Investor Rights and Liabilities Under the Corporations Act 2001
Consider the various issues that arise on these facts and advise the investors of their rights against Austin Retail Ltd and any of the other parties that may be liable on these facts. Your answer should consider the relevant sections of the Corporations Act 2001 and case law.
Advise Austin Retail Ltd and any other parties whether they can rely on any defences available to them under the Corporations Act 2001.
The subject matter of the case is based on provision of Corporation Act 2001. In this case, provision regarding disclosure of the documents, issuance of shares and liabilities of the corporations regarding any statements has been prescribed. Further, certain defences for the wrongful acts and allegations have also been discussed here. The rights of the third parties regarding any statements generated from the experts have been pointed out here. In Australia, all the company related problems deal by Corporation Act 2001. The Act is working as the guiding principle of the corporative activities. All the provisions and guidelines mentioned under this Act are mandatory in nature and the directors of the corporations are compelled to abide by the provisions. According to the Company law, a director of a company should act for the best interest of the company and he should take all the decisions effectively and prudently. If any director has held liable for non-maintaining the provisions of the Act, he will have to face penalties under the Act. However, considering the scope of the duties, certain rights have also been imposed by this Act on the directors.
Under the Corporation Act, there are certain grounds that state about the duties of the directors that should have to be maintained by every director. According to section 180 of the Act, every director should perform with due care and diligence. The directors are liable to take all the decisions appropriately and they have to take a close vigil over the issue that no one get affected for their decision (Yoshikawa and Hu 2017). Further, it has been stated under section 181 of the Act, it is the basic duty of the directors to act in good faith and they should have to act for the best interest of the company and the shareholders. They should not state any false statements or facts. It has been mentioned in ASIC v Adler, the director should act for the benefit of the company and in case they have failed to do the same, they should be held liable under the Act and will face punishment under the Act.
Directors’ Duties and Liabilities under the Corporations Act 2001
In the current case study, it has been observed that the sales manager of the company has failed to examine all the necessary documents properly. Therefore, it can be stated that he has failed to act with due care and negligence. Further, it is his duty to state any fact about any report after verifies all the related documents properly. However, it has been observed that he had failed to do the same. He has failed to make necessary enquiries regarding the order books. Any prudent man could not do that. It is derived from the case study that he was not sure about the validity of the statements, but he did not do any act that can prove his innocence and it has been observed that the statements became wrong and certain amount has been lost in that process. Therefore, he made a breach under section 180 of the Act and according to the judgment of the ASIC v Adler, he should be held liable for all these acts.
Further, it has been observed that the company has failed to act according to the provision of section 710 of the Corporation Act 2001 where it has been stated that the company should have to disclose all the information to the investors necessary for their job. Under section 711, the disclosure information have been specifically stated. The disclosure matter has been pointed out under section 711(2) (b) of the Act. It has been observed that the Sales Manager of the company has failed to act prudently for the interest of the investors and failed to abide by the rules stated therein. Considering the case, it has also been observed that the Sales Manager has done misleading conduct regarding the financial statement of the company and therefore, held liable under section 1041H of the Act 2001. In this case, provision of section 1041I of the Act will be imposed on him, as he has failed to act prudently and contravened section 1041H of the Act. Further, certain rights have been conferred to the affected persons who incur loss for the acts of the director. The affected parties can bring an action under section 729 of the Act 2001.
However, from the contents of the case, it has been observed that certain financial experts make all the statements. According to section 189 of the Corporation Act 2001, a director of a company can rely on the advice given by the experts and in this case, if any faults have been done in their part, the director can defends their position. However, in these cases, the burden of proof is lied on the directors and they have to show that following acts have been followed in their case:
- It is to be proved that the person or organisation who has made all the advices are expert on that particular subject;
- The director has acted in good faith and for the interest of the company (du Toit 2017);
- An independent assessment has been done by the expert to this effect;
- There should certain reasonable grounds that reflect the trusts of the directors on the expert’s advice.
Disclosure and Misleading Conduct under the Corporations Act 2001
It has further observed in the case that the company named Austin Ltd has issued all their prospects based on the false statements and lodged the same before the Australian Securities and Investments Commission (ASIC). However, the false nature of the prospects had been caught by ASIC, as Bob has failed to verify the standard of the order books. He had not make any enquiry related to the statement made by the experts and therefore, it can be stated that he had also failed to act in good faith and failed in accordance with the provision of the section 181 of the Act. However, Bob is allowed to make a plea under the provision of section 189 of the Act, as he has believed on the statements of the experts. However, the section will not be applied for his part of acts, as there was no reasonable ground behind his trusts on the expert’s evidence. He had certain suspicion over the statement made by the experts, but he has failed to go for further enquiry. Therefore, it can be stated that the ground of defence mentioned under section 189 of the Act will not be available for him.
Apart from the above noted grounds, certain other obligations had not been followed here. According to section 674 of the Corporation Act 2001, it is the duty of the corporation to disclose all the company related documents to the Australian Securities Exchange (ASX). In Australia, special application should be submitted by the listing companies before the ASX and all the documents should be analyzed by ASX or ASIC to this effect (Hossain 2018). Therefore, the companies are required to submit the documents and disclose all the facts chronologically. It has been observed by section 674 of the Act that if certain company related information could be available to the individuals, the price and value of the security of the company will be raised and the interest of the company will be increased. Further, it has been mentioned under the Act that in case of any failure to this effect, the director of the company will face penalties. The nature of the penalties is civil and it will attract the provision of section 1317E and 1311 of the Corporation Act 2001. Further, it has been mentioned under section 674 (2A) of the Act that in case of any breach under the provisions of this section, it will be treated as the violation of this itself and the offender will have to face penalties for this too (Choi et al. 2016). In the given case study, it has been observed that the company has submitting the documents to the Australian securities Exchange. However, it was known to the company that there could be certain problems cropped up regarding the information and order books submitted, but they have failed to make proper enquiry regarding the facts of the orders. Further, they have failed to make ASX aware of the facts and it can be stated that the company had failed to act according to the provision of section 674 of the Act. The company has failed to increase the rate of its interest, the directors of the company are responsible for the same, and they may face penalty for that.
Penalties for Breach of Provisions under the Corporations Act 2001
It has also been observed from the current case that the company has made certain misstatements regarding the disclosure of the facts before the ASX. This tendency has attracted the facts of section 728 of the Corporation Act 2001 (Artiach, Gallery and Pick 2018). According to section 728 (2) of the Act “if any sort of misleading statements are considered to be made up by any individual in regards to the upcoming problems if the individual is lacking sensible grounds by which he made this statement”. A close interpretation of the sections reveals the fact that in case of any violation regarding section 728 of the Act; it will be regarded as against the interest of the investors. Considering the issues of the case, it can be stated that the director of the company to this effect has done a violation and therefore, it is certain to state that the directors have made breach under section 728.
It has been observed that the sale manager of the company has failed to make proper enquiry regarding the truthfulness of the statement mentioned in the order book. This act of the company has made a violation regarding the provisions of the Corporation Act and these acts had decreased the share price for the company. According to the case the original amount of loss for the company was $15 million; however, due to incorrectness of the statements, the order book shows the amount as $20 million. The company should held liable for the deceptive acts done in the order book. It is a common matter of fact that the underwriters of the companies are also held liable for any acts that goes against the provisions of the Corporation Law and for this, it can be stated that Dendy Securities Ltd are also responsible for the wrongful acts. According to the case of ASIC v AOGL [2016], it can be stated that in case of any dispute arising during the disclosed facts of the company, the company will be held liable for non-performance of their duties properly. In this referred case, the buyback amount of the group has been cancelled as the company has failed to act reasonably.
It has been alleged that the company has made certain deceptive acts and the sales manager of the company was held liable for conducting misleading acts regarding the order book of the company. This element attracts the provision of section 1041H of the Corporation Act 2001. According to this section, no person is allowed to make any deceptive acts in relation to the financial products or financial services and must not mislead any statements regarding the same. If any breach has been found to this provision, the offender will face penalties for that. In this given case, it has been observed that the company has failed to inform the ASX regarding the false information in the order book and that creates severe impacts on the share price of the company. This proves the misleading works of the sale manager of the company and holds him liable under the Corporation Act 2001.
Certain defences can be taken by the company or by sale manager of the company regarding any allegation made against him. According to the general provision of the Corporation Act, it is the duty of the directors to act for the benefit of the company and for the interest of the shareholders and the investors. In a company, investors are playing an important role. Therefore, the company should have to take proper action for securing their interest. However, in this case, it has been observed that the company has failed to take necessary steps for securing the interest of the investors, as the share price of the company was reduced due to misstatement made in the order book of the company. The director of the alleged company should have to show that he had done all the things in good faith and for the best interest of the company. There was no matter of securing personal interest. Further, it can be contended that the experts had failed to do their duties and can make a plea under section 189 of the Corporation Act 2001. Apart from this, if the Sales Manager of the company can show that he had made all the reasonable steps for securing the interest of the company and he has no knowledge that the nature of the statement is misleading, he can defend his post under section 731 of the Act.
Conclusion:
To conclude, it can be stated that the company has failed to act in accordance with the Corporation Act 2001. Further, the company has published certain misstatements regarding the facts of the order sheet. It has failed to act for the best interest of the investors. Further, the Sale Manager of the company has also failed to act according to the Corporation Act. In addition, the experts of the company have also failed to perform their duties
References:
Artiach, T.C., Gallery, G. and Pick, K.J., 2018. A chronological review of the Australian litigation risk environment surrounding IPO earnings forecasts. Pacific Accounting Review, 30(2), pp.168-186.
ASIC v Adler [2002] NSWSC 171
Choi, K.W.S., Chen, X., Wright, S. and Wu, H., 2016. Responsive Enforcement Strategy and Corporate Compliance with Disclosure Regulations.
du Toit, J., 2017. Fiduciary duties towards shareholders?. Without Prejudice, 17(9), pp.8-9.
Hedges, J., Bird, H., Gilligan, G., Godwin, A. and Ramsay, I., 2016. The policy and practice of enforcement of directors’ duties by statutory agencies in Australia: An empirical analysis. Melb. UL Rev., 40, p.905.
Hossain, M.S., 2018. An analysis of the supply chain principle for the UK’s overseas companies: the practice of tort law under international corporate law. International Journal of Law and Management, (just-accepted), pp.00-00.
Steel, W., 2016. Directors’ statutory general duties.
Yoshikawa, T. and Hu, H.W., 2017. Organizational citizenship behaviors of directors: An integrated framework of director role-identity and boardroom structure. Journal of Business Ethics, 143(1), pp.99-109.
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