Discuss About The Principle Contemporary Corporate Governance?
In Australia, the Corporation Act (Cth) is the legislative instrument which applies on the companies and through which different provisions are provided which help in the running of operations of the companies. A key part of this act relates to the duties of the directors, who run the operations of the company on behalf of the company. ASIC v Macdonald (No. 11) [2009] NSWSC 287 is a case where the contravention of duties of directors was decided by the Supreme Court of New South Wales. In this case, the court considered whether the officers and directors of James Hardie Industries Ltd (James) were in breach of duties covered under section 180(1) of this act. This section relates to the obligation of care and diligence and the matter was brought before the court regarding the board’s approval and the release of a defective media management to Australian Securities Exchange, i.e., ASX (Hargovan, 2009).
Through this discussion, an attempt has been made to detail this case based on the allegations which the Australian Securities and Investments Commission, i.e., ASIC made in this, in addition to the decision given by the court in this case.
James was the holding company of the James Hardie Group (Group) which was responsible for the manufacturing and sale of asbestos products till 1937. Jsekarb Pty Ltd (Jsekarb) and James Hardie & Coy Pty Ltd (Coy) were the two wholly owned subsidiaries of James for the period of 1937 to 1987 and they were also both the manufacturer and seller of asbestos products.
In the starting days of February 2001, the board of James had created a foundation and named it “Medical Research and Compensation Foundation”. This foundation was created for managing and paying the claims which were raised for the asbestos related claims made against the Group. In connection to the creation of this foundation, the board approved a draft announcement for the ASX and this was also circulated in the general public through its release (Lavan, 2017). Concurrently, a covenant and indemnity deed was entered into by James with Coy and Jsekarb, due to which James was indemnified from all liabilities which were brought forward owing to the sale or manufacturing of asbestos products by James (Czoch and Mulder, 2010).
The Group then released an ASX announcement which stated that the Foundation had asset, the value of which was $293 million and that these would be sufficient for fulfilling the purpose of the genuine claims which were expected to be raised from such people who had been harmed due to the asbestos products. During the press conference, it was claimed that Macdonald, who was the chief executive officer of James made a statement regarding the funds in the Foundation being sufficient for the purpose of the claims. The same theme was followed in the ASX announcements which were made in the weeks to come in relation to this Foundation. Though, the ASX announcements never covered a disclosure regarding the Deed (Norton Rose Fulbright, 2010).
Upon the creation of this Foundation, a new company, which was holding of James, was formed, and this company was JHINV, and the place of incorporation of this company was the Netherlands. In 2002, overseas presentations were made by Macdonald, the defendant of this case study, in the matter of James and it was so represented that the Foundation had sufficient funds (Plessis, Hargovan and Bagaric, 2010). In 2007, the ASIC raised civil proceedings against James and JHNIV for the misleading and deceptive conduct, for the false statements which were made related to the securities and for the continuous disclosure failures (Czoch and Mulder, 2010).
Section 180 of the Corporations Act, 2001 covers the provisions regarding duty of the accounting and the directors of the company regarding care and diligence. Under section 180(1), it has been stated that the individuals have to apply care and diligence in their work, when their powers are being utilized by them and when they are discharging their duties, as would be done in their place, by a reasonable/ rationale person who held their office in similar situation with same powers and duties (Federal Register of Legislation, 2017). If the provisions of section 180(1) are not fulfilled, the civil penalties covered under section 1317E become applicable, which gives the power to the court to make a declaration of contravention, pursuant to which, the ASIC can apply for a disqualification order as per section 206C or seek pecuniary penalties as per section 1317G (Austlii, 2017).
The duty under this section is applied with the misleading and deceptive conduct of the directors where the directors have been given some crucial or significant information, which could result in a civil claim being made against the company in which they are the director or officer, owing to the deceptive or misleading conduct. This makes it obligatory for the directors to ensure diligence and care while releasing any information and also to ensure that the information which is released is not misleading or deceiving (Gadens, 2010).
A similar duty can be seen in section 181, which requires the directors and officers of the company to use their powers and discharge their obligations in the best interest of the company, with good faith and lastly, for proper purpose (Department of the Premier and Cabinet, 2016). The breach of this section also attracts penalties under section 13177E.
Justice Gzell presided over this matter and gave his decision regarding each point in a specific manner. He stated that in connection to the draft announcements made to ASX, all the 7 ex non-executive directors, the General Counsel, the CEO and the CFO of James were in breach of section 180(1) as they had failed in ensuring that the draft announcement regarding the funds’ sufficiency of the Foundation was not deceiving or misleading regarding paying the compensation to the victims (Czoch and Mulder, 2010). In the matter of the deed, His Honour stated that the CEO and the General Counsel were in contravention of section 180(1) due to their failure in giving the proper advice to the board of the company appropriately, which could have allowed the Deed to be properly disclosed (Jacobson, 2009).
With regards to the ASX Announcements, which had been properly approved, His Honour stated that section 180(1) had been contravened by the company’s CEO, which was MacDonald, as he failed in ensuring that the made announcements were nether misleading nor deceptive. Along with this, the sections 995(2) and 999 of Corporations Act were also contravened due to the misleading and deceptive information being released under the ASX Announcements (Sixth Floor St James Hall Pty Limited, 2009). His Honour also looked into the presentations made by MacDonald which were deemed as a contravention of CEO’s duty under section 180(1) as a result of making sure that these presentations were not misleading or deceptive. The new company, JHINV also contravened sections 1041E and 1041H as they were engaged in misleading and deceptive conduct with regards to the presentations made to ASX (Czoch and Mulder, 2010).
His Honour also stated that the ASIC had failed in showing various allegations made towards the Group, its non-executive and the executive directors. Under these different allegations, one was related to the claim against MacDonald for the contravention of section 181, which was related to acting in good faith by the CEO (Czoch and Mulder, 2010). Till late July 2000, the court listened to the submission made by the parties of this case for the defendant to be exonerated pursuant to section 1317S and 1318 of the Corporations Act regarding the undertaken breaches and also for the type of penalty or sanction to be imposed over MacDonald (Austin, 2012).
The ASIC submitted a contention to the Court which asked for the CEO of the company to be disqualified from running the affairs or managing any company for 12 to 16 years and the CEO to get a penalty as a fine, ranging between $1.47 million to $1.81 million. They also applied for the General Counsel’s disqualification from managing any company for 8 years, with a fine between $350,000 and $450,000. It was also proposed to ban all of the nonexecutive directors for 5 years and to be fined between $120,000 and $130,000. The CFO was also claimed to be disqualified from the management of company for 6 years minimum and to be fined in the range of $150,000 to $250,000. Lastly, the ASIC applied for 90% of the costs borne by them for bringing this case, to be jointly and severally be paid by the defendants of this case (Czoch and Mulder, 2010).
ASIC also made a submission to the Court to consider the penalties which were to be applied on the defendants and to consider the matter of indemnity. Given that the Corporations Act, 2001 restricts the companies of the nation from indemnifying against civil penalties of such kind, the submission of ASIC was that some of the defendants could be indemnified by the foreign companies within the Group. The defendants applied to be exonerated from ASIC’s claims and contented the banning orders and also stated that the fine which the ASIC had applied for, were excessive in nature. The only exception to this was MacDonald as he had admitted that the contraventions had been serious in nature (Czoch and Mulder, 2010).
Justice Gzell refused the exoneration of the previous members of board on 20th August 2009 and handed down the penalties in this case and provided these penalties:
The decision given in this case was considered as a landmark one by ASIC with regards to the Australian corporate governance. This was because of the important guidance and direction provided to the boards with regards to the practical applicability of the scope and the content of the executives’ duties which were undertaken in a major matter related to the board and related to the disclosure of these in the market. Along with this, the guidance and direction related to the responsibility of the non-executive of the public companies when being asked about the consideration of board’s strategic issues and for the approval of disclosure in market pertaining to the board’s decisions (Austlii, 2009).
In the previous parts, the case of ASIC v MacDonald was discussed where the breaches of director duties and that of the officers was the key matter, which resulted in disqualification order and pecuniary penalties being awarded against different parties. The civil proceedings which the ASIC started against James, the Group and the new company JHINV, the 7 ex non-executive directors, 3 former executives of James for the contraventions of different provisions of Corporations Act, and also for the approval and preparation of public statements were the background of the case being discussed in the previous segments of this discussion. The decision of this case highlighted the importance of the role of the directors, which not only includes executive, but also the non-executive directors of the company, in addition to t he senior executives of the companies, particularly with regards to the consideration and implementation of the strategic matters of the companies. Apart from the corporate governance issues surrounding this case, the decision of this case broadened the focus which had been put over the senior executives who are just below the level of the board and upon the non executive directors.
References
Austin, R. (2012) The High Court decides the James Healthcare case. [Online] Minter Ellison. Available from: https://www.minterellison.com/files/Uploads/Documents/Publications/Alerts/NA_20120509_JamesHardieDecision.pdf [Accessed on: 22/09/17]
Austlii. (2009) Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 (23 April 2009). [Online] Austlii. Available from: https://www.austlii.edu.au/au/cases/nsw/NSWSC/2009/287.html [Accessed on: 22/09/17]
Austlii. (2017) Corporations Act 2001 – Sect 180. [Online] Austlii. Available from: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s180.html [Accessed on: 22/09/17]
Czoch, K., and Mulder, M. (2010) Australia: The James Hardie Decision: Australian Securities & Investments Commission v Macdonald (No. 11) [2009] NSWSC 287. [Online] Mondaq. Available from: https://www.mondaq.com/australia/x/106690/Corporate+Governance/The+James+Hardie+Decision+Australian+Securities+Investments+Commission+v+Macdonald+No+11+2009+NSWSC+287 [Accessed on: 22/09/17]
Department of the Premier and Cabinet. (2016) 7.3 Corporations Act 2001 (Cth) (the Corporations Act). [Online] Queensland Government. Available from: https://www.premiers.qld.gov.au/publications/categories/policies-and-codes/handbooks/welcome-aboard/member-duties/corp-act-2001-c.aspx [Accessed on: 22/09/17]
Federal Register of Legislation. (2017) Corporations Act 2001. [Online] Federal Register of Legislation. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 22/09/17]
Gadens. (2010) Misleading and deceptive conduct in the corporate sphere. [Online] Gadens. Available from: https://www.gadens.com/publications/Pages/Misleading-and-deceptive-conduct-in-the-corporate-sphere.aspx [Accessed on: 22/09/17]
Hargovan, A. (2009) Australian Securities and Investments Commission v Macdonald [No 11] Corporate Governance Lessons from James Hardie. Melbourne University Law Review, 33(3), pp. 984-1021.
Jacobson, D. (2009) ASIC v James Hardie Decision: Company, Directors and Officers Were Misleading. [Online] Bright Law. Available from: https://www.brightlaw.com.au/asic-v-james-hardie-decision-company-directors-and-officers-were-misleading/ [Accessed on: 22/09/17]
Lavan. (2017) The responsibility for continuous disclosure announcements in the light of James Hardie – Australian Securities and Investments Commission and Macdonald (No 11) [2009] NSWSC 287. [Online] Lavan. Available from: https://www.lavan.com.au/advice/banking_finance/the_responsibility_for_continuous_disclosure_announcements_in_the_light_of [Accessed on: 22/09/17]
Norton Rose Fulbright. (2010) Insurance & Financial Services Bulletin. [Online] Norton Rose Fulbright. Available from: https://www.nortonrosefulbright.com/knowledge/publications/30007/insurance-financial-services-bulletin#section12 [Accessed on: 22/09/17]
Plessis, J.J.D., Hargovan, A., and Bagaric, M. (2010) Principles of Contemporary Corporate Governance. 2nd ed. Cambridge: Cambridge University Press, p. 59.
Sixth Floor St James Hall Pty Limited. (2009) ASIC v Macdonald (No 11) [2009] NSWSC 287. [Online] Sixth Floor St James Hall Pty Limited. Available from: https://www.sixstjameshall.com.au/recent-cases/2016/7/14/australian-securities-and-investments-commission-v-macdonald-no-11-2009-nswsc-287 [Accessed on: 22/09/17]
Taylor, T. (2012) James Hardie – The final instalment – NSW Court of Appeal disqualifies and penalises company officers. [Online] Holding Redlich. Available from: https://www.holdingredlich.com/corporate-commercial/james-hardie-the-final-instalment-nsw-court-of-appeal-disqualifies-and-penalises-company-officers [Accessed on: 22/09/17]
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download