Business Law: Analysis of Corporations Act 2001 and Liabilities

This essay provides an in-depth analysis of the Corporations Act 2001, focusing on critical aspects such as disclosure obligations, share issuance, and company liabilities. It examines the continuous disclosure obligations under section 674, highlighting the responsibilities of corporations to inform the ASX and ASIC about material information. The essay further explores the implications of misstatements and omissions in disclosure documents, referencing sections 710, 711, and 728 of the Act. It also discusses misleading and deceptive conduct under section 1041H and the duties of directors as outlined in section 180, including the case of ASIC v Australian Property Custodian Holdings Limited [2013] FCA 1342. The paper addresses potential liabilities for breaches of these provisions, including civil and criminal penalties, and details available remedies and defenses. The analysis includes a case study involving a company issuing a prospectus with inaccurate information, assessing the responsibilities of various parties, including the company, directors, and underwriters, and the consequences of their actions under the Act.

Running Head: BUSINESS LAW
Business Law
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Introduction
This essay will discuss the provisions that are provided in the Corporations Act 2001
which are related to disclosure obligations, issuance of shares and the liabilities of the companies
for engaging in false and misleading conduct. The paper also discussed the breach of duties by
officers of the company and the remedies available. The paper also through light upon
advertisement restriction imposed in a company when a prospectus is issued.
The Corporations Act 2001 (Cth) is the statute that provides the rules and the regulations
which are binding upon the companies in Australia1. It is worth mentioning that the provisions of
duties, rights and the liabilities of the corporations are also provided in the legislations. This
legislation has also codified the provisions of common law such as the duties of the directors of
the company to the shareholders of the company and the public. Thus the officers and the
directors of every corporation in Australia have the obligation to comply with the provisions of
the section which contains the duties of directors of the Corporations Act 2001 (Cth). In addition
it is the obligations of the company to provide proper information in the prospectus document
while making it unambiguous and clear by avoiding unnecessary information. Nowadays
companies are providing lot of unnecessary information in the prospectus document which is
making is difficult for the investors to understand.
CONTINUOUS DISCLOSURE OBLIGATION
1 Bottomley S, Hall K, Spender P, and Nosworthy B, Contemporary Australian Corporate Law 1st edition 2017
Sydney Cambridge

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It has been provided in section 674 of the Corporations Act that corporations have the
liability to disclose the information in accordance with the rules of listing as provided by the
ASX.
In Australia, the applications in relation to the section is appropriate to the listed
revealing entity, in which the provisions of the listed rule orders the organization for informing
the ASIC or ASX who are the market operators, with regards to the events or matters which
might occur towards the facts which are ready for use to the market applicants.
As mentioned in the subsection 674(2) under which it is stated that any such section can
be appropriate on the certain disclosed entity, the company had the information’s with regards
the facts, under the provisions mentioned in the section the responsibility to inform all the market
operators regarding the information’s which are not mainly accessible and is such an information
what every sensible individual would want to get. When it is made accessible it has the material
effect over the price and value of the company’s securities. Market operator’s need to be
informed about the information which is related to the law. In cases where the provisions which
are mentioned in the section are not be abided, therefore it leads towards the violation of the civil
penalty by s. 1317E and also an offence by s. 1311(1)2. It has also been stated in s. 674(2A) if
any individual is seen to be involved in the process of letting the company violate the provisions,
will be responsible for the violation of this sections himself.
MISSTATEMENTS AND OMISSION FORM A DISCLOSURE DOCUMENT
2 Austin R.P. & Ramsay, I., Ford's Principles of Corporations Law, Butterworths, Australia, 16th edition, 2014.

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It has been stated in section 710 of the CA that a prospectus document of a listed entity
has to be have all information any reasonable investor would need to make a proper assessment
of the offer. In relation to determining the information to be included the natures of securities
have to be considered. These are the general disclosure requirements. The specific requirements
to be included in a prospectus have been provided through section 711 of the CA. This section
provides that the prospectus must have the terms and conditions in relation to the offer, the
interest of each party must be set out by the prospectus, and the prospectus must also have
information about the amount which a person has paid for the project and the expiry date of the
prospectus. Under this section a copy of prospectus must also be provided to the ASIC. There are
a few offers which do not require prospectus such as small scale offering having 2 million or less
to be raised from 20 investors as per section 798 of the CA.
According to the situation, it is stated that any individual who would indulge in offering
the securities through a revelation documents will not be working if there is misleading or
deceptive statement. In case, a fresh situation arises and the revelation documents have been
lodged until then the securities are not to be offered. It was also mentioned in the provisions
mentioned under the subsection 728(2), if any sort of misleading statements are considered to be
made up by any individual in regards to the upcoming problems if the individual is lacking
sensible grounds by which he made this statement3. In subsection 728(3), if any crime is done by
any individual of the company then the violation of the subsection 728(1) contrary’s towards the
investors4.
Under section 729 of the Act right to recover for damages or loss resulting of the
contravention had been provided. Under this section it is stated that a person who has suffered
3 Cassidy J., Corporations Law Text and Essential Cases. Federation Press, 4th edition Sydney 2013
4 Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, Sydney, 9th edition 2013

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damages or losses due to a securities being offered in relation to a disclosure document in breach
of section 728 has the right to recover damages form a person provided in the section even if
such person had not committed or was not involved in a breach. This include an underwriter. It
had been provided under section 731 of the CA that a person has not committed a breach of
section 728 and would not be liable under section 729 of the CA if they made all inquires which
were reasonable in the situation and after the inquiry believed that the statement was nit
misleading or deceptive or there was no omission in the prospectus. Under section 732 of the CA
a person is held to have not committed a breach of section 728 of the CA if such person did not
have knowledge that the statement was misleading or deceptive or a omission was made.
MISLEADING AND DECEPTIVE CONDUCT
In s. 764A a form of the financial product is security. It is mentioned in the provisions of
s. 1041H, in Australia any individual has not been given the right to interfere in any financial
matters of the company which might be deceptive or misleading. If this section is seen to be
violated it will lead towards the provisions of the civil penalty. In this circumstances, the
company failed to inform, which made a huge impact on the price of shares and hence this
behavior was said to be deceptive or misleading.
BREACH OF DIRECTORS DUTIES SECTION
The duties of directors are provided in section 181 of the Corporations Act. Such duties
include the requirement of directors to act with diligence and care while discharging their duties.
Therefore in relation to this duty it can be stated that directors of registered companies in
Australia have to be careful and diligent while conducting the operations of the company. If a

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director fails to act as a reasonable person would have acted in the position and the
circumstances of the director, such director would be held to have breached the duty to act
diligently and carefully as provided in the aforementioned section5. Therefore the statutory
provision of this section can be interpreted as the duty of director to act as a reasonable director.
In the case ASIC v Australian Property Custodian Holdings Limited [2013] FCA 1342 it had
been held by the court that a director would be held to have breached his duty to act with due
care and diligence if he fails to conduct enquires before providing financial advice to the third
parties.
Therefore in relation to the given case study it can be stated that the sales manager of the
Bob had the obligation to comply with the provisions of section 180(1) it is a role which falls
within the meaning of officer in section 9 of the CA. It has been provided in the case study that
he had failed to make personal enquiries about the forward orders of the book which were
within the scope of the duties of the sales manager. Any reasonable director acting in the same
position as Bob, in the company Austin would have taken additional steps for the purpose of
ensuring that the report was genuine. However, in this scenario Bod was suspicious about the
reports but he failed to conduct personal enquiries to inspect the validity of the matter. Therefore
by the application of the case ASIC v Australian Property Custodian Holdings Limited [2013]
FCA 1342 and the provision as provided in section 180(1) of the Corporations At 2001, it can
be pointed out that he did not act diligently and with due care as reasonable director acting in his
position would have done.
LIABILITY
5 Lipton, P., and Herzberg, A., Welsh, M, Understanding Company Law, 18 edition Thomson Reuters 2018.

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According to the case given, Austin was seen to be issuing the prospectus as to the intention to
raise the company’s capital. Meanwhile, the provided information stated that even though the
prospectus is said to be wrong, it came under the knowledge of the company as well. According
to the rules given by Australian Securities Exchange, the responsibility of Austin to notify in
regards to the change of the circumstances to the ASX, while any sensible individual would
understand that such an issue might change the share’s price. It was noticed that more amount
was shown by them then the amount actually present by the forward books, it was the company's
responsibility to notify the ASX regarding this matter. But, they were not able to notify the ASX
regarding this issue, and so the provisions under s. 674 were violated. The directors too were
responsible in this situation for the violation of the contract.
It can be clearly stated that violation of s. 728 was made by the company and its directors. It
happened as the information given was by the prospectus in regards to the future matters was
incorrect. The estimate shown by orders of the forward book was of twenty five million but was
actually of fifteen million. Therefore, the violation of the section was seen. Change in
circumstances too took place as the amount was dropped by million in a time span of three years.
Therefore, the provisions are clearly seen to be violated. If this prospectus document was seen to
be defective the underwriters of this company will also be said be responsible. In this scenario,
the underwriters of the Austin who was Dendy Securities Limited, will be said to be responsible
in case this prospectus is said to be defective. Similar situation was seen in the case of ASIC v
AOGL [2016]6. The breach of these sections results in to both civil liabilities under section
1317E and criminal liability under section6.1 of the criminal code. The underwiter would also be
liable under section 729 of the CA.
REMEDIES
6 Hanrahan, P., Ramsay I., Stapledon G., Commercial Applications of Company Law. Oxford 18th edition 2017

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Section 1317 E – declaration of civil penalty provisions breach
Section 1317 G- under these provisions the officers may be subjected to pecuniary penalties upto
$20000
Section 1317H- The court may provide compensatory order by which these who have
contravened the provisions of the Act are made to pay compensation to those who have suffered
losses.
DEFENSES
The company issued the share and every person included in it will be responsible to the
investors who have faced losses as because of the misleading behavior the prospectus was
defected. It was seen by the above mentioned statements that DB consultants, Austin, Dendy
Securities and Bob all were responsible for the violation. The defenses which can be put on this
case are the defense of due diligence and care and in case the sensible reliance has been placed
by the provisions mentioned in the s. 731 on any person, then it is said as a defense7.
There the business judgment rule under section 180(2) cannot be availed by Bob as he
did not take steps to verify the report provided by DB consultants and it did nit meet the required
of informed decision under the section.
Meanwhile, we know that Bob was unable to abide by the provisions which were
mentioned in the s. 189 and also the underwriter had failed to do so. DB consultants were seen to
state the report in a reckless manner and thus the defense could not be accessible.
OBSERVATION
7 Redmond, P., Companies and Securities Law - Commentary and Materials, Law Book Co., Sydney, 5th, 2009.

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A similar issue had been discussed in the case of ASIC v Sino Oil and Gas Ltd where the
court held the director liable for the breach of section 728(3) and 180(1) of the CA. the same
provisions and result had been obtained in the case of ASIC v Forrest and Fortescue [2012] HCA
39
CONCLUSION
Thus it can be concluded that Austin has failed to comply with legal provisions of the
CA. The directors would be liable for the breach of such provision. The underwriters will also be
liable along with DD consultants.

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Bibliography
Austin R.P. & Ramsay, I., Ford's Principles of Corporations Law, Butterworths, Australia, 16th
edition, 2014.
Bottomley S, Hall K, Spender P, and Nosworthy B, Contemporary Australian Corporate Law 1st
edition 2017 Sydney Cambridge
Cassidy J., Corporations Law Text and Essential Cases. Federation Press, 4th edition Sydney 2013
Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, Sydney, 9th edition 2013
Hanrahan, P., Ramsay I., Stapledon G., Commercial Applications of Company Law. Oxford 18th
edition 2017
Harris, J. Hargovan, A. Adams, M., Australian Corporate Law LexisNexis Butterworths 5th
edition, 2015.
Lipton, P., and Herzberg, A., Welsh, M, Understanding Company Law, 18 edition Thomson
Reuters 2018.
Redmond, P., Companies and Securities Law - Commentary and Materials, Law Book Co.,
Sydney, 5th, 2009.