HA3021 Corporations Law: Analysis of Sino Australia Oil & Gas

This case study examines the Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited case, focusing on the breach of director's duties by the company's chairperson, Tianpeng Shao, during its initial public offering. The case highlights non-compliances with disclosure requirements under the Corporations Act 2001 (Cth), specifically sections 674, 728, 1041H, and 180. The Federal Court found the company and Mr. Shao liable for misleading statements and failure to act reasonably, imposing significant penalties, including an $800,000 fine and a 20-year disqualification from managing companies for Mr. Shao. The decision emphasizes the importance of directors' obligations, particularly during IPOs, and serves as a reminder of the consequences of poor corporate governance. The analysis references key sources and legal precedents to support its findings.

Business and
Corporations
Law
Student’s Name
Australian Securities and
Investments Commission v Sino
Australia Oil and Gas Limited
(provliqapptd) [2016] FCA 42

Introduction
Corporations are the artificial and non-individual
entities of society. The same works in a business
environment and has many stakeholders. This is the
reason that it is expected from them to act in a
manner, which is the most suitable and is in the best
interest of the corporation. If to talk about Australia,
Corporations Act 2001 (Cth) (act) is the lead
legislation that defines the rights as well as duties of
directors.

Case Introduction
 In the subjective case, chairperson of the company
named Sino Australia Oil and Gas Limited
breached his duties mentioned under the act.
Tianpeng Shao was the chairperson of this
company.
 At the time of initial public offering by the
company, Mr. Shao made certain non-compliances
in respect to the disclosure requirements.
 In March 2016, the federal court of Australia
provided an order to wind up the company and
made Mr. Shao as well as company liable for
breach of many sections of the act.

Facts
 By the help of IPO, the company has raised the
funds worth $12,829,318 (Minterellison.com,
2016).
 Shao requested two of the resident Australian
directors namely Mr. Faulkner and Mr. Johnson to
transfer the money to accounts of the company in
China
 These directors have reported the issue of bad
corporate governance to ASIC.
 Federal court issued the order of winding up of the
company considering the grounds of equity and
just and appointed a liquidator

Duties Breached
 Section 674 of the act prescribes the provisions
related to continuous disclosure by listed entities.
 Section 728 of the act is also a significant section
where a person is not allowed to make certain
disclosures (Australia, 2011).
 Section 1041H is another important section which
contains the provisions related to deceptive and
misleading conduct and further provides the
penalties under civil liability actions.
 Section 180 of the act all the officers including
directors of the company must act as a reasonable
person

Why Duties Breached
 The company had a loan agreement with the sole
director of the subsidiary, which was established in
China and the same failed to disclose the same in
prospectus and breached the provisions of section
728(2) of the act.
 The company also breached the provisions of
section 728(1) and 1041H of the act as the same
made a deceptive and misleading statement.
 Shao was liable to breach the section of 180 of the
act as he failed to understand the financials of the
company and also to perform the duty in the manner
as he was expected to do.

Decision of the court
 court held the company liable for the breach of section
728(1), 674(2) and 1041H of the act.
 Mr. Shao was held liable for the breach of section
180(1) as well as section 674(2A) of the act
(Asic.gov.au, 2016).
 the Federal court of Australia imposed worth $800,000
on the company and the former chairperson of the
company, Mr. Shao had been disqualified by managing
the companies for the next 20 years.
 The court also gave the order to Shao to pay
$5,539,758 to Sino in the form of compensation
(Jacobson, 2016).

Impact of the decision
 People who are working on the profiles of
directors/officers of the Australian companies are
aware of their obligations specifically regarding
the event of IPO and FPO.
 In this case, the company has made some
misleading statements and paid the penalties for
the same later on, therefore the directors are more
careful while drafting and approving the
prospectus while dealing on behalf of the
company.

Conclusion
 To conclude this discussion, this is to say that the
directors and officers of the company are the
significant people who are responsible for bad or
good corporate governance.
 The federal court imposed penalties on director and
company and the decision provided by the court
brought a positive result to the other companies.
 In such a manner, the facts and decision of the
studied case recalled the obligations and expected
the behavior of directors.

Conclusion
 Australian Securities and Investments Commission v Sino
Australia Oil and Gas Limited (provliqapptd) [2016] FCA
42
 Minterellison.com. (2016) Discussion of Directors'
Duties in the Recent Sino Australia Oil and Gas Decision.
[online] Available from:
https://www.minterellison.com/articles/discussion-of-
directors-duties-in-the-recent-sino-australia-oil-and-gas-
decision [Accessed on 19/01/2019]
 Australia. (2011) Australian Corporations & Securities
Legislation 2011: Corporations Act 2001, ASIC Act 2001,
related regulations. Australia: CCH Australia Limited.

References
Jacobson, D. (2016) Case Note: Liability Of Non-English
Speaking Director. [online] Available from:
https://www.brightlaw.com.au/case-note-liability-of-non-
english-speaking-director/ [Accessed on 19/01/2019]
Asic.gov.au. (2016) 16-255MR Court finds against Sino
Australia Oil and Gas Limited and its former chairman
Tianpeng Shao. [online] Available from:
https://asic.gov.au/about-asic/news-centre/find-a-media-
release/2016-releases/16-255mr-court-finds-against-sino-
australia-oil-and-gas-limited-and-its-former-chairman-
tianpeng-shao/ [Accessed on 19/01/2019]
Corporations Act 2001 (Cth)