Business Laws: Ardent Leisure's Risk Management Report

This report examines the Ardent Leisure case in the context of Australian business laws, focusing on risk management and corporate governance principles. It analyzes the company's failure to identify and mitigate risks, as highlighted by the Dreamworld incident, and the resulting legal and financial repercussions. The report references the Australian Securities and Investment Commission (ASIC) and the Australian Securities Exchange (ASX) guidelines, particularly Principle 7, which emphasizes the importance of a company's directorial board in identifying and addressing risks. The report also discusses the legal obligations of directors under the Corporations Act 2001 and the consequences of breaching these obligations, including civil penalties. The analysis covers the company's response to the crisis, including the resignation of the CEO and the measures taken to address safety concerns. Furthermore, the report underscores the importance of ethical considerations and the need for companies to act responsibly towards their stakeholders and the public, emphasizing the socio-economic and environmental impacts of corporate failures. The report concludes by highlighting the need for robust risk management frameworks and the adherence to legal and ethical standards to prevent such incidents in the future.

Running head: BUSINESS LAWS
Business Laws
Name of the student
Name of the university
Author note

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Question A.
The Australian Security and Investment Commission’s Principle 7 states that it
is the rightful duty of a company’s head directorial board to identify risk and devise measures to
undertake the task to correct/reduce them. In case if a company is incapable of identifying and
dealing with the risk detected, not only will it affect the company as a whole but also affect its
stockholders. Such neglect may also affect the society, consumers and the current as well as the
potential investors and employees as a whole1.
Certain propositions were kept by the ASX in regard to the topic at hand, one of
them requires that the top directorial board make their stand and contribute to the formation of a
committee which will solely dedicate itself to risk management. The committee will prioritize
the handling of risk in all efficiency by conducting yearly reviews the framework of risk
management and insure its absolute readiness by implementing any new changes required2.
Three members will be appointed as directors and will be bestowed with the power to deal with
their task in utmost independence.
It has been stated by the ASX that the directorial board in the company are required
to disclose what necessary auditory details related to its build and overall functions in running of
the organization. It is necessary that the company reveal any auditory material that might lead to
a potential social, economical or environmental jeopardy and state the measure that it would
implement for their necessary corrections3.
1 Baxt, R., and Fletcher, K.L., Fridman, S., Corporations and Associations Cases and Materials on, (Butterworths,
Australia, 10th edition, 2008).
2 Parker, Clarke, Veljanovski, Posthouwer, Corporate Law,( Palgrave 1st edition 2012).
3 Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, (Sydney, 9th edition 2013).

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In the scenario that is provided to us, it was seen that the directorial committee of a
company called the Ardent leisure is condemned for causing a small disaster and not having
made any corrective measures for the correction of their failure. It has further been confirmed
that the company had not only failed to realize the risk that it had undertaken but didn’t bother to
take measures for its mitigation in any way.
It is known that if an accident were to occur in particular premises, all the damage
caused by the said incident falls on the shoulders of the current occupier. Hence, the lives that
were claimed resulting to the said accident in our case are to be tackled by Ardent leisure. Any
framework adopted for the management of a potential mishap caused by a risk might have
prevented any anomaly in the first place4.
The crisis that happened before the occurrence of the Dreamworld incident might
have been dealt with if certain identification measures were in work. It can also be said that the
measures might have prevented several casualties. If a certain degree of Professionalism was
shown by the company, the disaster might have been prevented and the deceased and their
families might have been at peace. Not only did the incident lead to a socio-economic and
environmental loss, but it also had a bad effect on the company’s goodwill5.
Question B.
It is the legal obligation of the directorial board of a company to implement measure
for the identification and handling of risk related to any financial or business task and to also
prepare a framework for the management of risk as said in the Section 7 under the good
4 Li, G, Riley, S. Applied Corporate Law: A Bilingual Approach (LexisNexis 1st Edition 2009).
5 Harris J, Corporations Law, (LexisNexis Study Guide 1st edition 2008).

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corporate governance. It was previously discussed that the company is required to start up a
committee with purpose to deal with the said task of assigning, finding and dealing with the
supposed risk that might lead to future anomalies and accidents as in the case that is provided to
us6. It was further said that this committee has the independence to prioritise only on the risk
factor and work on the mitigation of any potential risk by taking a select few measures as in
making the company cooperate by asking them for the full disclosure of all the documents that
show risk, whether they be social, environmental, economical or financial.
In this incident, it is seen that the company, Ardent leisure was supposed to rightfully
established a team in order to deal with the Dreamworld incident and to address the issues that
had now taken disastrous turns. Since such a team was never created, post crisis issues remained
untouched and undealt with in that instance since the team could have taken measures for
reconciliation and betterment by upholding the principle 7 of ASK, which as read before deals
with the risk management and finding and rectifying any sort risk that a company is liable to face
in the near future events. As said before, if the presence of such a committee have resulted to a
more sophisticated and handled approach to the risk at hand and the incident might have been
suppressed, the damage could have been reduced extensively, or it might have never happened to
begin with. So, it can be stated that the organisation not only failed to uphold the Principle 7 of
ASX, but failed as a company to do right to the society and the men working for it7.
It was obvious that Ardent Leisure would have to face the legal authorities and suffer
consequences for its actions of showing complete disregard for the risk framework of risk
management and the importance of identification and correction of risk. It didn’t only face
competitive disadvantage in the market but the infringement of Provision 7 of ASX for the good
6 Tomasic, R.,Jackson, J.,Woellner, R., Corporations Law - Principles, Policy and Process (4th Edition Butterworths.,
Sydney, 2002).
7 Vermeesch,R B, Lindgren, K E, Business Law of Australia (Butterworths, 12th Edition, 2011).

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corporate governance resulted to its downfall8. Heavy losses will be faced by the company
caused by certain unwanted risks that added onto the already crippling burden. The shock value
the company’s goodwill was tremendous as investors would now refuse to purchase its stock or
invest on the company in any way. In the non-appearance of a system that would establish proper
risk management, the employees will be less accountable and will submit low quality work,
leading to a massive decline in productivity.
The policy of “If not, why not” of the Australian Security Exchange allows a
company the right to refuse the policies of ASX if, and only if the company has a valid and a
logical standpoint on why it wouldn’t want to accept them and has policies that would be of
better use for the protection of the risk factor. It is the job of the Chief Compliance Officer of
the ASX to deal with the companies that refuse to follow its standards of ASX and know it full
well and have no answer to the reason why. It would seem that these companies never applied
for ‘If not why not’ or, they agreed to follow ASX principles but broke the rules nevertheless,
though the aggrieved is given a chance to go for its defence in the ASX Appeal Tribunal9. If in
case there is a breach of law, then a penalty of $250000 is extracted, there is also a smaller
penalty of $1000000 for the breach of Austra Care rules. In this case, ASX is entitled to issue
penalties on the Ardent Leisure for breach of civil laws and disqualify the directors.
Question C.
8 zpatrick, Symes, Veljanovski, Parker, Business and Corporations Law;( LexisNexis 3rd edition 2017).
9 Pearson, Gail. Failure in corporate governance: financial planning and greed’ (2016) 13(2) Handbook on
Corporate Governance in Financial Institutions 185.

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It is expected of the directors of an organisation to have act on their duties with
absolute supervision and rigour, taking their directorial duties towards the stockholders and the
organisation very seriously. It is expected that the director shows his supervision and rigour as
any other person with a right mind would do sitting in a director's position, states the Section
180 of the Corporation Act 200110.
The breach of this law will lead to civil penalties with respect to the section 1317 of
the act, as this section assigns important directorial under the common law. All decisions taken
by a person on a directorial stand will always be considered legal, taken in good faith and
legitimacy as in the Business Judgement Rule11. It is required that all the decisions taken by
directors are made rationally with the sole purpose to of welfare and company's overall benefit. It
is expected that a reasonable person would take the right actions with regard of the company’s
best interest12.
In the Australian Securities and Investment Commission (ASIC) v Cassimatis
[2015]13, It was stated that if section 180 of the act was breached then it would be the case of
infringement by the part of the director and inconsistent decision making system of the company.
It was stated that the directors having less obligations to work under, they have to make sure is to
follow the primary obligations that are imposed upon them by the common law and exercise
their duties in a consistent fashion as in ASIC v Matiner Corp [2015]14.
It has already been made clear that in this case the said company, Ardent Leisure,
breached the principles laid down by ASX in regards to the risk management. It was observed in
10 Corporation Act 2001 (Cth)
11 Fisher S, Anderson C, Dickfos, Corporations Law - Butterworths Tutorial Series, (4th Edition Butterworths, Sydney
2014).
12 Harris J, Butterworths Questions and Answers Corporations Law:, (LexisNexis, 3rd Edition Sydney 2009).
13 [2015] NSWSC 1744
14 [2015] 327 ALR 95 at [144]

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Matiner’s case, establishment of a violation of the section 180 of the corporations act 2001, it
must be proved that the company that is blamed has made a breach of the ideals stated in the
common law by a prudent person.
In case of Ardent Leisure, since the director was a prudent person to begin with, the
breach of the section 180 of the act, as read previously, it has been said that the person has to be
of right mind in order to commit a breach of the law, so, in Ardent’s case, it is quite natural that
the director was quite sane and the decisions made by the company were of little significance
relating to the risk that resulted to the disaster, and so, it will be considered and further penalties
will be imposed upon the company under section 1317 counting in the losses suffered by the
company financially.
Question D.
After facing much hate and criticism after the disastrous incident that led to the
unforeseen deaths of many of the company’s patrons and also innocent civilians, the CEO of
Ardent Leisure Pvt. Ltd., Deborah Thomas gave a resignation from her post. It is a well
known fact that the company was known for its primary goal of spreading the entertainment
sector across the United States and had gained much fame being one of the leading producers in
the industry. It was noticed that the stock prices of the company had had a significant decline of
7.8% post the accident of the Dreamworld. Currently, the company is engaging itself in
procedures to control the excess damage caused by the incident15.
The authorities of the company claim to be working in order to sum up certain
important factors and root out the actual cause of this devastating accident with significant help
from the Police. The accident caused the company a loss of $49.4 million and has left it in a dire
15 The Guardian. (2017) <https://www.theguardian.com › World › Australia › Dreamworld>.

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state. The company involved itself into working on the safety and precautionary measures that
are to be taken in the coming future and so, the park remained closed for 45 days.
The company did the courtesy to rightfully admit to their disregard and utter failure in
taking steps and acting with care and rigor within 48 hours of the accident, and also agree to the
fact that if measure were taken beforehand, the incident might have been prevented. The
company opted for support and professionals to deal with situation at hand, some of them
included the ex police officer Mike McKay from Queensland and Deloitte, Graeme Newton, a
crisis management expert. The company is now doing its best to insure safety by examining rides
and making taking proper measures16.
The ride that led to the unforeseen disaster, ‘Thunder River Rapid’, was shut down, not
to be used again. In such events, where the relatives of many are in jeopardy, the principles of
the Ten Commandments should be followed17. The principles clearly state that in case if a person
dies, their family must be contacted in that very moment, though, it was seen that Ardent Leisure
had decided to totally ignore such important rules in the first place. Yes, the company did take
steps that included private collaboration schemes and introduction of risk management, but it
was only after the incident happened. Though, it seems Ardent Leisure is still acting in defense
stating that their Robust policies made them one of the most successful entertainment producers
that are out there in the open market since 1981.
16 Dreamworld’S Parent Ardent Leisure Is In Damage Control (2017) NewsComAu
http://www.news.com.au/finance/business/other-industries/dreamworld-parent-company-ardent-leisure-in-crisis-
after-fatal-theme-park-accident/news-story/00c3d7a283c19e05427f273bb3a44e39
17 Booth, Simon A. Crisis management strategy: Competition and change in modern enterprises. (1st Edtion,
Routledge, 2015).

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Bibliography
Books
Baxt, R., and Fletcher, K.L., Fridman, S., Corporations and Associations Cases and Materials
on, (Butterworths, Australia, 10th edition, 2008)
Booth, Simon A. Crisis management strategy: Competition and change in modern enterprises.
(1st Edition, Routledge, 2015)
Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, (Sydney, 9th edition
2013)
Fisher S, Anderson C, Dickfos, Corporations Law – (Butterworths Tutorial Series, 4th Edition
Butterworths, Sydney 2014)
Harris J, Butterworths Questions and Answers Corporations Law:, (LexisNexis, 3rd Edition
Sydney 2009)
Harris J, Corporations Law, (LexisNexis Study Guide 1st edition 2008).
Li, G, Riley, S. Applied Corporate Law: A Bilingual Approach (LexisNexis 1st Edition 2009).
Parker, Clarke, Veljanovski, Posthouwer, Corporate Law, Palgrave 1st edition 2012
Tomasic, R.,Jackson, J.,Woellner, R., Corporations Law - Principles, Policy and Process (4th
Edition Butterworths., Sydney, 2002).
Vermeesch,R B, Lindgren, K E, Business Law of Australia (Butterworths, 12th Edition, 2011).
zpatrick, Symes, Veljanovski, Parker, Business and Corporations Law; (LexisNexis 3rd edition
2017)
Case Laws
ASIC v Matiner Corp [2015] 327 ALR 95 at [144]
Australian Securities and Investment Commission (ASIC) v Cassimatis [2015] NSWSC 1744

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Journals
Pearson, Gail, ‘Failure in corporate governance: financial planning and greed’ (2016) 13(2)
Handbook on Corporate Governance in Financial Institutions 185.
Legislations
Corporation Act 2001 (Cth)
Website
Dreamworld’S Parent Ardent Leisure Is In Damage Control (2017) NewsComAu
http://www.news.com.au/finance/business/other-industries/dreamworld-parent-company-ardent-
leisure-in-crisis-after-fatal-theme-park-accident/news-story/
00c3d7a283c19e05427f273bb3a44e39
The Guardian. (2017) <https://www.theguardian.com › World › Australia › Dreamworld>.

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