The duties/responsibilities breached
Discuss about the Mariner Decision Gives Directors Of Bidders.
In the given case the lawfulness of the acts of the defendant conduct was analyses which is relating to the announcement that was made on 25th une 2012 regarding the off market takeover bid by the Mariner Corporation Limited for all of the issued capital of Austock Group Limited at 10.5 cents per share.
On 2nd April an originating application is filed by ASIC and an action is bought against Mariner and 3 of its directors, Mr Darren Olney-Fraser (Mr Olney-Fraser), Mr Donald Christie (Mr Christie) and Mr Matthew Fletcher (Mr Fletcher). It was contended by ASIC that there are violations of section 180, section 631 (2) (b) and section 1041H of the corporation Act 2001 regarding the takeover announcement made by Mariner for Austock.
There were several duties that were considered by ASIC violated by Mariner.
- ASIC claimed that Mariner does not have the adequate financial resources to fund the bid and thus there is violation of section 631 (2) (b) of the corporation Act 2001;
- ASIC claimed that that the acts of Mariner were deceptive and misleading and thus there is violation of section 1041H of the Corporation Act 2001;
- ASIC claimed that that the acts of Mariner were such that were not carried out in a careful and diligent manner and thus there is violation of section 180 (1) of the Corporation Act 2001.
ASIC brought proceedings against Mariner by claiming violation of duties on the part of Mariner. ASIC claimed that there was violation of section 631, 180 and 1041H of the Corporation Act 2001.
Reasons why section 631 (2) was breached
On 25th June 2012 mariner made an off market takeover bid for all of the issued capital of Austock Group Limited at 10.5 cents per share. However, when the bid was made at that time Mariner does not have enough monetary support to fund the bid. No outsider, third party or any personnel was willing to fund the bid as the no name of any person was provided by Mariner which was found on the addendum spreadsheets or in the Austock takeover paper. No attempt is made by Mariner to develop any kind of relationship with any person which assures to finance the takeover bid.
Considering that there was no finance in hand nor any arrangement was made to support the bid, there is clear violation of section 631 on the part of Mariner.
A representation was made by Mariner on 25th August 2012 that it would make a proposal to the Austock shareholders under Chapter 6 to buy the fully paid up shares at $10.5 per share. Thus a price representation was made which in reality was nothing but an act of deception as Mariner is not permitted to make any takeover bid for value less than 11 per share. A funding representation was also made that Mariner has the ability to pay $10.5 whenever requires which was also not true. Thus, there is deception and misleading acts on the part of Mariner which is nothing but an act pff violation of section 1041H of the Corporation Act 2001.
Discussion and critical analysis of the court/tribunal decision and the reason for the decision in view of the Corporations Act
Reasons why section 180 (1) was breached
Mr Olney-Fraser was the director of the company and as per ASIC he was in violation of section 180 (1) as he did not acted in careful and diligent manner and relied on ASIC v Warrenmang Ltd (2007) and (ASIC v Rich (2009). He made a takeover decision and an announcement was made which was breach of section 631 which eventually resulted in breach of section 180 (1).
Decisions of the court
- The originating application of the plaintiff was dismissed.
- Within 14 days of the date of the decisions, the parties must file and serve the written submissions on the question of costs;
- Within 14 days of serve of written submission, the parties must serve the response.
Reasons for the decision of the court
There are various reasons that are lead by the court while dismissing the application of ASIC. The reasons include:
No Violation of section 631 (2) (1)
Section 632 imposes penalties for reckless acts by the director and the same is subjective in nature. The court analyzed that there was no recklessness on the part of the directors of Mariner. There is no violation of section 631 (2) 1) by application of objective test as well.
The acts of the directors are found to be in violation of section 631 only when a takeover bid must be proposed publically. The announcement that was made by the directors of Mariner was a public proposed announcement herein Mariner bid for all of the issued capital of Austock Group Limited at 10.5 cents per share. Now, if the offer made by Mariner is confirmed then Mariner has to pay $7 million by October 2012. It was also confirmed that at that time Mariner was not in the position to pay its dues and the financial resources were also not enough to support the liability. Only $500,000 was agreed by Mr Neil to pay to Mariner to support the bid.
But, in order to prove violation of section 631 on the part of Mariner it is necessary that Mariner must be aware that there is actual risk that is present when the announcement is made. But, this requirements was not proved by ASIC (Tesco Supermarkets Ltd v Nattrass [1972].
The court submitted that every company is governed by the mind of the directors and the company directors keep on changing in any particular transaction (AWA Ltd v Daniels (1992); The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008). The court held that ASIC was not able to establish that the directors of Mariner were reckless in their actions. There is no reckless as the decision of announcement on 5th June 2012 is based on various reasons which include:
- That the breakup value of the shares of Austock was not even near to the market capitalization. Te court submitted that considering the situation that bid is carried forward at 10.5 or 11 per share, then, the funding was attractive considering the breakup value. If any counter bidders are present the no funding is required. So, Mariner was not facing any kind of danger.
- The proposal made by Mariner has financial gains and thus there are full probability that finance could be obtained for the proposal;
- On 24th June the announcement was made and the time for the actual bid was not sometime near but has weeks. There is no need that some confirmed funds are required for the bid. Mainly the requirement for the funds will arrive only when the bid is accepted and that was also after quite some time of making the bid. Mariner has much time of arranging finance and there was no immediate risk of lack of funding for the bid.
- The bid was not alleged to be bluff by ASIC. Also, the gains that could be attained by Mariner on the approval of the bid is much more than the risk that is associated with the same. (R v Saengsai-Or (2004). ASIC has not laid down any ground which could prove that Mariner was not able to raise finance for the bid.
So, there was no ground for violation of section 631 (2) (1).
No violation of section 1041H of the Act
Mariner while making the announcement has made funding and price representation which are not deceptive or misleading in nature and thus as per ASIC v Maxwell (2006) there was no contravention of section 1041H of the Act. it was contended by ASIC that when the announcement was made on 25th June then same future representations were made by Mariner and it must have grounds to rely on the same which were absent. This contention as rejected by the court.
Also, no implied representation was made Mariner that brings any kind of misconception on the minds of any reasonable persons regarding funding or price representor and thus as per Bodum v DKSH Australia Pty Ltd (2011) and National Exchange Pty Ltd v ASIC (2004) there was no misconception made by Mariner. No unusual practice is carried out by Mariner which is likely to misconceive people.
Thus, there is no violation of section 1041H of the Act.
No Violation of section 180 (1) of the Act
The acts of Mariner are carried out with due care and diligence thereby not violating section 180 (1) of the Act. Also, since there is no violation of section 631 (2) (b) nor there is any violation of section 1041H of the Act, thus, there are no chances for the violation of section 180 (1) of the Act. Even if the breach of section 631 (2) (b) and section 1041H is not taken into account still there is no violation of section 180 (1) on the part of Mariner. On the contrary, the gains that can be achieved by Mariner from the success of the bid is much more when compared with the risk associated with the same.
The contention of ASIC that there is deterioration of beyonce in the management which results in problem in raising finance when needed and thus results in careless acts of Mariner which is nothing but breach of section 180 (1) of the Act is rejected by the courts. This theoretically contention of ASIC was rejected by courts by submitting that it has no practical relevance.
Even if the violation of section 631 (2) (b) and section 1041H is considered then still the Mariner is protected under the shield provided under section 180 (2) of the Act, that is, by application of the Business judgment Rule. The directors of the Mariner have the capacity to assess the difficulties and risk that can be faced by them when the bid is made. The decision was made in the interest of the company, for proper purpose, with carefulness and diligence, thus, there is no violation of section 180 (1) of the Act.
The decision made by the court in ASIC v Mariner Corporation Limited, considering that there is no violation of section 631 (2) (b), section 180 (1) and section 1041H of the Act is a heart relieving judgment which restores the trust of the directors and bidders to take actions and decision on behalf of the company. the judgment establishes that the directors has the authority to bid for the benefit of the company even when they don’t have mush resources but are assured that they have the capacity to raise the funds whenever needed. (Claytonutz, 2017)
It lays down the scope of the duties which must be comply with by the directors when taking decisions on behalf of the company. ASIC relied on its Regulatory Guides and Guidance Notes in order tp derive the meaning of the provisions of the Act which was not approved by the court. The court made it clear that the recklessness on the part of the company ad its directors must be high in order to consider the violation of section 621 (2) of the Act.
The court also made it clear that it is not true that if there is violation of section 631 (2) (b) and section 1041H of the Act then it will ultimately result in the violation of section 180 (1). Section 180 (1) is independent in nature and requires carefulness and diligence on the part of directors of the company.
Reference List
Books/Articles/Journals
ASIC v Mariner Corporation Limited [2015] FCA 589 < https://jade.io/article/398014>.
Case laws
ASIC v Rich (2009) 75 ACSR 1;
ASIC v Maxwell (2006) 59 ACSR 373;
ASICn v Warrenmang Ltd (2007) 63 ACSR 623;
ASIC v Mariner Corporation Limited [2015] FCA 589.
AWA Ltd v Daniels (1992) 7 ACSR 759;
Bodum v DKSH Australia Pty Ltd (2011) 280 ALR 639;
National Exchange Pty Ltd v ASIC (2004) 49 ACSR 369
R v Saengsai-Or (2004) 61 NSWLR 135;
The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1;
Tesco Supermarkets Ltd v Nattrass [1972] AC 153;
Online Material
Claytonutz (2017) (Online). Available at: https://www.claytonutz.com/knowledge/2015/june/mariner-decision-gives-directors-of-bidders-greater-latitude-when-announcing-takeover-bids. Accessed on 14th May 2017.
