ASIC v Padbury Mining: Directors' Duties under the Corporations Act

This report provides a detailed analysis of the case ASIC v Padbury Mining Limited [2016] FCA 990, focusing on the duties of company directors under the Corporations Act 2001 (Cth). The report examines the facts of the case, including the company's misleading announcement to the Australian Securities Exchange (ASX) regarding funding for a project. It identifies breaches of directors' duties, specifically violations of section 180 (duty of care and diligence), section 674 (continuous disclosure), and section 1041H (misleading or deceptive conduct). The analysis includes a critical evaluation of the court's decision, the legal punishments sought by the Australian Securities and Investment Commission (ASIC), and the implications of the ruling. The report also discusses the application of the business judgment rule and relevant case precedents, concluding with the primary implication of the decision, which emphasizes the importance of reasonable care in announcements that could affect share prices, and the potential for penalties for directors who fail to meet these standards. The report concludes by summarizing the key takeaways from the analysis, emphasizing the importance of directors' duties in maintaining corporate integrity and protecting investors.

Running head: DIRECTORS DUTIES
Directors Duties
Name of the Student
Name of the University
Author note

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Introduction
The paper purports to discuss the case of ASIC v Padbury Mining Limited [2016] FCA
990 that lays down discussion in relation to the duties of the directors under the Corporation Act
2001 (Cth). The duties of the directors are given by the members of the board of directors of a
company who has been provided with the duties under the provisions of the statute as well as the
common law. These are the obligations that are known as duties of the directors. These duties are
given to beneficiaries by the trustees and to the principals by the agent. There are certain duties
that are provided to the directors like they owe their duties towards the corporations but not to
any individual or employees or shareholders until there is any emergency. The major duty of the
director is to be loyal towards their company. Another duty is to maintain care of high standard
and diligence. The directors of the company must be bona fide to make the company successful.
These duties are said to be fiduciary duties that comes under the general laws of Australia. These
duties of the directors come under the Corporation Act 2001. There are certain facts about the
breach of duties by the directors. It is said that the director should not be dishonest towards the
company otherwise he will be imposed with criminal charges. The remedy of the breach of
duties is to give equitable damages or recession or compensation.
Case Introduction
The above mentioned case is about the announcement that has been made by the
company (defendant) in relation to Australian security exchange (ASX). A ban was enforced by
the court on the directors of the organization for a time of three years. There was a penalty of
amount $25,000 that has been forced on the directors of the company for breaching the section
180 of the Corporation Act 2001. There was an announcement that was not supposed to be made

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by the company but the directors did not prevent the company to make the announcement that
the company will be receiving the fund the amounts to 6 million dollars. This fund was supposed
to be used in carrying out a project in the west of Australia. The date in which the announcement
was made is 10th of April 2014 and there are certain terms that are that the announcement
consists. The fund for the project in the west of Australia has been received successfully by the
company. Midwest Infrastructure Private Limited is a subsidiary company that is fully owned
and the development of the project is to be done by them. There had been an agreement with a
private investor who agreed to provide funding based on certain conditions.
There are certain terms that needs to be complied with the agreement to secure the funding but
the company has failed to mention in the announcement. One of the terms of the agreement has
mentioned that if the bank does not guarantee to 1.3 billion that is needed to be secured by the
company then the fund will not be procured. However, these terms exist in the agreement, but
there were no steps that were taken by the directors of the company to mention that the
agreement is conditional.
Australian security exchange has been directed by the company to stop sharing the trade to the
organization which they have asked again to raise them. However significant value of trading
had been conducted during the period. The organization announced that the agreement with the
financer have been terminated after the trading has been done in high prices.
Breach of duties
According to the section 180(1) of the Corporation Act 2001 (Cth) has explained that the
directors of the company should have at least diligence and care towards the company while
discharging the duties. In order to search out whether the real director has perceived the

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minimum level of diligence and care while the duties have been discharged, the actions of the
actual directors are compared to the actions of the imaginary directors. In the case if the
reasonable director cannot take actions that have been taken by the real directors, the duty of
diligence and care will be taken as breached. There are several reasons that have been stated that
the duties of the directors have been breached under the Corporation Act. The manners of the
directors of the company that has been mentioned as misleading or deceptive or that can be said
as deceive or mislead has indulged the company’s directors. As per the section 1041H of the Act
it has been said that the inducement of the conducts has been declared as a direct violation. These
misleading or deceptive conducts has been made by the director’s actions and it has made
company carry out the announcement about securing the funds that has not been secured by the
investor because there were terms that were highly conditional in the agreement. A section of the
company has failed to behave in accordance with the responsibility of making of proper
disclosure under the provisions of section 674 of the CA. There prospectus contained a
misstatement which is against the provisions of section 728 of the CA. It was the duty of the
organization to let other people know that terms if the agreement are highly conditional. The real
name of the investor who was actually funding the amount that the company wants was not
disclosed by the company for the construction.
CRITICAL ANALYSIS OF THE DECISION
There are some legal punishment which has been wanted by The Australian security and
investment Commission that is against the company (defendant) as well as the directors of the
same company for seeking the purpose as follows. A declaration that Australian security and
investment Commission wants to make in the court that under the 1041H of the Act the
provisions has been breached by the organization that is in relation to deceptive and misleading

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conduct. There are some rules that have been given in the section 674(2) of the above mentioned
act and ASIC wants a declaration order that these provisions has been breached by the
organization as the company has fail to make suitable disclosures of the announcement. The
watchdogs of Australian corporations have said that the company’s directors have breached the
section 674(2) and the section 1041H of the abovementioned act. If the directors breach any of
their duty or any kind of violation in relation to the civil penalty provisions they may be provided
with management ban under section 206C of this Act and also they will be imposed with the
financial penalties that have been mentioned under the section of 1317H of the above mentioned
act. Thus the ASIC demanded declaration under section 1317E to obtain a pecuniary penalty and
management ban for the directors. The section of 180(1) has been breached by the company’s
directors’ and ASIC seeks declaration for the same.
The directors as well as the defendant company have evidently violated the provisions of section
674(2) and 1041(h) of The CA. This is because the highly conditional terms which were present
in the agreement the company had with the financer has been omitted from the prospectus.
As discussed above the rules under section 180(1) deals with the duty of due diligence and care.
Through the analysis of the facts of the situation with respect to the rules under this section it had
been held by the court that the defendants have been guilty of contravention in relation to the
section. There were significant reasons available to the directors to get to know about the fact
that it would be illegal for the company to carry out the intended announcements and by making
such announcements thus would be considered as the contravention of section 180(1) of the CA.
Any reasonable director positioned in this context would know that indulging into violation of
law and a conduct which is misleading and deceptive may bring significant losses for the
company in terms of finance as well as reputation. These actions were not in good faith. The

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directors were rightly held not to have complied with the test provided via the rules of section
180(1) of the CA. Those who had indulged in training with the company when the trade
restrictions were not in place had been actually deceived and mislead by the company. The
provisions of section 674(2) of the CA have also been violated by the organization. It is the duty
of the company to make continuous disclosures under this section. The section had been rightly
found by the court to have contravened as the conditions which had been imposed by the
financer to provide the required investment had not been discussed by the company. In order to
obtain a defence under the provisions of section 180(2) of the CA. The directors must satisfy to
the court that the decision is not a kind of decision which “any reasonable director will not take”,
there was no personal benefit associated with the decision and the directors had fully informed
themselves before making the decision. In the given situation although the directors have
conceded before the court that they totally informed themselves in relation to the capacity of the
company to get the conditions fulfilled. They were reasonably expected to have the knowledge
that the terms which were highly conditional would affect the share price of the company and did
not take into consideration such circumstances before the making of the announcements.
Through the application of the “any reasonable director will not take” test it can be stated that the
directors had not informed themselves about the situation and thus they cannot rely on the
business judgement rule as correctly held by the court. Although the case did not consider the
provisions of the case of Australian Securities and Investments Commission v Cassimatis (No 8)
[2016] FCA 1023 It can be stated that the decision of the court to hold that the provisions of
section 180(1) has been breached are correct as there has been a loss of reputation for the
company.

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In the case of Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate
(2015) 326 ALR 476 the decision of the court signified that a regulatory body has to take into
consideration. In the case of Australian Competition and Consumer commission v Reiwa Inc
(1999) 161 ALR 79 the judge has stated that when the question is in relation to the determination
of penalties to be imposed by the courts, the courts must be convinced beyond reasonable doubt
that the penalties are not contrary to public interest and such interest is to be considered while
making such announcements. The reasonable limit in relation to imposing a ban under the
provisions of section 206C can even be 20 years as provided by the case of Sino Australia Oil
and Gas Limited (in liq) v Sino Australia Oil and Gas Limited (in liq) [2016] FCA 934. The
court came to the conclusion that the penalties which the ASIC seeks are not detrimental to
public interest and thus took the suggestion made by the ASIC in relation to the penalties. Thus
the penalties of the imposed by the courts in this case are also justified.
IMPLICATIONS OF THE DECSION
The primary implication of the decision which has been identified is that the level of satisfaction
in relation to making an announcement has to be reasonable in situation where the announcement
would materially affect the price of the share.
Where the directors failed to act in a reasonable way as asked above they would be considered to
have contravened the duty of due diligence and care under section 180(1)
Suggestions for Penalties in relation to contraventions of the CA can be proposed by the ASIC to
the courts.
CONCLUSION

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Thus it can be concluded for the above discussion that the directors cannot merely claim that
they had informed themselves about the subject matter of the decision where a reasonable
director would not have taken such decision.

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References
ASIC v Padbury Mining Limited [2016] FCA 990
Australian Competition and Consumer Commission v Reiwa Inc (1999) 161 ALR 79
Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023
Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 326
ALR 476
Corporation Act 2001 (Cth)
Sino Australia Oil and Gas Limited (in liq) v Sino Australia Oil and Gas Limited (in liq) [2016]
FCA 934.