It was determined that irrespective of whether the rule was applicable , it was the
obligations of the director to ensure that everything was conducted properly and accurate
documentation.
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BUSINESS LAW ASSIGNMENT 7
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