Background
Discuss about the Securities and Investments Commission Limited.
The law firm Slater and Gordon has faced class action from the shareholders. The law firm faced class action from thousands of shareholders after the law firm faced allegations that it had known its financial position. The class action involving 3,000 members and an amount of 250,000 dollars had been led by the Rival firm Maurice and Blackburn. It had been alleged by Andrew Watson from the Maurice Blackburn that the law firm Slater and Gordon had mis represented the financial prospects after the firm acquired a division of company Quindells in April 2015. It had been accused by Mr. Watson that the company had given false statements about the financial standings of the company. It had been alleged by the plaintiff Matt Hall that he had lost almost a illion dollars and that the company had known that it was going to lose money.
It has been provided in section 728(1a) the Corporations Act 2001that a person must not offer securities by a disclosure document which has a deceptive and misleading statement. Further it has been provided in subsection 728 (2) a person who gives any statement about a future matter without sufficient grounds for making the statement will be held to be giving a misstatement. According to subsection 728(3) it can be stated that a person commits an offense if it is found that such person has contravened the provisions that has been provided in subsection 728(1), if such person gives a deceptive and misleading statement or if such person omits a new circumstances in the statements.
It has been provided in section 674 of the Corporations Act 2001 (Cth) every business organization has the obligation to make continuous disclosure of material facts according to the listing rules. It has further been provided in subsection 1041 A that a person must not carry out or take part in any business transaction that might affect the creation of artificial price for trading in a financial market or financial products.
According to article 1041 B a person engaged in business must perform any act or omit to do any act if such act or omission is likely to create a misleading or false appearance. Further in accordance with section 183 of the Corporations Act (Cth) 2001 it can be stated that it is the duty of the directors to act in good faith
Relevant Legal Provisions
Thus it is evident in the chosen case that the directors of the Law Firm Slater and Gordon failed to disclose to the market the statements about its financial prospects. Further it can be stated that the directors had given misstatements about the how the company was performing. Therefore, the law firm Slater and Gordon had violated the provision as provided in section 728 of the Corporations Act 2001 (Cth).
However, in this case Slater and Gordon had misrepresented their financial prospects and many shareholders had relied on the miss representation and invested in the law firm. The company presented a false image of how it was performing.
However in this case, the directors did not act in good faith as they did not disclose the true picture of their business
Thus to conclude, it can be stated that the firm Slater and Gordon had will face actions for engaging in the act of providing misleading and deceptive statements. n discussed above
The Australian Securities and Investment Commission(ASIC) is an independent government body Australia which is in charge of regulating the conduct of the companies of Australia. The ASIC is the responsible for administering the provisions of Corporations Act 2001 (Cth) It can be said in accordance with section 1317e of the Corporations Act 2001 (Cth) that if a court is convinced that a person has contravened a civil penalty provision, it has the power to make a declaration of the convention. Such declaration of the convention must contain the name of the court , the civil penalty provision that was contravened and the name of the person who contravened the civil penalty provision.
Further in accordance with the provisions as provided in section 1041H it can be stated that a person must not engage in any conduct that is misleading or deceptive in relation to disclosure to financial product or service. It has been provided that any person fails to comply with this section will incur a civil liability.
In accordance with section 206 of the aforementioned Act, it can be stated that the court may disqualify a person from acting as a director or managing a corporation for a period of time which is considered to be appropriate b the court upon being notified by the ASIC. The court for the purpose of determining whether a person should be disqualified will take into consideration:
- The conduct of the person in relation to the management
- Any related matters which are considered to be appropriate by the court.
Further it has been provided in section 1317s that the courts can relive a person from his personal liability wholly or partly, if it is convinced that that person has acted honestly while contravening a civil penalty provision.
Breaching of Directors’ Duties and Civil Liability
The a similar case involving the issues that have been identified in this case is the Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited (prov liq apptd) [2016] FCA 42
Thus by applying the relevant legal provisions of Corporations Act 2001(Cth), it can be stated that the directors of Slater and Gordon had breached their duties to act in Good Faith according to section 183. Thus they will incur a civil penalty provision.
Further, it can be stated that such directors had made deceptive and misleading conduct in relation to prospects of the company as provided in section 728 of the aforementioned act. Therefore they will incur a civil liability as provided in section 1041H.
The directors however, can plead for relieving civil liability in the court by proving that they acted honestly while contravening a civil penalty provision according to section 1317s.
Conclusion
Thus, to conclude it can be said that the ASIC can sue the directors of the law firm for engaging in deceptive and misleading conduct. The directors of the firm will incur civil liability for the same.
The issue that has been identified in the give case is whether the corporate veil should prevail in circumstances as identified in the case or whether such corporate veil should be pierced.
The separate legal entity of a company had been established in the case Salomon v. Salomon and Co. Ltd. (1897) A.C 22. The principle of separate legal entity of a company can be termed as the veil of incorporation. It can be stated that court generally consider to be bound by this rule and treat a company as a separate legal entity from its owners. However in several circumstances the courts have pierced or lifted the veil for the purpose of revealing the true form of character of the company. The courts can lift the corporate veil if it is assumed by the court that any fraudulent activity is being perpetrated behind such corporate veil. This Courts disregarded the separate legal entity of a company as established in the Salomon v Salomon case in the notable cases of Gilford Motor Company Ltd v. Horne and the case Jones v. Lipman [1962] 1 WLR 832. In the case Walker v Hungerfords (1987) 44 SASR 532 the court had decided to lift the corporate veil because of potential misleading conduct. Further it has been provided in section 728 of the Corporations Act 2001 (Cth) that a person who engages in providing any statement which is misleading or deceptive will incur personal liability in accordance with section 1041H. Therefore, it can be stated that the corporate veil will be pierced in circumstances where any person makes misleading and deceptive statements as the statutory law will prevail over common law.
It has been provided in this case that the directors of the firm of Slater and Gordon had misrepresented the facts and had provided in misleading statements about the financial prospects of the company. The shareholders of the company had relied on such misleading information and had invested in the firm. It can be stated that the value of the shares of the firm had plummeted. The firm had sustained a loss of 1.2 billion dollars. However, the shareholders of the firm had been promised that the company financial status would recover. This constituted contravention of section 728 of the Corporations act 2001. Therefore as provided in section 728, any person who makes deceptive and misleading statements will Incur civil liability as per section 1041 H. Thus it can be said that the corporate veil can be lifted in this case.
Reference List:
Corporations Act 2001 (Cth)
Gilford Motor Company Ltd v. Horne [1933] Ch 935
Jones v. Lipman [1962] 1 WLR 832
Walker v Hungerfords (1987) 44 SASR 532
Salomon v. Salomon and Co. Ltd. (1897) A.C 22
Securities and Investments Commission v Sino Australia Oil and Gas Limited (prov liq apptd) [2016] FCA 42
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