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).
Starting in 2002, Hobbs effectively marketed in Australia security shares investment products and services that he had set up in offshore funds. These operations were explicitly described in the Australian Securities and Investments Commission press release of 6 November 2012 (Hjalmarsson, et. al., 2016). Outlined below are the details for the ruling delivered on October 24th2012. In this particular case, David Hobbs targeted and managed Australian investor’s money so effectively that by the year 2009 in excess of $50 million dollars were deposited in the scheme, dealing with fourteen separate investment funds in the following countries Caicos Islands, Hong Kong, United States, Vanuatu, Anguilla, Turks, Bahamas and New Zealand,
Mr. David Hobbs was found guilty by the courts to be the architect behind the scheme that effectively controlled all the investors’ funds. The court also found substantial proof of inappropriate payments from the investor’s fund which also included Ponzi payment schemes (Witting, C., 2015). The payments were also done to Mr. Hobbs’ private expenses, his family members and also to others in the scheme administration (McDermott, 2017). Supreme Court found that some Australian depositors had provided wrong information regarding some investment programs during the investors briefing presentation which included the following
David Hobbs set up illegal investment funds in Caicos Islands, Hong Kong, United States, Vanuatu, Anguilla, Turks, Bahamas and New Zealand. These investments were ineffectively managed in relation to tax payment evasion, laundering of illegal money, and mainly were used to hide or safeguard illegally gotten funds from law agencies in Australia.
The investment by David Hobbs didn’t shield the investors’ principal capital from losses. The courts also found that they were supposed to invest the clients’ funds in more conservative securities which would have assisted in minimizing the likelihood of investors losing their funds.
During the investors briefing Hobbs raised the hopes of the investors by lying to them that he would guarantee a 4% return on investment every month (McDermott, 2017). This projection is very ambitious depending on the calculations and the risk nature of the investment. Unfortunately, Hobbs was unable to deliver on the 4% he had promised.
Hobbs promised a lock-up period of 12 months redeemable after a 60 days’ notice. This was to guard the fund administrators against liquidity issues while the investment was in illiquid investment (Langford and Ramsay, 2014). However, Hobbs was unable to honor the investors when they gave the 60 Days’ notice to redeem their funds.
According to the Corporations Act, the courts have been given powers to prohibit directors, in this case, David Hobbs from managing any corporation if they break the law. The law also takes into account if the accused person has breached the law at least two times. In David Hobbs case the court found him guilty of having breached the following duties and responsibilities.
The Supreme Court found David Hobbs to have individually chosen to have discreetly permitted all of the different scheme administrators who included David Collard, Min Hua (Lili) Li, Hui-Min (Nancy) Wu of Stratified, and Brian Wood of Davis town, Jimmy Truong of St John’s Park and Con Koutsoukos and his wife Jacqueline Hobbs of New Zealand. Despite knowing these fund managers were not qualified financial advisers and also t most of the other scheme administrators in his organizations lacked financial knowledge.
To be eligible to operate an investment opportunity venture in Australia, one must have authorization from AFS authority (Burrows, 2015). The license permits all businesses and their agents to give investment opportunities to investors. David Hobbs was providing the following services without being licensed by AFS
Hobbs gave investors false financial products and services which included shares, bonds, superannuation, insurance policies, motor insurance, offshoots, and venture capitalist opportunities amongst other services (Sparkes, and Cowton, 2004.). According to the Corporations Act, investment client is to receive a number of disclosure documents before purchasing a financial product or service (Hanrahan, 2014). Hobbs was found to have not disclosed all the clauses in the financial products and services he provided.
The Supreme Court found David Hobbs guilty of using his position as the Director to employ and award financial benefits to some of the fund administrators like David Collard, Min Hua (Lili) Li, Hui-Min (Nancy) Wu of Stratified, and Brian Wood of Davis town, Jimmy Truong, Con Koutsoukos and his wife Jacqueline Hobbs of New Zealand.
In the ASIC v Hobbs [2012] NSWSC 1276 case, the Supreme Court relied upon the conclusive statements and facts in considering giving a suitable disqualification period as outlined by Supreme Court Judge Santow, in Adler v ASIC (No. 5) (2003) 42 ACSR 81 (Stapledon, 2011). In regard to this case of Hobbs, the factors were the following.
ASIC emphasized, to regard, deviating from the values anticipated from administrators and managers running the organization and more expectations of real challenges in the contraventions (Thorpe, D., et. al., 2013). The court found the following factors to have been grossly abused by Hobbs as a director.
The prohibition instructions for Directors
In Pursuant of the 207C and the 206F ruling regarding Companies Deed 2002 Hobbs was completely banned in engaging in any business in Australia. Additional precise instructions stood also directed complete confinement of David in participating in running, advising selling or buying of security products on behalf of investors and depositors (Thorpe, et. al., 2013).
Breaching of Directors Duties Penalties
Directors who believe have breached your director’s duties, should know that it is extremely essential they obtain autonomous financial and legal advice as soon as possible. This is because the penalties for a breaching these duties are serious. It is important that directors try and alleviate any possible liability quickly and efficiently (Hudson, 2012). Directors must also safeguard and observe the Corporate Act, general law and the company’s Constitution and Investors Agreement Moving Forward
The penalties for breaching of director responsibilities are severe and could leave a, for example, David Hobbs liable for the investors’ debts. To avoid this, it is important that directors comprehend the legal responsibilities and commitments and have the right legal and financial team with them all the time in their activities (Hudson, A., 2012). If directors require advice or help in undertaking or dealing with any obligations that they think or believe to have breached are advised to contact competent corporate lawyers as soon as possible.
In handing down its ruling, the Court confirmed that: Investors and fund administrators cannot release directors from their contractual duties (Wan, 2015). However, their consent in the course of conduct might affect the practical content of those duties and be relevant to whether the impropriety necessary to ascertain a breach in fact existed (Black, et al., 2016). To the degree that consent may narrow a duty owed by investors, so as to be significant in determining whether a break of a contract duty was established, that will at minimum be limited by a requirement of disclosure, and may also be limited by investors interest and considerations.
References list
Burrows, A. ed., 2015. Principles of the English Law of Obligations. Oxford University Press, USA.
Black, et al., 2016. Outside director liability: A policy analysis. Journal of Institutional and Theoretical Economics JITE, 162(1), pp.5-20.
Coffee Jr, et al., 2015. Securities regulation: Cases and materials.
Gibelman, M. and Gelman, S.R., 2001. Very public scandals: Nongovernmental organizations in trouble. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 12(1), pp.49-66.
Haigh, Matthew, and Marc T. Jones. “The drivers of corporate social responsibility: A critical review.” (2006).
Hudson, A., 2012. Equity and trusts.Routledge
Hanrahan, P.F., 2014. Should the FSI revisit the philosophy of financial services regulation?.Law and Financial Markets Review, 8(3), pp.199-203.
Hjalmarsson, J. and Merkin, R., 2016. Singapore Arbitration Legislation: Annotated. Informa Law from Routledge.
Langford, R. and Ramsay, I., 2014. Conflicted directors: What is required to avoid a breach of duty?
McDermott, P.A., 2017. Contract law.Bloomsbury Publishing.
Sparkes, R. and Cowton, C.J., 2004. The maturing of socially responsible investment: A review of the developing link with corporate social responsibility. Journal of Business Ethics, 52(1), pp.45-57.
Stapledon, G.P., 2011. Institutional shareholders and corporate governance.Oxford University Press.
Thorpe, D., Buti, A., Davies, C., Fridman, S. and Jonson, P., 2013.Sports law.Oxford University Press
Virgo, G., 2015. Principles of the Law of Restitution. Oxford University Press, USA.
Wan, W.Y., 2015. Directors’ defence of reliance on professional advisers under Anglo-Australian law.Common Law World Review, 44(1), pp.71-93.
Witting, C., 2015. Street on Torts. Oxford University Press, USA.
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