HA3021 Corporations Law: Analysis of Lewski v ASIC on Director Duties

This case study provides an in-depth analysis of the Lewski v Australian Securities & Investments Commission (ASIC) case, specifically focusing on the alleged breaches of director's duties under the Corporations Act 2001. The case revolves around the actions of the directors of Australian Property Custodian Holdings Limited (APCHL), the Responsible Entity (RE) of a managed investment scheme, in amending the fund's constitution and subsequently listing it on the ASX. The analysis covers the duties allegedly breached, including sections 601FD, 208, and 601FC of the Act, and critically examines the court's decision, which ultimately overturned the trial judge's findings. The study further discusses the relevance of the decision to the development of Australian corporations law, particularly regarding the powers of reliance entities and the legal effect of lodging constitutional amendments with ASIC. The study also contrasts different judicial approaches to interpreting these powers, highlighting the distinction between civil and criminal penalties in assessing breaches of directors' duties.

Lewski
v Australian Securities & Investme
nts Commission (No 2)
[2017] FCAFC 171

Case introduction

Facts
• A Responsible Entity (RE) of a managed investment scheme (The
fund - the Prime Retirement and Aged Care Property Trust) was
Australian Property Custodian Holdings Limited (APCHL).
• The four directors of APCHL decided that the constitution of The
Fund must be amended and the decision is taken on 19th July
2006.
• On 22nd August 2006, the directors of APCHL decided that the
amended constitution must be lodged to ASIC (lodgment
resolution).
• After the lodgment of the constitution APCHL has listed the trust
on the ASX and fees of listing @ $33 million was given to APCHL
from The Fund.

b. The duties/responsibilities
breached (ex. CA sections 181 or
588G) Explain why the duties
were breached.

The duties violated by Directors
• Breach of section 601FD of the Corporation
Act 2001.
• Breach of section 208 of the Corporation Act
2001.
• Breach of section 601FC of the Corporation
Act 2001

c. Discuss and critically ANALYSE
the court/tribunal decision and
the reason for the decision in view
of the Corporations

Decisions of the Court
• The court allowed the appeal and dismissed the cross
appeal;
• The trial Judge orders on 2nd December 2014 in the
proceedings VID 594 of 2012 are set aside;
• The costs of the defendants at the trial, proceeding are
paid by the first respondent including reserved costs;
• The costs of appeal and the cross appeals of the
appellant is paid by the first and the second
respondents. The costs includes reserved costs and any
other costs;

Reasons for the decision
By trial court
• Contravention of statutory
duties under section
601FD(1)(b).
• Contravention of section
208 of the Act.
Appeal
• Aggrieved by the decision of
the Trial court, an appeal is
filed by ASIC.
• On appeal the decision of
the trial Judge was
overturned by Greenwood,
Middleton and Foster JJ

The Decision by the Federal Court
• Contravention of section 601FD
• Since ASIC cannot rely on the declaration made on 19th July 2006 (barred as per
section 1317K), thus iASIC has to prove its allegation on the basis of the
resolution that was passed on 22nd August 2006. I
• That the trial judge was erred in concluding that the passing of the resolution on
22nd August 2006 has resulted in any kind of contraventions.
• The directors has taken into account various matters before the passing of the
22nd August 2006 resolution.
• Adequate considerations are given by the directors before any resolution is
passed n 19th July 2006.
• The court held that the constitution that was amended in 22nd August 2006 was
supported by the amendment that has already taken place on 19th July 2006.
• Reliance entity has the power to bring alteration to the constitution without
eking the approval of the members as per section 601GC (1) of the Act.

 Contravention of section 208
An approval is required from the members for any financial
benefit but such approval was taken by the directors.
Section 208(3) is also not applicable.
The court held that there is changes are bought in the
constitution as per which listing fee is permitted to pay and
thus the directors were capable to make such payment and
there is no contravention of section 208.

• Contravention of section 601FC
The listing fees that is granted was authorized by
the amended constitution;
The directors are of the good belief that the
amendment that are made are valid;
Have no reason to believe that reconsideration
to be made to the said amendments.

d. Where possible and applicable,
the relevance of the decision to
the development of Australian
corporations law or the impact of
the decision on the operation of
companies in Australia.