Business and Corporations Law: ASIC v Padbury Mining Case Analysis

This case study analyzes the ASIC v Padbury Mining Limited [2016] FCA 990 case, where two directors were held liable for breaching their duties under sections 180(1) and 674(2A) of the Corporations Act 2001 (Cth). The company made a misleading announcement about securing a $6 billion port deal without disclosing key details, leading to a surge in share prices and subsequent suspension. The Federal Court imposed fines, costs, and director disqualifications, emphasizing the importance of directors' care and diligence, especially concerning continuous disclosure obligations. The analysis examines the court's decision, the infringement of directors' duties, and the impact of the case on corporate governance, highlighting the consequences of misleading and deceptive conduct and the relevance of the Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46 case in justifying penalties.

Business and
Corporations
Law
ASIC V PADBURY MINING LIMITED [2016] FCA 990

Introduction
 In ASIC v Padbury Mining Limited [2016] FCA 990
case, the ASIC held two directors liable for
breaching their duties as given under section 180
(1) and 674 (2A) of the Corporations Act 2001 (Cth).
 The company made an announcement regarding
“securing Oakajee port deal” of $6 billion without
disclosing the name of funder and funding terms.
 Directors found guilty of making the misleading and
deceptive announcement.
 The Federal Court imposed a penalty of $25,000 to
each director and a payment of $200,000 together
for the payment of court proceeding of ASIC and
disqualified them for three years (ABC, 2016).

Background of the Case
 Padbury Mining Limited made an announcement on
11th April 2014 that it has secured a deal to develop
deep water port at Oakajee with the association of
the railway network.
 The price shares of the company increased by 170
percent after the announcement and a large
number of shares were purchased and sold.
 The day ASIC suspended the shares of Padbury the
same day, and they remain suspended till 29th April
2014.
 Later, the corporation disclosed that the
announcement was false, and they did not have a
deal to develop the project at Oakajee.

Infringement of
Directors’ Duties
 Section 180 (1) of the Corporations Act 2001
(Cth) provides that directors should discharge
their duties and exercise powers with care and
diligence as a reasonable person would in that
situation (Austlii, 2018).
 Section 674 (2A) provides that a corporation is
required to make a continuous disclosure
regarding any deal which might affect the
interest of shareholders.
 Section 1041H (1) provided that any person or
organision should not involve in any financial
transaction which is misleading and deceptive.

Infringement of
Directors’ Duties
 The company was held liable for breaching section
1041H (1) for making misleading and deceptive
announcement made.
 Gary Strokes, the managing directors and Terence
Quinn, the chairman, held liable for breach of
section 180 (1) and 674 (2A) (ASX, 2018).
 Both the directors failed to take care and diligence
while discharging their duties, and they made an
announcement that was misleading and deceptive
which influence the company’s share prices.
 Both directors accepted their fault.

Analysis of Court’s
Decision
 The Federal Court held directors liable for
breaching section 180 (1) and 674 (2A).
 The corporation held liable for breaching
section 1041H (1).
 The court imposed a fine of $25,000 on each
director and ordered them to pay $200,000 for
the cost of ASIC’s proceeding together (Jade,
2016).

Analysis of Court’s
Decision
 Furthermore, the court disqualified both the
directors from acting as directors for a period of
three years.
 Siopis J argued that both the directors did not
act as a reasonable person, and they failed to
maintain a degree of care and diligence which a
reasonable person would have in similar
circumstances.
 Directors are required to take appropriate care
because many people purchase securities
based on their announcements, therefore, the
fine and penalty are justified in this case.

Impact of the Case
 This case shows the importance of directors’
duties as provided by the Corporations Act 2001
(Cth) and their compliance is necessary for the
interest of the public and the company.
 The court cited Commonwealth of Australia v
Directors, Fair Work Building Industry
Inspectorate [2015] HCA 46 case for justifying
the appropriateness of penalties.
 The penalties are justified because directors are
required to ensure a level of care and diligence
while performing their duties because it can
have serious consequences.

Conclusion
 In conclusion, Padbury Mining Limited made a
misleading and deceptive announcement due to
which their share prices fluctuated.
 The Federal Court held two directors liable for
the announcement because they breached their
duties as provided by the Corporations Act 2001
(Cth).
 The case is important because it shows the role
of directors’ duties and how the breach of such
duties can result in affecting the interest of the
public and the corporation.

References
 ABC. (2016) Padbury Mining directors fined over 'misleading' $6b
Oakajee announcement. [Online] ABC. Available at:
http://www.abc.net.au/news/2016-08-19/padbury-mining-directors-fined-
and-banned/7768184 [Accessed on 14th May 2018].
 ASIC v Padbury Mining Limited [2016] FCA 990
 ASX. (2018) Continuous Disclosure: an Abridged Guide. [PDF] ASX.
Available at: https://www.asx.com.au/documents/about/abridged-
continuous-disclosure-guide-clean-copy.pdf [Accessed on 14th May 2018].
 Austlii. (2018) Corporations Act 2001 - Sect 180. [Online] Austlii.
Available at:
http://www5.austlii.edu.au/au/legis/cth/num_act/ca2001172/s180.html
[Accessed on 14th May 2018].
 Commonwealth of Australia v Director, Fair Work Building Industry
Inspectorate [2015] HCA 46
 Jade. (2016) Australian Securities and Investments Commission, in the
matter of Padbury Mining Limited v Padbury Mining Limited [2016] FCA
990. [Online] Jade. Available at: https://jade.io/article/488646 [Accessed
on 14th May 2018].