Legal Analysis of Directors' Duties: ASIC v Padbury Mining Case

This case study examines the duties of company directors, particularly in light of the ASIC v Padbury Mining Limited case. The case revolves around an announcement made by Padbury Mining regarding securing funds for a project, which was later found to be misleading. The directors were found to have violated s. 180(1) of the Corporations Act 2001 (Cth) by failing to exercise the required care and diligence. The court's decision highlighted the importance of directors being fully informed and ensuring accurate disclosures to the market. The analysis covers the facts of the case, the contravened directors' duties, the court's decision, and the future implications of the ruling, emphasizing the need for directors to be cautious and responsible in their roles. Desklib provides access to similar case studies and solved assignments for students.

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

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Table of Contents
Introduction......................................................................................................................................2
Facts of the case...............................................................................................................................2
The contravened directors duties.....................................................................................................3
Court Decision Analysis..................................................................................................................4
Future implication in relation to the decision which have been made by the court in this case......8
Conclusion.......................................................................................................................................8
References......................................................................................................................................10

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Introduction
When an individual is assigned as an officer or a director of the company, then they are forced
with many obligations by the common law and also the required provisions which they need to
detect while fulfilling the responsibilities. Such obligations are often known as the directors’
duty. One of the duties which the director have with respect to the company, is which they need
to have a least level of diligence and care at the time when they are fulfilling the responsibility.
Such specific duties are also declared clearly in the provisions under s. 180 of Corporation Act
2001 (Cth), and also some consequential cases of the common law. During the time the directors
are seen to be failing in the provided duties then they are seen to be charged by the provisions, in
which they are penalized by financial penalties and also suspension. ASIC v Padbury Mining
Limited [2016] FCA 990 case also was regarding similar responsibilities mentioned above.
Facts of the case
This case is regarding an announcement which was done by the company in relation to the
disclosure obligations under the CA which an entity listed with the Australian Securities
Exchange have. The court in the following case prohibited the directors of the company who
were involved in this case and the ban was for 3 years. The court further declared a penalty of
sum of $25,000 considering the violation of the act. The directors are said to be responsible for
violating the s. 180 as were not able to stop the company from stating an announcement in which
it said that they are going to get a fund of amount $6 million, they were getting the fund as they

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were moving out a project of construction in the Western Australia. The announcement was
declared on 10th April 2014, and contained the terms as follows.
• Securing the funds for the Western Australia project was done successfully by the
company.
• The funds were provided on the terms which were included in the agreement regarding
the shareholders and were provided by the private investor.
• This project was declared to be expanded by the Midwest Infrastructure Pty Ltd.
The company had failed to declare while making the announcement that they yet required
abiding with the terms which were mentioned in the agreement for the cause of obtaining the
funds which they required for the Western Australia project. The terms stated that to acquire a
sum of $1.3 billion as bank guarantee earlier too the time when they can be allowed for getting
the needed amount for the Western Australia project.
The organization had aimed at the Australian security exchange to stop the trading of shares with
the company later which again requested to rise. Within that time interval almost 200 Million of
shares of that company were already traded. When the company did the trading at quick prices
they made a declaration that their agreement with respect to the financer has been ended.
The contravened directors duties

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In a company the directors need to have a least possible standard of diligence and care while
fulfilling the responsibilities which are there for the company which is mentioned specifically in
s. 180(1) CA 2001. The accomplishment done by the director is matched up with an unreal
director the one is placed under the same circumstances and by such means they can discover
whether or not the director of that company has shown the minimum intensity of diligence and
care while fulfilling the responsibility. Such duties are deemed to be violated if no sensible
director of the company is seen taking the actions in a similar situation an actual director would
do.
Many reasons by means of which, it is declared that the following company has violated the
duties mentioned in the CA. A misleading and deceptive behavior which was probably made to
deceive or mislead was pampered by the company’s directors. Pampering such behavior is also a
violation of the s. 1041H. However, the deceptive and misleading behavior about the directors
was that the business was made to carry out, by announcing on the subject of protected finance
from a shareholder which they had actually did not protect as this agreement was exposed to
extremely provisional terms.
The organization also failed to proceed in compliance with the requirement of appropriate
disclosure. The organization needed to mention that the following agreement was subjected to
extremely provisional terms. It was also unsuccessful to reveal in front of the community
regarding the genuine name of the shareholder, the person who was about to give the fund for the
compulsory business.
Court Decision Analysis

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The ASIC also known as Australian security investment commission started a legal proceeding
in opposition to the offending company and all the directors who were involved in it.
• The ASIC was eager to get a statement from the court against the company, as they
violated the act of deceptive and misleading behavior under s. 1041H.
• They also were in need of a statement under the provisions of the s. 674(2) regarding the
violation done by the company that was the failure in making the suitable confession
regarding the announcement.
• It was also mentioned by the Australian watchdogs that the directors of the company have
also violated the s. 1041H beside s. 674(2).
• Meanwhile, the ASIC were in need of a statement which was regarding violation of the
above mentioned sections, along with that they also violated s. 180(1).
• The ASIC demands the jurisdiction for an order of suspension under s. 206C and also
financial punishment under s. 1317E, to all the direction of the company.
The parties carried out an arranged declaration regarding the case under the Evidence Act s.
191 of 1995. Such declarations were heading for penalty hearing. There were minutes of
proceeding presented to the court by the parties.
In relation to the provisions of s. 180(1) the court declared that the violation of the section
was done by the directors of thee company in relation to their responsibilities. The violation
was regarding the allowance granted by them for making such a statement. The directors of
the company were well aware of the fact that if they let the announcement complete then it
would defiantly violate the provisions of s. 1041H, and the behavior is going to compose of
deceptive and misleading behavior would probably deceive or mislead. Meanwhile, such

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violation of the section means major loss of status of the company, any sensible director in
similar situation not have allowed such a thing. The individuals who invested their time and
money were in fact given the wrong impression about the announcement done by the
company, as they supported the trading.
However, the moment when the company made such statements, the failure for the company
to create the needed confession, according to the provisions under s. 674(2) which was to
make sure that extremely provisional terms are disclosed.
The directors of the company also agreed to the fact that they were well knowledgeable that
they required to be completely convinced before they give way to complete the
announcement regarding the funds. But, by knowing all the facts of this case it is seen that
the directors have not really done such a thing. They knew that the terms related to the
contact were extremely provisional even after knowing it they did not take it into inspection
while the announcement was done (FCA 990 at 58).
It was clearly stated by the court in the case of Commonwealth of Australia v Director, Fair
Work Building Industry Inspectorate (2015) 326 ALR 476 that the government or the
plaintiff serving body has the power to create the consent regarding the penalties which were
imposed on the directors of the company by the civil penalty provisions.
In the case of Australian Competition and Consumer Commission v Reiwa Inc (1999) 161
ALR 79 at 86 the court declared that it was the responsibility of the court itself to be
completely satisfied by the penalties forced on the directors are not harmful to the citizens.
Therefore, the proposal made by the ASIC was approved by the court regarding the penalties.

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The directors also agreed in front of the court of the fact that their company had violated the
s. 674((2) at two occasions. This was done as it was evident and the directors of the company
also agreed that where the provisional essence of the agreement was given to the sensible
investor it would have had a medium impact on the sum of the share. The directors also
admitted that they also failed to make sure that appropriate declaration was needed under s.
674(2) of the CA, towards the parties who provided the fund for the project.
The directors of the company also made a confession that the violation of s. 674(2) was done
by them knowingly because they did not let the company do the appropriate declaration
which is needed by the law (FCA 990at 51).
The company also made a potential or an actual depiction in front of the investors who gave
the funding for the project while creating the announcement by the ASX, which was that the
company was able to acquire an amount of $6.1 billion for the Western Australia project.
The organization too made a confession that the depiction done by them had the components
of being deceptive or misleading and likely as deceive or mislead. It was declared that the
company had no such capacity of producing a guarantee to the bank of an amount of 6.1
billion which was necessary to get the required funding as the defendant asked for it. This
was a major violation of the s. 1041H by the company. A sensible director would never have
led the company to do such a thing that is having a misleading or deceptive behavior. But,
the directors conducted such an offense and hence violated the s. 180(1).
Terence Martin Quinn who was the third among all the defendants, a statement was passed
by the court for him as he also violated the provisions under s. 674(2) and therefore was
subjected towards the civil penalties under s. 1317E of the CA.

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Future implication in relation to the decision which have been made by the court in this
case
The directors in the company required to be totally satisfied prior to the time when the
announcement was been made, in support of the company which definitely had an affect over the
price of the shares under the organization.
If the directors of the company failed to be completely satisfied regarding the announcement
itself, then the directors decisions are said to be deceived or misleading which is likely to deceive
or mislead.
In such cases where the directors themselves makes the announcement it needs to be in
accordance to the declaration necessities which are mentioned under the s. 674(2) of CA.
Any failure in completing such activities will be a violation of s. 180(1) as no other sensible
director would have done such a thing in a similar situation.
The role of creating advice to the court is given to the ASIC, in which the penalty is to be forced
on the defendants.
Conclusion
Finishing the investigation it is declared that directors of the company require being
exceptionally careful while dealing with such announcements for the company, as it can also

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have a harmful impact on the status. The directors must also hold back by s. 180(1), to involve in
such an act which no sensible director would do in a similar situation.

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References
ASIC v Padbury Mining Limited [2016] FCA 990
Corporation Act 2001 (Cth)