Introduction to Corporate Governance in Australia
Discuss About The Corporate Governance Financial Institutions.
In Australia, there are many incidents where the director of a company forgets their duties and liabilities for the company and it often observes that the directors are engaging in illegal business law. They failed to secure the interest of the company and the shareholders as well. In certain circumstances, conflicts of interest cropped up and the moral facts of the corporation law has been denied. The corporative provision in Australia governs by Corporation Act 2001 (Knepper et al. 2016). According to this Act, there are certain provisions that deal with the duties of the directors and all the provisions are applied mandatorily on the directors and on all the corporations that incorporated within the territorial jurisdiction of Australia. In case, the directors have failed to perform all their duties properly, they will be held liable for breach of duties. Further, they could face criminal penalties and therefore, they are obliged to meet all the requirements made by this Act. However, in Australia, there are many cases pending before the court for breaching the provisions of the Corporation Act 2001. The acts of the directors made conflicts of interest, which becomes affective for the interest of the companies. The present case of ASIC v Parker r [2003] 21 ACLC 888 based on the same provision. This case will help to understand the scope of Corporation Law and powers of Australian Securities and Investments Commission.
The main subject matter of the case is based on the outcome of the situation when a director has failed to meet all the requirements made under Corporation Act 2001. This case is evolved with Mr. Parker who has failed to act as a prudent man and did not act in good faith. Further, it has been observed that he has made a breach by approved a loan that was not made according to the fair provision of the fixed loan condition. It has been observed that he had failed to meet all the requirements made by the company’s Board of Directors. Further, it has been observed that Mr. Parker has failed to make an enquiry regarding loan repayment history of the person to whom the loan has been provided. Loan repayment history is important in order to approve a loan against a person so that the loan repayment capacity of the person could be examined. An allegation has been brought by the ASIC regarding the matter with the saying that the director of the alleged company has failed to meet all the relevant provisions of Loan related law and the Corporation Law as well.
Duties of Directors under Corporation Act 2001
According to the general provision of law, the directors are obliged to promote the interest of the companies and in case of any failure; they will be held liable for the same. The interest of the company can be secured if the directors can avoid all the actual and potential interests. It has been stated by the general principle of law that a director should always think about the interest of the company and should disclose all the material personal interest for the benefit of the company according to section 191 of the Corporation act 2001. Further, it has been mentioned under section 182 of the Act, no director should have to misuse their position. Every director should have to act in good faith and should take proper care and diligence while dealing with the matters relating to the interest of the company. According to section 175 of the Corporation Act, it is the duty of the directors to avoid all the conflicts of interest.
Directors are playing an important role in the daily work and transaction of the company. They do all the important works and they are working as the mind of the company. Therefore, they hold an important position. Reputation of the company is very much depending on them and therefore, they are not required to misuse their position and acting on behalf of their personal interest. The duty of the directors is quite wide and the scope of the same is very risky. A director has to take all the reasonable works for the protection of company’s interest and they have to represent them as a prudent manner so the company’s interest could not be denied.
According to section 180 of the Act, a director should have to act with due care and diligence. This means they should not take any process by which the interest of the company and the shareholders could be suffered (Du Plessis, Hargovan and Harris 2018). However, it is the duty of the directors to show all the relevant ground they are taking for the interest of the company and they should have not taken any steps so that they can earn personal profit for them. Further, according to Corporation Act, the directors should have to work in good faith and they should not do their duties with a negative intention. The directors are the mind of the company and therefore, they handle all the confidential information important for the interest of the company. In these cases, they should not hand over the documents to another party. It has been mentioned in section 176 of the Act that the directors are not allowed to take any extra benefit from any third party and they should be reasonable enough while dealing with the company affairs. The directors should be rational in all the circumstances. In auditing to this, it could be stated that the directors should not misuse their position. It has been mentioned under section 182 of the Act that no directors are allowed to work for their personal interest by denying the interest of the company. It has been mentioned in ASIC v Adler, it has been observed by the court that the alleged directors are failed to secure the interest of the company and they have worked for their personal gain. They had procured all the loans for securing their position as a shareholder in the company and therefore, they are held liable. Further, in ASIC v Cassimatis, it has been held that the directors of the company should have to analyze all the risk factors so that the interest of the company and the shareholders could be secured. However, it has been stated in ASIC v Rich that if the directors of the company could show all the facts that they have taken all the decisions for the interest of the company and the court held them not guilty by maintaining the provision of business judgment rule. According to the court, the duties of the directors are quite wide and they have to work for the company and the shareholders. It has been stated by the court that in this process, if they have to take certain risks and the aftermath effect of the same is adverse, they will not be held liable for breach of duties, as their intention was to secure the interest of the company.
ASIC v Parker: A Case Study
Apart from the above mentioned provisions, there are certain other duties of the directors of a company. They should avoid all the conflict of interest so that the company could make profit and the interest of the shareholders could be secured. However, no specific definition of conflict of interest has been provided under the Act (Samra 2016). It has been assumed that if any director of the company is being personally benefitted from any business deal or he is personally indulge with any business contract, conflict of interest cropped up. Further, if any directors misused his position or transfer any documents for gaining personal profit, the notion of conflict of interest arise there. In McGellin v Mount King Mining NL (1998) 144 FLR 228, it has been observed that if a director has certain material personal interest in the firm or company, he is required to show them all. For an instance, it can be stated that if they are holding certain shares in the company, they are required to show them. This provision has been mentioned under section 191 of the Corporation Act w2001. It has been mentioned that in case a director held liable for securing his personal interest, they will have to face civil and criminal penalties and the pecuniary penalties can be extended up to $200,000. In ASIC v Cassimatis, the court has held the directors of the alleged company, terminated their business license, and imposes certain penalties for the same. Therefore, it can be stated that the directors are liable to act in good faith and for the interest of the company and the shareholders. They are required to take all the essential steps in this regard.
In this present case, the court has rightly observed that the director has failed to meet all the requirements stated in Corporation Act 2001. The director of the company has approved a loan without verifying the repayment history of the person to whom the loan amount has been granted. Further, it has been observed that the director has done the act without abiding by the rules of the company’s Board of Director’s manual. Through this act, it can be stated that the director had failed to act in good faith and he had failed to take due care and diligence to this effect. Further, the alleged director has failed to show any reasonable cause in his behalf. Therefore, it can be stated that he is not able to take the plea of business judgment rule. Further, it can be stated that he had approved the loan by misusing his position, as all the requirements have not been done or met by the director. This mentality of the director could hamper the interest of the company and the interest of the shareholders will automatically comes at stake. In addition to this, it has been alleged by the ASIC that the director has done the act for his personal interest and he has earned good interest for him. however, this nature of acts attracted the provision of section 175 of the Corporation Act and it can be stated that conflict of interest has been raised in this matter (Jiang and Kim 2015). According to Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483, the director of the company has failed to meet all the required provisions mentioned under Corporation Act. Further, as per the judgment of ASIC v Maxwell (2006) 59 ACSR 373, it can be stated that no director should secure his personal interest, as this can give birth to conflict of interest. Therefore, it is reasonable enough to held the alleged director under section 1317E of the Act. Further, he could be disqualified from his position under section 206C of the Act.
Once again, the velocity of the provisions on director’s duties under the Corporation Act has been established by this case. it has been firmly observed by the court that no directors are allowed to make any decision that goes against the policy of the company and make insecure the interest of the company. Further, the duty grounds of the directors have been interpreted by the learned court and the judgment of the court has proved the powers and enforceable rights of ASIC regarding the investigation and inspection into the relevant matters and cases (Dignam and Galanis 2016). In this case, it has been observed that the alleged director of the company has failed to make a prudent step and act on behalf of the company. Further, he has failed to secure the interest of the company. He has alo failed to avoid the chances of conflict of interest. He has failed to act in good faith and he should have to face all the relevant penalties mentioned under the Corporation Act to this effect.
Reference:
ASIC v Adler 2002 NSWSC 171
ASIC v Cassimatis [2016] FCA 1023
ASIC v Maxwell (2006) 59 ACSR 373
ASIC v Rich [2009] 236 FLR 1
Corporation Act 2001 (Cth)
Dignam, A. and Galanis, M., 2016. The globalization of corporate governance. Routledge.
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate governance. Cambridge University Press.
Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483
Jiang, F. and Kim, K.A., 2015. Corporate governance in China: A modern perspective.
Knepper, W.E., Bailey, D.A., Bowman, K.B., Eblin, R.L. and Lane, R.S., 2016. Duty of Loyalty (Vol. 1). Liability of Corporate Officers and Directors.
McGellin v Mount King Mining NL (1998) 144 FLR 228
Samra, E., 2016. Corporate governance in Islamic financial institutions.
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