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).
The present subject matter of the case is based on directors duties that has been mentioned under the Corporation Act 2001. Justin observed that “in Australia all the company related matters are resolved by the Corporation Act”. The directors in a company play an important role and the directors have to do all the important works of the companies. Therefore, it is no doubt to state that directors are positioned in an important place and therefore they have certain duties mentioned under the Corporation Act 2001 (Knepper et al. 2016). According to the Corporation Act, if a director of a company has failed to comply with all the sections mentioned under the Act and act for their personal interest, they will be held liable under section 180 of the Act. Further, it has been stated that no directors are allowed to make a breach regarding the provision of the Corporation Act and an institution has been established to take it close vigil over the issues relating to the acts of the directors within a company. The main purpose of the Corporation Act is to secure the interest of the company and the shareholders and therefore all the rules stated within that Act are mandatory in nature. The current case is one of the examples observed by the court where it has been held that if a director of a company has failed to act in accordance with the provisions of the Corporation Act they will be held liable and their license can be cancelled.
Brief facts:
In this case, it has been notified that the director has improperly used all the information of the company to gain certain undue advantages and therefore held liable under the Corporation Act 2001. Considering the facts of the case, the defendant Stephen William Vizard has been appointed as a non-executive director of the company and has transferred certain information for gaining personal advantages. In this case, the alleged defendant was a non-executive Director and was a well-known figure in the society. It has further been stated that he set up his philanthropic organizations named Vizard Foundation and become one of the main organizing characters of the company. In the year 2000, certain undoing occurrence had made by the defendant and he has been involved in various business activities. According to the research made by the Australian securities and investment Commission it has been reported that the defendant has failed to perform his duties in a reasonable way and act prudently and failed to secure the interest of the company and the shareholders of the company. Further, it has been verified that the defendant has taken certain loan fund and he has failed to submit any correct evidence regarding the necessities of the loan Agreement. Certain information regarding the share price of the company has been come into his hand and he had decided to gain certain undue advantage by this information. He had decided to take some shares in Sausage and during the final transaction made by him, the company has suffered loss, and the value of the company has been decreased gradually. According to an investigation made by the ESIC it has been proved that the director of the company has failed to take necessary steps for securing the interests of the company and the alleged director of the company has shared the information of the company and feels to act in accordance with section 183 of the Corporation Act 2001. An investigation has been promoted by the Australian securities and investment Commission and it has been observed that the director of the alleged company has failed to comply the rules mentioned under section 183 of the Corporation Act 2001.
A case has been filed against the alleged director of the company and it has been held by the court that the director has failed to act in accordance with the provisions of the Corporation Act 2001 and justify be held him liable for the same. Father it can notice that the director of the company has failed to take reasonable steps and has excluded to defend his post under section 180 of section 2 of the Corporation Act 2001. Considering the statement of the case, it can be stated that the defendant had failed to take any defense against him. Section 183 of the Corporation Act has restricted a person who obtains information because they are or have been a director or other office Erode employee of a corporation must not in proper use information to gain an advantage for themselves or someone else or cause detriment to the Corporation. However, considering the case study has been observed that the director of the company has failed to act in accordance with section 183 of the Corporation Act and is liable to be penalized under section 1317E of the corporation law 2001 (Langford and Ramsay 2015). Further, the court can terminate an employer if all the allegations proof against the employer. In this case, the non-executive director of the company has failed to perform all his liabilities according to the provision of the Corporation Act and he had made all the decisions to gain his personal profit. The company had to face various losses due to the act. In this case, the court has rightly observed that the director has failed to comply also duty position of the Corporation Act and held in label and cancelled his license for being an employer of company for 10 years.
Duties breached:
It has been stated under section 180 of the act that the directors of a company Mast have good faith over the company and they should act for the interest of the company. It has been mentioned under section 181 of the Corporation Act that the directors of a company must work in due care and diligence and they should not think about telling their personal interest. The present case is based on the provision of section 183 of the act where it has been mentioned that director of a company should not share any information regarding the core process of the company and they should not misuse the post as a director. It has been mentioned in ASIC v Adler that the director of a company is positioned in a highest place and they have authored all the information of the company. It is therefore the duty of the director to act for the best interest of the company and they should not secure their personal gain. Just for that been mentioned under the act that is a director of a company made any breach regarding the position of the corporation at they will be held liable under section 1317E of the Act and the nature of the act is civil. According to Section 164, one of the corporations and a director of company are restricted to make any misleading statement regarding the financial statement of the company and they are also restricted to hear any confidential information of the company with the third parties (Barker 2016). The main purpose of the Corporation Act used to restrict a director of the company to use their position in improper manner and the director should have to act in the best interest of the corporation and for the best Interest of the shareholders. Corporation Act 2001 empowers the court to cancel the license of the director and disqualify them from their power under section 206C of the Act. In this case, it has been observed that the director of the company has failed to prove his reasonableness regarding the post and failed to act for the best interest of the company and they were held liable under section 183 subsection 1 of the Corporation Act 2001.
Decision of the court:
However, considering the position of the director, certain defense provisions have been provided under the Corporation Act. It has been stated under section 180(2) of the Act, if any director of the company can show that they have done all the works prudently and they did not have any prior knowledge that the acts of the directors could result in detriment for the interest of the company, the directors can be let free by the court. This principle has been proved in the case of ASIC v Rich [2009] 236 FLR 1, where the court has held that a reasonable director of the company could not be held liable for the breach of duties. Further, in case of any deceptive acts, the directors can make a plea under section 731 of the Corporation Act. Defense can be taken by the director if they act in good faith as stated in Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483.
However, considering the case, it has been observed that the alleged director of the company has failed to act prudently and therefore, could not take all the pleas mentioned above. It is clearly mentioned in the case study that the alleged director has acted for his personal gain and failed to act for the best interest of the company. In this case, the court has held him liable for making breach regarding the duty provisions of the Corporation Act and seized his licenses as a director of a company.
Impact of the case:
The case has certain significant effect on the duties of the directors and it has been established that if any director of a company has failed to abide by the rules stated under section 180 to section 184 of the Corporation Act, they will held liable and he will face civil penalty under the Corporation Act 2001. The Corporation Act 2001 has regulated the acts of the directors and the application of the provisions is strict. There are many cases pending before the Australian Courts where the directors of the companies had failed to act in accordance with the Corporation Act (Moravec and Valenta 2015). The Federal Court of Australia has played an important role in this case and it can be stated that the wise judicial knowledge of the court has made certain great judgment regarding the topic. In the case of ASIC v Vizard, the mentality of the court against the alleged director has been proved once again. In this case, it has again proved that in case a director of the company has failed to comply with the provisions could result into the termination of their licenses.
Conclusion:
Therefore, it can be stated that the court has rightly held the alleged director of the company liable under the Corporation Act. Considering the case study, it has been observed that the director had failed to act prudently and all the statements made by him proved detriment for the best interest of the company. It has further noticed that he had involved in various businesses and failed to think systematically for the betterment of the company where he had been acted as a non-executive director. According to the Corporation law, a director is the mind of a company and therefore, he is required to make certain prudent decision. He must have to follow the rules prescribed under the Corporation Act and should perform their duties diligently. It has been mentioned in ASIC v Adler [2002] NSWSC 171, a director should not use his position to gain personal interest and should not share the confidential information with the third parties. Further, the Act mentions that the director, who acts for the interest of his personal profit, could not take the plea of corporate veil. In this case, the alleged director has failed to maintain all his duties and held liable under the Act of 2001.
References:
ASIC v Adler [2002] NSWSC 171
ASIC v Rich [2009] 236 FLR 1
Australian Securities and Investments Commission v Vizard [2005] FCA 1037
Barker, R., 2016. The Duties and Liabilities of Directors—Getting the Balance Right. The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Members, p.249.
Corporation Act 2001 (Cth)
Ferran, E. and Ho, L.C., 2014. Principles of corporate finance law. Oxford University Press.
Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483
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.
Langford, R. and Ramsay, I., 2015. Directors’ Duty to Act in the Interests of the Company: Subjective or Objective?.
Moravec, T. and Valenta, P., 2015. The Comparison of Efficiency of Disqualification of Directors in New Czech Business Corporation Act and in the Legal System of England. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 63(5), pp.1711-1717.
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