Facts
Australian Securities and Investments Commission v Rich is one of the famous case in NSW where Australian Securities and Investments Commission sues the former executive directors of One. Tel Telecommunication Company. They alleged because the directors are failed to do their duties. They breach their duties as the directors of the company. The New South Wales Supreme Court gives the decision as per the Corporation Act 2001 of Australia. The New South Wales Supreme Court, the Judge Robert Austin dismissed the case of ASIC against the directors because the corporate regulator had failed to prove any related aspects of the pleaded case against the defendant (Barker 2015).
One.Tel was a telecommunication service provider of the GSM mobile and long distance calls, which was formed by the Jodee Rich and Mark Silbermann in Australia in 1995. The company again expand their service in 1998 and 1999 , where James Packer who was a shareholder of the company invest $600 million in the business for building Australia’s fourth mobile network (Barry 2011). In July 2001, the company was placed into liquidation and Packer and Murdoch’s PBL and News Corporation withdrawn their written issues and therefore the company were collapsed. It was also found that the rights issues are the main shareholders who give the main supports to the company (Conaglen and Hill 2017). In between, the Australian Securities and Investments Commission alleged the directors of the company for breaching the duty of care and diligence to the company. Therefore, they sued the company and alleged for not doing the duty of care of care toward the company.
The Judge Justice Robert Austin stated that Australian Securities and Investments Commission had failed to establish the facts of breaching the duties of the directors of the One.Tel Company are every aspects of their claim. They also had failed to call the key witness in this case. The court also said that the Australian Securities and Investments Commission misleadingly took passages of evidence out of the context and the witness is not accurate (Barker 2015).
The court held that the directors being experienced, conscientious and intelligent people did carry out their statutory obligations as a director of a company honestly. However, under definite circumstances, the directors have failed to act with due diligence and care which the law requires them to exercise (Barry 2011).
As per the Corporation Act 2001 sec 180 defines the care and diligence of the directors of the company. They must exercise their powers and discharges with the duties with the degree of care and diligence. They must form a proper business structure for the best interest of the company(Conaglen and Hill 2017).
The Claim by Australian Securities and Investments Commission
As per the sec-181 of the Corporation act, define the purposes and faith in the best interest of the company for the proper purposes and the sec- 182 of this act define the position of the directors as per criteria of the company. Therefore, it is important for the directors that they must obey the duties of the director’s duty as per the requirement of the company.
As per sec 182(2) define the a director or any other officer who makes a business judgment rule, will not be held liable in respect of the judgment under the statutory, common law or equitable duties of care and diligence, in which all of the elements can be shown. Such elements are, the judgment was properly made in good faith and for proper purpose, there was not material personal interest in the subject as of the matter of the judgment, the directors and the officers informed themselves about the subject matter of the judgment to the extent they appropriately believed to be reasonable and also the judgment was believed to be in rational in the best interest of the whole company (Conaglen and Hill 2017). All of these would be reasonably justified unless any other person in such position thinks that it is completely unreasonable.
However, Australian Securities and Investments Commission claimed that the directors of the company breach their duties toward the company and sued the directors and the former financial directors of the company for failed to exercise their duty. However, Tel informed the Australian Securities and Investments Commission with much information about the financial condition of the company. The alleged $92 million for the damaged and a lifetime banning order against the company directors.
ASIC v Cassimatis is a famous case where the directors are found that they breach their duties of care towards the company. The Australian Securities and Investments Commission alleged the directors for breach the duty of care and the Federal Court of Australia found breach of duties. The stated that the company is failed to satisfy the sec- 180(1) of director’s duty therefore they breach the duties of care.
The Australian Securities and Investments Commission v Rich case, the Australian Securities and Investments Commission stated that the company is failing (i) properly assess One.Tel?s financial position, (ii) inform the board as to One.Tel?s true financial position, and (iii)ensure the existence of systems facilitating the flow of financial information to the board.
Critical analysis of the Court’s decision
As per the business judgment the director of the company who form the business must have to meet the requirement s if as per the equivalent duties at common law and in equity where the judgment is being made as per the god faith and material personal interest of the corporation act. Where the sec 181 (1) of the corporation act define that the normative standard of conduct to all directors whereas, the sec 182(2) is defense to a contravention of sec 180(1) or the equivalent duty of care in equity (Conaglen and Hill 2017).
As per the Judge Austin J stated in his judgment that they the directors must have rationally believe that the judgment is in the best interests of the corporation whereas sec 182(2) define the beliefs the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in the position of director (Plessis 2003).
The judges give their first comprehensive judicial analysis of the statutory business judgment defense as per the sec 180(2) of the Corporation Act where the business judgment rules provide the defense for the directors of the company if they are alleged for breaching the duty of care of Sec 181(1).
The case of ASIC v Adler is also related with Australian Securities and Investments Commission v Rich where the directors breach the duties of care to the company. In this case, HIH Casualty and General Insurance Ltd (HIHC) provide a payment of $10 million to Pacific Eagle Equity Pty Ltd (PEE) without any proper document and security. Adler is controlled the company PEE where the AEUT is the trustee (Eisenberg 1989). PEE buys some unsecured shares from the company where the other shareholders are satisfied with the decision. The court made decision to ban Adler to act as a director of a company for 20 years and Williams, the another director, was banned for 10 years. Sec 9 of the corporation act defines the director of any company. A director who hold that position for the company whereas, this section also include that there are also some directors who are not appointed properly in the company are also the directors (Plessis 2003).
Directors have duties to protect the shareholder from the risks of directors giving harm towards the company. The sec 9 also defines the officer of a corporation, which define executives of the company who held senior positions in the board level. In the case of ASIC v Adler, the court held that Adler, the director of HIH, was also an officer of wholly owned HIH subsidiary, which can be related under the section 9 definitions of directors. This applies to Adler even though he was not properly appointed as a director or an officer of the subsidiary. Since he has the role of director, the subsidiary holding company and also a member of HIH investment committee, this has showed that he participated in the decision making of the company’s business in which affected it the whole or substantial part of the business.
The decision does not establish a new standard of care for non-executive chairpersons. It merely clears the way for ASIC to advance its arguments before the Court (Eisenberg 1989). The decision of Justice Austin does however indicate that the Court may be ready to take a step in advancing the duty of care owed by a non-executive director of a listed public company. His Honor was at pains to state the importance of ensuring the duties of a company chairperson are in line with contemporary community expectations (Plessis 2003)..
However, it must be remembered, that the comments of Justice Austin are restricted to the factual circumstances of the case. His Honor was careful to specify that the case advanced by ASIC related to the peculiar circumstances of Mr Greaves – a non-executive director of a publicly listed company, who was also a member of the Audit and Finance Committee and who had substantial practical and commercial experience in listed public companies as finance director or chief financial officer (Plessis 2003).
In particular, Justice Austin stated (para.18): ‘the case the Commission seeks to make out is not a case about the duties of a company chairman at large, but about the duties of a company chairman who is also chairman of the audit committee, having regard to the particular circumstance of the company and his special personal qualifications (Eisenberg 1989).’
The decision does recognize that the depth of the duties largely depends on the factual circumstances in terms of usual practice and the specific duties assumed by a chairperson of a listed public company. This approach is important in the context of any Board charter, which specifies the roles, and responsibilities of the Board and management and the balance of responsibility between the chairperson and the chief executive officer (Hanrahan 2017).
Regardless of whether the requirement in s 180(2)(d) is less onerous than arequirement that the belief be reasonable, a fundamental distinction between s 180(1) and s 180(2)(d) has thus far been overlooked. The standards proscribed by s 180(1) and s 180(2)(d) are directed to different matters; the former to the degree of care and diligence required of the director (Hanrahan 2017), and the latter to the quality of the director’s belief as to the best interests of the company. As such, even if the latter standard is, as ASIC would have it, equated with reasonableness this does not render s 180(2)(d) otiose. A director’s exercise of their powers and discharge of their duties may fall below the standard of reasonable care; however, the director may still have reasonably believed that their conduct was in the best interests of the corporation. Such a finding would not be internally inconsistent (Hanrahan 2017).
Conclusion
As per the case study, the court dismisses the case with Rich. The New South Wales Supreme Court, the Judge Robert Austin dismissed the case of ASIC against the directors because the corporate regulator had failed to prove any related aspects of the pleaded case against the defendant. The Judge Justice Robert Austin stated that Australian Securities and Investments Commission had failed to establish the facts of breaching the duties of the directors of the One.Tel Company are every aspects of their claim.
Reference
(ASIC) v Cassimatis (No. 8) [2016] FCA 1023
ASIC v Adler
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229
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