Facts
Discuss about the Case Study of ASIC v Southcorp Limited.
As corporations are not natural person, it appoint some officers to work on it is behalf. Such appointed officers hold liability to work honestly and in good faith of the corporation (Carter Newell Lawyers, 2012). In Australia, to define the duties of directors and officers of a corporation, Corporations Act, 2001 (Cth) is there. This is an act which governs and regulates compliance activities of a corporation. Corporations can be of any kinds according to their status. Such as, some of the corporations are non-listed, whereas some are listed.
Listed entities are those, which have it is shares listed on any recognized stock exchange and general public has interest in such corporations (State Library Victoria, 2018). On the other side, some corporations are Non-Listed, these kinds of corporations are usually close one and interest of public at large does not involve in the same. Further in addition to the provisions of Corporations Act, 2001, in case of listed entities, listed rule are also applicable. In this scenario it becomes responsibilities of directors and officers of the corporation to comply with the provisions of corporations Act, 2001 along with Listed Rules.
It is very general practice that if a person does not fulfill his/her statutory liabilities and duties, the same become entitled to have a penalty. Similarly, if any of the director or officer of a corporation does not perform their duties in a manner prescribed then courts has powers to impose penalty and fine on such person.
Facts
In the cited case, Southcorp Limited is a listed entity which is engaged in wine production business. As earlier discusses, being a listed entity it had to follow the provisions of Corporations Act, 2001 and Listed Rules. Here, Mr. Glen Cunningham, who was the Executive General Manager of Corporate Affairs in Southcorp Limited has informed to 11 Analysts about some important financial decision of corporation via e-mail on 18 April 2002. In the said e-mail he has wrote that company is expecting to sell it is 2000 vintage super premium vines in financial year 2003. Further he has also added that there will be impact of $30 million on gross profit in financial year 2003 in comparison to financial year 2004 due to the said sale (Jade, 2018).
Later on, on the basis of information provided in aforesaid e-mail sent by Mr. Cunningham, few analysts have prepared the report by using their interpretation skills. Due to the said e-mail and reports, share price of Southcorp has started fluctuating very fluently. It has put adverse impact on market price of shares of Southcorp Limited.
Duties/Responsibilities Breached
Further, Australian Securities And Investments Commission (herein after mentioned as “ASIC”), an authority responsible to look after compliance and fair practicing of corporations in Australia has brought an allegation to Southcorp Limited that the same has mislead the market and investors. Due to downfall in share market price of Southcorp Limited, Investors has suffered with loss. Proceedings has initiated against Southcorp Limited by ASIC.
Duties/Responsibilities Breached
According to section 674 of Corporations Act, 2001 every listed disclosing entity need to make continuous disclosure in relation to specified event or matters (Addison and Chew, 2011). This section only applies to those listed disclosure entity which has some information that is not general in nature and has nature due to which it is important to share the same with market operators in the view of a reasonable person (austlii, 2018). If any of the person related to a corporation who is responsible to make such disclosure become fail to do so then there are some provision of penalties are available under Section 1317E and 1317G of Corporations Act, 2001 (O’Brien Palmer, 2018). Section 1317E says that if court has reason to believe that an officer or director or other responsible person of a corporation has not complied with the provision of section 674(2) of Corporations Act, 2001 then the same must make a declaration of contravention and civil liability can also be impose in this situation as section 674(2) has civil provisions (Australian Government, 2018).
Here this is to mention that for application of Section 674 (2) is necessary that corporation must be a listed disclosing entity; listed rules require such entity to update the market operators with relevant information and such information must not be general and must be of material mature in belief of a reasonable person (Australia, 2018). Further there some exceptional situations have given in law where such corporations need not to inform the stock exchange about such information. These exceptions cover the situation where information is confidential, or it is an incomplete proposal or can breach a contract if published or of such nature which must not be publish or informed in the general practice of law (ICP, 2018).
In addition to above, Section 181 of Corporations Act, 2001 is very important section. Corporations are separate legal personalities but they are not natural individual person so for the purpose of working and operations some directors and officers are there. Section 181 states that every director and officer of a corporation must discharge his/her duty in the best interest of the company (Legal Services Commission of South Australia, 2018). Further this section demands that) director and officers of the company are advised to work for a proper purpose. It may explain as that in the course of performing their duties, they must have an appropriate purpose of their deeds and tasks (William Roberts, 2018).
Why Duties were breached
It was held in the case Asden Developments Pty Ltd (in liq) v Dinoris (No 3) [2016] FCA 788 that intention is irrelevant sometimes. Even if the intention of directors and officers is bonafide, then also they will be held responsible if they breach their duty of due care in the course of performance of their duty by doing so without any proper purpose (Manoharan, 2016).
Why Duties were breached
In the studied case Mr. Cunningham has sent an e-mail to 11 analysts giving the information about expected future sale of 2000 vintage and also mentioned that due to this sale, in financial year 2003, gross profit of Southcorp would affect with $30 million in comparisons to financial year 2002. After this e-mail, many of the analysts have prepared their repots and within a day market prices of shares of Southcorp Limited has fallen. Such downfall in market value of shares brought negative result to investors.
Further it has been noted that as per Section 674(2) and Listed Rules, the said information need not to be mailed to either analyst or stock exchange as the same of exceptional nature. Mr. Cunningham has placed his views that he thought the provided information is already general information as Southcorp Limited provided such kind of information in media release held in financial year 2000. Here this was a misinterpretation on his part. Further if Mr. Cunningham had reason to believe that the same must be disclosed then he must has mail the same to stock exchange also. As per the provisions of section 181 of Corporations Act, 2001, being an officer of the corporation, it was duty of Mr. Cunningham to work for a proper purpose. Here by sending the information to analyst unnecessarily, Mr. Cunningham has breached his duty of care as he had not any significant purpose to do so. He must have knowledge of the nature of information provided.
Section 181 of Corporations Act, 2001 states that an officer of a corporation must perform his/her duties in the good faith of the corporation. In the present case, Mr. Cunningham must be aware with the nature of information. He must have knowledge about the disclosure requirements of the same.
As it was held in the case Asden Developments Pty Ltd (in liq) v Dinoris that if an officer of the corporation has failed to perform his/her duty of care, even unintentionally then also he/shall be liable for the same. In the studied case, although Mr. Cunningham had not any wrongful intention, yet due to his deed and disclosure of information, investors and company has suffered loss and securities market also affect in a negative manner, he was liable to failure of performance of duty with due care in the absence of an appropriate purpose.
Court’s Decision
In order to provide the judgment, court has declared that defendant has failed to inform the required information to Australian Stock Exchange Limited before updating the same to analyst. It was the duty of Mr. Cunningham being Executive General Manager of Corporate Affairs in Southcorp Limited to identify the nature of information and his duty related thereon. Although it was not required to disclosure the subjective information mentioned in e-mail to either analyst or stock exchange but since Mr. Cunningham has misinterpreted the requirement, he must have sent the same to stock exchange first and in this way he has not complied with the provisions f of section 674 (2) of the Corporations Act, 2001.
Further as abovementioned section attracts civil penalty under section 1317G of the Corporations Act, 2001, defendant is liable to pay a penalty worth $100,000 along with the cost of proceedings to plaintiff (Wolters Kluwer, 2018).
Impact of Court’s Decision on Companies in Australia
This case covers the provision of section 674 (2) and 181 of Corporations Act, 2001. Section 181 of Corporations Act, 2001 demands an officer and director of the corporation to behave in good faith of the corporations. In addition to this this section also states that such officers and directors being on these positions must perform their duties with due acre and responsibility. As in this case, Mr. Cunningham had not any wrongful intention while sending the e-mail , yet he held liable for the penalties under section 1317G of Corporations Act, 2001. So, by the result and judgment of this case, officers of corporations in Australia became more careful and aware in respect of their duties. Now they have understanding of the fact that they cannot take benefit of the faithful intention. If cause of their negligence, any stakeholder would suffer from any loss then such officers shall held Liable (Barnes, 2013).
Further, in the reviewed case, civil penalties also levied to Mr. Cunningham, officer of the company. By providing such judgment, court has showed that nobody can be free from their liabilities if the same would not deliver their services in best and required mode. Now, directors and officers of corporations in Australia are more conscious and attentive and due to this corporations are complying with requirement of law in a better way.
Conclusion
In conclusion it may state that in the given case, Mr. Cunningham has sent some information to analyst which was not required to send as the same was covered under exceptional situation. Due to his conduct, market price of shares has manipulated and the same has fallen down within the time slot of one day. As Under section 674 (2) it is mentioned that a listed entity need to inform stock exchange about those information which is not generally available in the market and a s reasonable person has reason to believe that such information must have a significant effect on price of enhanced disclosure securities of the listed disclosing entity.
Further, as per section 181 of Corporations Act, 2001 it is required for a director or officer of the corporation to perform their duty for an appropriate purpose and in best interest of the corporation. Here as being executive general of corporate affairs of Southcorp Limited, Mr. Cunningham must have knowledge about the disclosing requirement of the subjective information. He held liable to pay penalties later on and also had to pay cost of proceedings to plaintiff. It is advisable for the directors and officers of the corporation to be very attentive and aware while taking any decision in the course of their duty
References
Addison, A. and Chew, L. (2011) Australia: Continuous Disclosure – What Duties do Directors Have? [online] Available from: https://www.mondaq.com/australia/x/155592/Directors+Officers+Executives+Shareholders/Continuous+Disclosure+What+Duties+do+Directors+Have [Accessed on 02/06/18]
Asden Developments Pty Ltd (in liq) v Dinoris (No 3) [2016] FCA 788
Austli. (2018) Commonwealth Consolidates Acts. [online] Available from: https://www9.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s674.html [Accessed on 01/06/18]
Australia. (2018) Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations. Australia: CCH Australia Limited.
Australian Government. (2018) Federal Register of Legislation. [online] Available from: https://www.legislation.gov.au/Details/C2004C03060/Html/Volume_5 [Accessed on 01/06/18]
Barnes, L. (2013) The Albatross Around the Neck of Company Directors: A Journey Through Case Law, Legislation and Corporate Governance. Journal of Law and Financial Management,12(1)
Carter Newell Lawyers. (2012) Consideration of Corporations Act – Fiduciary duties, duties of fidelity, and account for profits. [online] Available from: https://www.carternewell.com/page/Publications/Archive/Consideration_of_Corporations_Act_-_Fiduciary_duties_duties_of_fidelity_and_account_for_profits/ [Accessed on 02/06/18]
Corporations Act, 2001 (Cth)
ICP. (2018) ASX Listing Rules. [online] Available from: https://www.icp.net.au/asx-rules/ [Accessed on 02/06/18]
Jade. (2018) Australian Securities & Investments Commission v Southcorp Limited [2003] FCA 804. [online] Available from: https://jade.io/article/107416 [Accessed on 02/06/18]
Legal Services Commission of South Australia. (2018) General Duties of Directors- Corporations Act 2001 (Cth) [online] Available from: https://www.lawhandbook.sa.gov.au/ch05s01s03s02.php [Accessed on 01/06/18]
Manoharan, N. (2016) The Imperative to Investigate. [online] Available from: https://www.millsoakley.com.au/the-imperative-to-investigate/ [Accessed on 02/06/18]
O’Brien Palmer. (2018) “Why would anyone want to be Director?” [online] Available from: https://obp.com.au/director-duties/ [Accessed on 02/06/18]
State Library Victoria. (2018) Companies in Australia. [online] Available from: https://guides.slv.vic.gov.au/companies/structures [Accessed on 02/06/18]
William Roberts. (2018) Directors’ Duties [online] Available from: https://www.williamroberts.com.au/News-and-Resources/News/Articles/Directors–Duties [Accessed on 01/06/18]
Wolters Kluwer. (2018) ASIC v SOUTHCORP LIMITED (NO 2), Federal Court of Australia, 27 November 2003 [online] Available from: https://iknow.cch.com.au/document/atagUio377942sl10431553/asic-v-southcorp-limited-no-2 [Accessed on 02/06/18]
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