Analysis of Directors' Duties Breach: ASIC v Padbury Mining Limited

This case study examines the breach of directors’ duties in ASIC v Padbury Mining Limited [2016] FCA 990, focusing on violations of the Corporations Act 2001 (Cth). The directors were found liable for breaching sections 180, 674 (2A), and 1041H, related to the duty of care and diligence, continuo...Read More

Corporate Law

Breach of Directors’ Duties
In the case of ASIC v Padbury Mining Limited [2016] FCA 990, different duties were breached
by the directors that are given under the Corporations Act 2001 (Cth). The directors of the
company were held liable for breaching section 180, 674 (2A) and 1041H. Section 180
imposes a duty on directors to maintain a level of care and diligence. While exercising their
powers and discharging their duties, directors should ensure that they maintain a degree of
care and diligence which any reasonable person would in the particular situation.
Subsection (2) provides that while making a business judgement, the director has to meet
the requirements given under subsection (1) and fulfil following requirements (Austlii,
2018a).
 Making a business judgement in good faith of the company
 Should not take decisions which have a material personal interest
 Inform himself regarding the subject matter based on which the decision is taken
 Rationally believe that the business decision is focused towards achieving the best
interest of the company
In case of breach of this section, civil liability can be imposed on directors, and the court can
hold them liable under section 1317E. Section 674 (1) provides provisions regarding
continuous disclosure requirements of a listed enterprise in order to provide proper
information to the participants in the market that are affected by the affairs of the company
(Austlii, 2018b). Subsection (2) provides that a listed entity must provide information as per
subsection (1) and notifies the market operator regarding the information which is not
generally available and a reasonable person would expect such information. The court can
hold a person liable under section (2A) for noncompliance who is involved in breaching
subsection (2), and civil liability can be imposed under section 1317E. In case a person
involves in any conduct relating to a financial product which is misleading or deceptive or
likely to do so, then the court can hold him liable under section 1041H (Austlii, 2018c).
In the case of ASIC v Padbury Mining Limited, the managing director and the chairperson did
not check the authenticity of the announcement which was made by the company to the
stock exchange. They failed to maintain a level of care and diligence because they did not
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inform themselves about the subject matter of the decision based on which they
contravened section 180 (1) and (2). The company also made a false announcement to the
stock exchange that it had secured funding of $6 million for a product to develop deepwater
port (ASIC, 2016). Based on this announcement, the directors breached section 1041H
because they were involved in a transaction which was misleading and deceptive.
Furthermore, the announcement did not contain all the relevant information which any
reasonable person would require such as the name of the funder and terms of the funding
agreement based on which they were held liable under section 674 (2A) (ASIC, 2016). Thus,
the managing director and the chairman of Padbury Mining Limited were held liable due to
failure to maintain a level of care and diligence, involving in the misleading and deceptive
transaction and failure to fulfil continuous disclosing requirements.
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References
ASIC v Padbury Mining Limited [2016] FCA 990
ASIC. (2016) 16-263MR Padbury Mining directors banned for three years due to 'Oakajee
Funding Secured' announcement. [Online] ASIC. Available at: https://asic.gov.au/about-
asic/media-centre/find-a-media-release/2016-releases/16-263mr-padbury-mining-
directors-banned-for-three-years-due-to-oakajee-funding-secured-announcement/v
[Accessed on 28th May 2018].
Austlii. (2018a) CORPORATIONS ACT 2001 - SECT 180 Care and diligence--civil obligation
only. [Online] Austlii. Available at:
http://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s180.html
[Accessed on 28th May 2018].
Austlii. (2018b) CORPORATIONS ACT 2001 - SECT 674 Continuous disclosure--listed disclosing
entity bound by a disclosure requirement in market listing rules. [Online] Austlii. Available at:
http://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s674.html
[Accessed on 28th May 2018].
Austlii. (2018c) CORPORATIONS ACT 2001 - SECT 1041H Misleading or deceptive conduct
(civil liability only). [Online] Austlii. Available at:
https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/
s1041h.html [Accessed on 28th May 2018].
Corporations Act 2001 (Cth)
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