The ASX Principles of Good Corporate Governance
One of the most important duties of the board of directors of a company that is listed is to determine the risk and stipulate a framework that is proper in order to address them. Principle 7 of the Australian Securities and Investment Commission lays this down as a primary duty of the board of directors of an incorporated company. When a situation arises where the directors of an incorporated organization fail to identify the risk and plan ahead, it results in substantial losses for the consumers, employees, creditors, shareholders and the society in general. The board of directors of a listed company must form a minimum of one committee to primarily determine the risks and thereafter address the risk in a way that they see fit. This duty of the board of directors has been recommended by the Australian Securities and Investment Commission. Three independent directors must be incorporated in the committee. The recommendations of the Australian Securities and Investment Commission further stipulates that it is the duty of this committee to oversee the risk management structure of the corporation each year so that they can be accountable to it. If the company is exposed to environmental, economic or social risks, it is the duty of the listed corporation to disclose material facts about such risks and mechanism by which the company intends to deal with these risks. According to the current situation, a company named Ardent Leisure Ltd has suffered huge financial losses in respect of a leisure park owned and controlled by them naked Dreamworld Leisure Park. A ride failure occurred at this leisure park and this failure caused a tremendous accident that resulted in the death of a few people. It is a well established matter of law that accidents are beyond anyone’s control including the owners of a leisure park. However, in the presence of safety measures that are proper, major accidents can be effectively averted and its results can be subdued to a substantial extent. It has been claimed that the company was unable to properly address the situation after the accident. This feature of the case makes the company liable to pay damages to all the people who have suffered as a result of the accident. Hence, Ardent Leisure Ltd. has to pay damages to the victims. It can be positively established that if Ardent Leisure Ltd. has a proper risk management system in place, this accident could have been averted. In addition to this, if the company claims that accidents are beyond anyone’s control, a proper risk management system would have minimized the effects of the accident. However, in the absence of any proper risk management system, the lives of the people were literally at stake and they eventually died. This resulted in a tremendous loss of goodwill of the corporation. In addition to this, it resulted in massive financial and social loss for the company. Therefore, it can be established that the accident was a direct result of the board of the company to identify and mitigate the risks in respect of the accident.
The Ardent Leisure Ltd Case
The above-mentioned recommendations are a part of principle 7 of the Good Corporate Governance Recommendations. By this principle and obligation has been imposed on every incorporated organization to determine and oversee risks by incorporating a proper framework for risk management. According to the principle one or more committee may be formed by a company for advanced identification of foreseeable risks and a proper framework for effectively address such risk. If Dreamwork Leisure Park had a competent risk management team in place, the effects of the accident could have been efficiently minimized and lives could have been saved. Principle 7 also recommends that every company must disclose all relevant risks of running a business. If this recommendation of principle 7 would have been followed in a proper manner by Ardent Leisure Ltd, the accident could have been prevented or at the very least, the casualties could have been limited. Hence, it can be positively established that Ardent Leisure Ltd. has violated the provisions of principle 7 of Good Corporate Governance Recommendations of ASX.
Conduct in contravention of principle 7 attracts legal consequences. It also results in competitive negativity for the company that is found to be in contravention of the principle. Failing to determine the risks and properly address such risks is a huge detriment to the company’s interests. The organization has to suffer huge losses as a direct result of the accidents that occur for the lack of any proper risk management framework in place. In addition to this, these accidents show the organization in a bad light which eventually eats away at the value of the corporation in relation to society. This results in a reluctant attitude in respect of the company’s investors. Furthermore, employees cannot be held accountable for any accident when there is no proper risk management framework in place. This results in reduction of productivity and the quality of services provided by the employees.
The responsibility to start legal proceedings against Ardent Leisure Ltd in respect of violation of the rules laid down by the ASX lies with the Executive office of the ASX. The companies are fee to not incorporate the provisions of principle 7 into its constitution. However, in case a company decides not to follow the provisions of principle 7, such company has to provide a proper explanation for it. Decisions regarding the enforcement of actions lie with Chief Compliance Officer of the ASX. Thereafter, an appeal lies with the ASX appeal tribunal. A penalty of up to $250, 000 might be imposed on any company found in contravention of the rules provided by the ASX as provided by the Enforcements and Appeals Rulebook of the ASX. In addition to this, a fine of $1000000 may be slapped on any company in contravention of Austraclear Regulations. In the landmark case of Sino Australia Oil and Gas Limited, the ASX imposed a penalty of $80000 on the company. In the present case, the ASX may well seek penalties in a civil capacity. This may include disqualification of the board of directors in addition to pecuniary penalties.
Assessment of the Board’s Management of Risk
Section 180 of the Corporations Act, 2001 provides for a duty of diligence and care by the directors towards their corporation. Section 180 of the Corporations Act, 2001 stipulates that a director of an organization must discharge his duty with reasonable diligence and care. Reasonable diligence and care has been defined as the care and diligence that shall be shown by any rational person in the position of the director with the respective circumstance in mind. Section 1313 of the Corporations Act, 2001 lays down the civil penalties that would be attracted if a director of a company contravenes the provision of Section 180. A particular business judgment may be exercised by a director of a company when such judgment has been taken keeping in mind the best interests of the company, in good faith and a just purpose. In addition to this, such judgment must not be taken to realize any personal interest and the decision must be rational and informed. To understand whether an act by a director of a company was rational or not we must take into consideration of what a rational person would reasonable do under those unique circumstanced and in the same position as the director.
In the recent case of Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA 1023, it was held by the court that the directors were liable for contravention of Section 180 (1) of the Corporations Act, 2001. In the landmark case of Re Centura Global Holdings Pty Ltd [2015] NSWSC 1744, the judge concluded that the contravention of the provisions of Environmental Planning and Assessment Act, 1979 amounted to a severe breach of Section 180 (1) of the Corporations Act, 2001, in respect of the directors. In the benchmark case of Sheahan (as liquidator of SA Service Stations) (in liq) v Verco (2001) 79 SAR 109, the judgment by the court read that the provisions of Section 180 (1) was in respect of the duties of the directors towards the organization and not towards the shareholders or the environment. It legal proceedings are brought against the directors of a company by the ASIC, they have to substantially prove that their conduct resulted in a loss of the company. In ASIC v Mariner Corp (2015) 327 ALR 95 at [444], the court held that section 180 of the Corporations Act, 2001 does not impose exclusive or diverse obligations on the directors of a corporation but their conduct must be in line with the existing legal provisions.
The current circumstance in respect of Ardent Leisure Ltd,. it has been established that the conduct of the directors of the company was in direct contravention of Section 180 of the Corporations Act, 2001. In addition to their, their inaction also breached Principle 7 of the Good Corporate Governance Recommendations of the ASX. It can be safely concluded that additional penalties may be imposed on the directors of the company for the financial losses suffered Ardent Leisure Ltd.
The massive accident at Dreamworld Leisure park was immediately followed by the stepping down of the then acting CEO of Ardent Leisure Ltd., Deborah Thomas. She has been vehemently criticized for not being able to respond to the disaster in an appropriate manner. It is the intention of the company to emerge as one of the global entertainment leaders. It also intends to focus on the US market. However, post the fatal accident, the shares of the company had fallen by a massive 7.8%. The conduct of the company and its directors has been under tremendous scrutiny since the accident. In addition to this, a formal investigation has been initiated in respect of the accident. The company came forward and issued a statement to the effect that they were deeply sorry of the accident. They also extended their condolences to the families that were involved in the accident. Furthermore, the company claimed that they were working in tandem with the police to figure out the exact cause of the fatal accident. The company has suffered a major loss of 49.4 million after the massive accident. In addition to this, the theme park was shut down for a period of 45 days after the incident. In this period, the company commenced and commissioned a substantial operation and safety review of the theme park. The company accepted that the way in which the accident was handled in the first 48 hours was not satisfactory. A former employee of Deloitte, Graeme Newton has been taken aboard the company as a crisis management expert. In addition to this, a former Queensland policeman named Mike McKay has also been hired by the company. The company has established a safety review benchmark that all the rides have to pass before initiation. They also shut down the controversial thunder river rapid ride. On the event of a loss of life that occurs due to any mishap at the theme park, the first duty of the employees is to inform the deceased’s family. Establishment of a committee for crisis management, an outcome process that is properly planned, proper collaboration with the private sector are the mechanisms that has been taken up by the company in the aftermath of the fatal incident in order to prevent such accident from happening again as well as to minimize its effects if it does happen. However, it can be safely concluded that the company is still very much on its back foot in relation to the fatal accident. In addition to this, they have still not been able to provide any proper justification as to how the accident took place in the first place. It has been observed that the company is still boasting of its former achievements which includes the fact that about 30 million patrons visited their theme park since 1981 and their established “robust policy and procedures”.
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