Australian Corporations Law: Padbury Mining Case Study Analysis

This case study analyzes the Australian Securities and Investments Commission v Padbury Mining Limited [2016] FCA 990, focusing on breaches of the Corporations Act 2001. The case involves Padbury Mining Limited, its managing director (Gary Wayne Stokes), and executive director/chairman (Terence Martin Quinn). The core issue revolves around a misleading announcement made to the Australian Stock Exchange regarding secured funding for a project. The analysis examines violations of sections 1041H(1), 180(1), and 674(2A) of the Corporations Act, detailing the misleading nature of the announcement and the directors' failure to exercise due care and diligence. The court's decision, including penalties and disqualifications, is critically analyzed in light of the Corporations Act and its implications for corporate governance and disclosure requirements. The case highlights the importance of accurate and transparent communication with investors and the responsibilities of company directors.

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Contents
Australian Securities and Investments Commission v Padbury Mining Limited [2016] FCA 990 2
Introduction......................................................................................................................................2
Facts of the case...........................................................................................................................2
The duties/responsibilities breached (ex. CA sections 181 or 588G) and explain why the duties
were breached..................................................................................................................................3
Duties that were breached:...........................................................................................................3
Reasons for the violation of the duties.........................................................................................4
Reasons for violation of section 1041 H (1) of the Act............................................................4
Reasons for violation of section 180 (1) of the Act.................................................................4
Reasons for violation of section 674 (2A) of the Act...............................................................5
Discuss and critically ANALYSE the court/tribunal decision and the reason for the decision in
view of the Corporations Act...........................................................................................................5
The decision of the Court tribunal...............................................................................................5
Reasons for the decisions of the court.........................................................................................6
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.................................................................7
Reference List..................................................................................................................................8

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Australian Securities and Investments Commission v Padbury Mining Limited [2016] FCA
990
Introduction
Facts of the case
There are two parties involved in the case,
Australian Securities and Investment Commission - Plaintiff
Padbury Mining Limited – First Defendant
Gary Wayne Stokes - Managing Director -Second Defendant
Terence Martin Quinn - Executive director/Chairman – Third Defendant
The Defendant, Padbury Mining Limited, is a company (public company). Padbury Mining
Limited normally trades its shares in the Stock Exchange of Australia. The main facts that has
risen to the issue before the court includes that:
The Padbury Mining Limited is aiming at developing/constructing a water port at Oakajee.
Padbury Mining Limited is also intending to build a railway network near the port. In order to do
so, Padbury Mining Limited requires finance and thus it has made contract with several people
on 8th April 2014. Superkite Pty Ltd is also one of the arty with whom Padbury Mining Limited
has made a contract and Superkite Pty Ltd has given an assurance that it will provide $6 billion
to Padbury Mining Limited subsidiary. However, the finance will only be provided if certain
requirements are met by Padbury Mining Limited. Thus, the finance of $6 billion is contingent
upon certain conditions. The finance is very much important for Padbury Mining Limited as the
construction is possible only if it has the relevant funds.
Based on the assurance given by Superkite Pty Ltd, Padbury Mining Limited on 11th April 2014
made an announcement in the Australian Stock Exchange. The announcement that is made
submits that Padbury Mining Limited has acquired $6 billion that is much needed for the
completion of the project. But, while making the announcement, Padbury Mining Limited did

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not specify that it is under the obligation to fulfill few conditions and it is only after the
compliance of such conditions that Superkite is willing to finance the project.
The announcement (Оakajee Funding Announcement) that was made by Padbury Mining
Limited on 11th April 2014 was carried out with the presence of the second and third defendant
of Padbury Mining Limited. The second and third defendant is the managing and
executive/chairman of Padbury Mining Limited respectively. The second and third defendants
not only drafted the announcement but also released the same.
Padbury Mining Limited also took annoyer step and before the announcement is made, the
company asked the Australian Stock Encage to stoop the trading of the shares of the company
and the trading must be initialed after the announcement. This resulted in the increase of the
trading in shares from $0.02 - $0.045 a share.
Even after so many occurrences the project that was intended by Padbury Mining Limited and
for which the finance was secured and announcement were made was never comes into life and
was cancelled.
Considering the above facts, it is now important to analyze the duties that are violated by the
directors of the company and the reasons as to why such duties were violated.
The duties/responsibilities breached (ex. CA sections 181 or 588G) and
explain why the duties were breached.
Padbury Mining Limited is the first defendant in the given case. The second and the third
defendant are the managing and executive/chairman of the company when the above facts were
incurred that has resulted in the violation of the duties.
Duties that were breached:
There were three prime duties that were violated by the company and its directors. The same are:
i. Section 1041 H (1) of the Corporation Act 2001 – The acts that were carried out by
the First Defendant were deceptive and misleading in nature or are likely to deceive
or mislead.

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ii. Section 180 (1) of the Corporation Act 2001 – Section 180 (1) of the Corporation Act
2001 deals with the duty of care and diligence on the part of the officers and directors
of the company which must be carried out in the interest of the company and for
proper purpose.
iii. Section 674 (2A) of the Corporation Act – section 674 (2A) of the Corporation Act
2001 is violated in pursuance of section 1317E.
Reasons for the violation of the duties
Reasons for violation of section 1041 H (1) of the Act
i. Breach by First Defendant – The First defendant, Padbury Mining Limited, was found
to be in violation of section 1041H (1) of the Corporation Act 2001. Padbury Mining
Limited has acquired the report of the announcement that was to be made on 11th
April 2014. A representation was made by the First Defendant that in order to comply
with the project it has raised finance (funding representation) of $ 6 billion. But, no
disclosure is made that in order to raise the finance from Superkite Pty Ltd the first
defendant has to fulfill some conditions. Thus, the finance is contingent upon the
compliance of the conditions.
This non disclosure is nothing but is likely to deceive or misled or have actual
deceive or misled as the parties relying on the announcement are not aware of any pre
requirements of the compliance of the condition before the finance is secured.
Reasons for violation of section 180 (1) of the Act
i. Breach by Second Defendant- The second defendant was considered to be in violation
of section 180 (1) of the Corporation Act 2001 because the second defendant was the
engrossed with Padbury Mining Limited when section 180 (1) was violated by
Padbury Mining Limited. It is necessary that the second defendant being the
Managing director must act with reasonable care and diligence which is carried out in
the interest of the company and proper purpose. But, this duty is not comply with
because the second defendant was part of the funding announcement that was drafted
and released on 11th April 2014.
ii. Breach by Third Defendant- The third defendant was considered to be in violation of
section 180 (1) of the Corporation Act 2001 because the third defendant was the

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engrossed with Padbury Mining Limited when section 180 (1) was violated by
Padbury Mining Limited. It is necessary that the third defendant being the Executive
director and chairman must act with reasonable care and diligence which is carried
out in the interest of the company and proper purpose. But, this duty is not comply
with because the third defendant was part of the funding announcement that was
drafted and released on 11th April 2014 (Commonwealth of Australia v Director, Fair
Work Building Inspectorate (2015); NW Frozen Foods Pty Limited v Australian
Competition and Consumer Commission(1996); Gillfillan v Australian Securities and
Investments Commission (2012))
Reasons for violation of section 674 (2A) of the Act
iii. Breach by First Defendant – it is stated that when the announcement was made by
Padbury Mining Limited on 11th April 2014 in the Australian Stock Exchange, at that
time Padbury Mining Limited has not made any kind of discloser which are the pre
requisites to obtain finance from the Superkite Pty Ltd. the pre requisites are made
part of paragraph 22 and 31 of the claim. It is obligatory on Padbury Mining Limited
that the said information should have been provided to the Australian Stock Exchange
on 11th April 2011 between 9:40- 2:15 AEST
iv. Breach by Second Defendant – The second defendant was considered to be in
violation of section 674 (2A) of the Corporation Act 2001 because the second
defendant was the engrossed with Padbury Mining Limited when section 674 (2A)
was violated by Padbury Mining Limited.
v. Breach by Third Defendant - The third defendant was considered to be in violation of
section 674 (2A) of the Corporation Act 2001 because the third defendant was the
engrossed with Padbury Mining Limited when section 674 (2A) was violated by
Padbury Mining Limited.
Thus, these are the various duties that are violated by the First Defendant, Second and Third
defendant. However, it is now important to analyze the decision of the court and the reasons for
such decision.

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Discuss and critically ANALYSE the court/tribunal decision and the reason for the
decision in view of the Corporations Act.
The decision of the Court tribunal
After analyzing the breaches that are incurred by the First, second and third defendant, the falling
order were submitted.
i. Second defendant is found to be in violation of section 180 (10 and section 674 (2A)
of the Corporation Act and thus he is imposed with penalty of $25,000. As per section
206C of the Act, he was also disqualified for three year from the post of the Ageing
Director (Gillfillan v Australian Securities and Investments Commission (2012);
ii. Third defendant is found to be in violation of section 180 (10 and section 674 (2A) of
the Corporation Act and thus he is imposed with penalty of $25,000. As per section
206C of the Act, he was also disqualified for three year from the post of the
Executive Director;
iii. The cost of proceedings of $200,000 was also imposed upon both the second and
third defendant.
Reasons for the decisions of the court
Various orders were made by the court wherein the defendants were penalized. However, the
main reasons for the imposition of the orders include:
i. It was affirmed by the defendants that the announcement that was made by them on
11th April, 2014 at the Australian Stock Exchange is nothing but an act which was
deceptive and misleading in nature. when the anno8uncement was made then there
was no disclosure that was made that the company has to comply with certain pre
requisites before the finance of $ 6 billion is provided to the company by Superkite
Pty Ltd. this non disclosure will make the investors believe that the funds are already
in the hands of the defendant company which was not true. Thus the act is nothing but
an act of misleading and deceptive conduct as per section 1041H of the Corporation
Act 2001.
ii. Both the defendants, that is, defendant Second and Third were art of the
announcement which was made by the first Defendant. Thus, their participating in the

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drafting and release of the announcement is nothing but an act of deception which
made them volatile of section 1041H of the corporation Act 2001.
iii. The main reason because of which Section 674 (2) of the Corporation Act 2001 was
considered to be violated is that It is obligatory on Padbury Mining Limited that the
said information should have been provided to the Australian Stock Exchange on 11th
April 2011 between 9:40- 2:15 AEST. The disclosure is necessary because it will
have a significant impact on the investors who intend to trade with the shares of the
company and thus will have significant impact upon the share price of the company.
Section 674 (2) makes it compulsory that such information must be disclosed. The
requirement is also established under 3.1 of the Australian Stock Exchange Listing
Rules. But by not complying with these statutory requirements there is violation on
the part of the defendants. No disclosure was also made regarding who is the party
who is investing the company project. Thus all these non-disclosures has resulted in
the violation of section 674 (2) of the Corporation Act 2001.
iv. Also, both second and third defendant were found to be in violation of section 180 (1)
of the Corporation Act 2001. It is submitted by the court they must be aware that of
the funding requirements as per section 674 (2) of the corporation Act 2001 was not
made then it is certainly an act of deception and misleading on the part of the
company and thus violation of section 1041H of the Corporation Act 2001. These
deceptive acts if disclosed to the public will certainly have a negative impact on the
goodwill and reputation of the company and will make it very difficult to raise fund
requirements for the project and thus they decided not to disclose the same. All these
non disclosures on the part of the defendants are carried out without adequate and
diligence and thus resulted in the violation of section 180 (1) of the Corporation Act
2001.
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
The leading decision tries to highlight the responsibilities that are imposed on the company and
its directors that before taking any acts for the company they must be sure that such acts does not
result in any kind of deceive or misleading actions.

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Reference List
Case laws
Australian Securities and Investments Commission v Padbury Mining Limited [2016] FCA 990
Australian Competition and Consumer Commission v REIWA Inc (1999) 161 ALR 79
Commonwealth of Australia v Director, Fair Work Building Inspectorate (2015) 326 ALR 476
Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR 460
NW Frozen Foods Pty Limited v Australian Competition and Consumer Commission(1996) 71
FCR 285
Online Material
Australian Securities and Investments Commission v Padbury Mining Limited [2016] FCA 990 <
http://download.asic.gov.au/media/3985403/asic-v-padbury-mining-2016-fca-990.pdf>.