Discussion
Research on an Australian case (ideally not more than 10 years old since the decision by the Court) involving breach of company director’s/officer’s duties under the Corporations Act 2001 (Cth).
Australia is a business country and it has been observed that the economy of this country is majorly based on the corporate works. Considering the wide working capacity of the corporate world, the government of Australia has taken many steps and certain legislations have been implemented. The main Act regarding the corporative works is Corporation Act 2001. This Act provides many provisions that regulate the works, duty and liabilities of the Directors, shareholders and other stakeholders of the company. Further, there are provisions that deal with the penalty sections where it has been observed that the directors can face it if they held liable for breach of duties. An institution has been established to look over the matter of directors regarding their daily works and all their negotiation and dealings with the clients and the shareholders. The rules of the Act are mandatory for the directors and all the stakeholders. The directors are required to comply with all their duties in good faith and for the interest of the company. They have to meet all the requirements mentioned in the Act and they could face proceeding on failure. In this report, a brief discussion on ASIC V SOUST [2010] FCA 68 has been made to understand the scope of Corporation Act.
Brief facts:
The case has been evolved with Dr. Martin Soust, MD and CEO of Select Vaccines Limited that deals with biotechnology. Further, he was the member of the Board of Directors and the Australian securities and Investments commission for breaching the provisions of the Corporation Act 2001 has alleged him. the shares of the company was listed under the Australian securities Exchange. However, Dr. Soust was the director of the Martin Soust & Co Pty Ltd. in 2007, it has been observed that an agreement is contracted in between the Select Vaccines and Martin Soust & Co. where it has been decided that the later will give advice to the former and will take certain amount of money as a charge. It was assumed that he will work for the best interest of the company and will deal with every possible risks of the company. It has been observed that he will take the decisions after consult with the other board members. Martin Soust and Co. was eligible to get certain bonus under the contract and it has been observed that 30% bonus has been provided to the company and it has been observed that the Dr. Soust had failed to maintain the share trading policy of Select Vaccines. He has opened a trading account in the name of Martin Soust & Co and made a bid regarding the share of the Select Vaccine. It has been alleged that he has not discussed about the bid with any other member of the company and failed to act in accordance with the policies of the company. It has been observed that the share price of the company has been increased by 2.5 percent and the company had to face dilemma regarding the same. Further, it has been observed that Dr. Soust has issued 104,000 shares in his wife’s name. Considering all these events, ASIC has alleged that the MD and CEO of the company has failed to meet all the requirements and therefore, filed the present case against them.
Decision of the Court
Duties breached by the directors:
According to the allegation made by ASIC against the CEO of the company is that he had failed to act in good faith and must be held liable under section 181 of the Corporation Act. Further, it has been observed that CEO of the company has misused his position and allocated certain shares of Select Vaccines in his wife’s name. Therefore, his activities have attracted the provision of section 182 of the Corporation Act 2001. Further, it has been mentioned in the Corporation Act that in case a person has stated false statement for financial purpose or the intention of the person is to acquire certain financial products by misleading others, he will be held liable under section 1041E of Corporation Act for making misleading statement. Further, ASIC has held the company liable under section 1041B of the Act and states that CEO of Select Vaccines is liable for false trading and market rigging. According to this section, no person is allowed to make any action so that it causes effect on the market price of a company (Alexander 2017). According to this section, in case a person held liable for making false statement regarding any financial product and that proves detrimental for the market price of the product, that person will be held liable and should have to face penalties under section 1317E of the Act (Admati 2017). Further, the Corporation Act has given certain power to the court so that they can take action against the alleged party and disqualify him from his post. The necessary provision regarding the same has been discussed under section 206C of the Act. This section will be applicable if an action under section 1317E has been taken against the alleged person (Eggers and Picken 2017).
However, in this case, it has been observed that the CEO of Select Vaccines has done certain acts that do not follow the rules of company policy. Further, it has been observed that the he has made a contract with his company and further issued certain shares of Select Vaccines without obtain any consent from the other Board of members. He has issued share in the name of her wife and he had failed to provide any reasonable reply on asking about the same by ASIC. It has been observed that he has made false statement regarding the issuance of the shares and he has used his position inappropriately. Further, it has been held that he has transferred certain shares in the name of his wife. All these acts proved the facts that he has failed to perform his duties in good faith and therefore, could be held liable for the same.
Director’s Duties and Liabilities
Decision of the court:
ASIC V SOUST [2010] FCA 68 is an important case in the field of financial breach of duty. This case has opened certain windows regarding the breach of duties and investigating power of the ASIC has been widen. In this case, the application of section 1041 has been discuss aptly. Considering the information submitted by ASIC, the court has decided that the MD and CEO of the company has breached his liabilities under Corporation Act and therefore, held liable under various provisions of the Corporation Act 2001. However, it is required to critically analysis the decision of the court to understand the validity and wide judicial effectiveness regarding the case made by the court. It has been stated that the Corporation act has provided certain duties and liabilities for the directors of a company. However, there are certain benefits too and any director of a company can defend his position if he has done all the duties in good faith and for the best interest of the company. He should not make any performance for the interest of his own. It has been observed in the case of ASIC v Rich [2009] 236 FLR 1 that if a director can show reasonable cause for all his activities, they could not held liable for breach of duties. It has further been observed in Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 that directors upon whom the interest of the company has been given, should take steps in good faith. Further, in case of any mishap, if the alleged director can show necessary reasons, they could not be held liable for the same. Further, the directors can take the plea of business judgement rule (Goodwin et al. 2017). According to this, the directors should have to show that the decision has been taken for the interest of the company and in good faith. This principle has been established in ASIC v Maxwell (2006) 59 ACSR 373. However, the director must not have any personal interest and has taken all the essential steps regarding the best interest of the company. Further, if the directors reasonably believe that he has done all these steps for the betterment of the company (Eggers and Picken 2017).
In the present case, it has been observed that the MD and CEO of Select Vaccines had taken certain steps that go against the morality of the better interest of the company. In the very inception, it has been observed that a contract has been made in between the Vaccine company and his company here he occupied the position of director. It has been observed from the case study that he has not followed up the trade policy of Vaccine Company and he had issued certain shares of the company without consulting or informing other Board of members. Further, it has been observed that due o his activities, the Vaccine Company has to face great financial dilemma. Further, the share market price of the company has been increased and the company had incurred losses. In addition to this, it is noticed that his wife had get certain amount of shares of the Vaccine Company. When asking about the share issuance, he has failed to give any reasonable answer. All his activities prove the fact that he had failed to comply with the provisions of Corporation act and he has been held liable for the same. Further, it has been observed that he had misused his position. He ought to obtain consent from the other Board members. Further, it can be stated that all the contentions made by him regarding the financial advice are just eye wash and he wanted to earn money from the same. Therefore, he had failed to prove that he wanted to act for the best interest of the company. The court has observed that his actions attract the provisions of section 1041 of the Corporation Act 2001. Further, he has failed to comply with the provisions of section 181 and section 182 of the Act. Therefore, it is justified that the court can take ultimate action by disqualifying the defendant (Dr. Soust) from his position and take proper step under section 1317E of the Corporation Act 2001.
Impact of the decision:
The present case is one of the most significant decisions taken by the court as against a director who contravened the financial provision of the Corporation Act 2001. In this case, the court has able to interpret the provisions like section 1041 (1), section 1041B, section 1317E, section 181, section 182 and section 206C of the Corporation Act 2001. It creates great impact on the corporative activities and widens the provision of the above stated provision. The role of the ASIC and their importance has been understood. In this case, the alleged CEO of the Vaccine Company has failed to act in good faith and for the best interest of the company. Further, in this report, certain defence grounds have been mentioned and it has been observed that the CEO has failed to satisfy any of the provisions. It has further been observed that the CEO had failed to give any reasonable reply regarding the share issuance and it has been observed that he had failed to show an effective step as against all the financial decisions taken by him for which the company had to face loss and the market share of the company has been decreased. Further, Dr. Soust has failed comply all his duties in good faith. He had misused his post and used his position for securing his own interest. All these mentalities and activities support the decisions of court and it is justified to take action under section 206C of the Corporation Act 2001
References:
Admati, A.R., 2017. A skeptical view of financialized corporate governance. Journal of Economic Perspectives, 31(3), pp.131-50.
Alexander, F., 2017. Benefit Corporation Law and Governance: Pursuing Profit with Purpose. Berrett-Koehler Publishers.
ASIC v Maxwell (2006) 59 ACSR 373
ASIC v Rich [2009] 236 FLR 1
ASIC V SOUST [2010] FCA 68
Corporation Act 2001 (Cth)
Eggers, P.M. and Picken, S., 2017. Other contracts of the utmost good faith. In Good Faith and Insurance Contracts (pp. 113-130). Informa Law from Routledge.
Goodwin, J., Atilgan, Y., Simsir, S.A. and Ahmed, K., 2017. Investor reaction to accounting misstatements under IFRS: Australian evidence.
Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483
Tosato, A., 2016. Commercial agency and the duty to act in good faith. Oxford Journal of Legal Studies, 36(3), pp.661-695
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
