Corporations Law For Gaining Personal Benefits

Preliminary Issues

Describe about the Corporations Law for Gaining Personal Benefits.

In the given situation, Dr. Dawes, Mr. Foster, Mr. Huckenfusser and Mrs. Duck who bought certain shares of MMM subsequently sold them off by way of information they received from the internal sources of GML and earned profits. But they would not have been entitled to receive had the information from GML be not received by them. Thus, some of them have become liable under the civil penalties in the Corporations Act.

There are certain breaches of law in the given situation. While some people misused the information they received from GML, there are others who purely traded in matters for gaining personal benefits. There are also some others who though did not cause detriment to the company as such, but nevertheless derived benefits from the minutes of the meetings in GML. Thus, the issues that arise in the matter are as follows:

Whether Dr. Dawes is liable under the Corporations Act for the benefits drawn by his wife by investing in the shares of MMM?

Whether there is any liability on Mr. Foster for dealing in insider trading and making QECG buy shares of MMM and whether he is liable for prosecution in the matter?

Whether Mr. Huckenfusser has used his position disadvantageously and whether his personal gains in the matter are liable to be prosecuted with proceedings against him?

Whether Mrs. Duck holds any liability in the entire matter and whether she has done anything wrong by investing in the shares of MMM and later on selling off the shares by obtaining information from Mr. Huckenfusser?

It should be noted that some of the people mentioned above are in the position of directors; some are pseudo directors while others are in the simple position of employees of the company. In such a situation, dealing with all the issues under the shoes of the director would not be a sound idea (Braun et al., 2014). Hence, it is necessary to take up each of the issues separately and analyze the instances under independent legal provisions. There might be some who are liable for civil penalties, while there are some who are just an accomplice in the matter and have not done anything that is in contravention of the law (Lumbers v W Cook Builders Pty Ltd (in liquidation), [2008]). These shall be conclusively determined after making a thorough analysis of the Corporations Law and understanding the breached provisions.

Possible Breaches of the Corporations Law

To validly bring about a suit against a director or officer of a company for breach of law under Section 183 of the Corporations Act, it is necessary to prove the following:

That the person against whom the matter is being instituted was at the relevant time, an officer of the Company or the corporation (Australian Securities & Investments Commission v DB Management Pty Ltd, [2000]);

That the relevant misused information was acquired by the person directly;

That the information that was obtained by him was acquired entirely because of his position as an officer of the company and he would not have obtained that information if he was not an officer;

The person made that improper use of the obtained information (Chapman, 2005);

That the improper use of the information was made by him so that he could gain an advantage for himself;

The improper use of information could also have been made by the person to cause detriment to the company or the corporation (Lim, 2013).

In the given situation Dr. Dawes acquired the information about the shares of MMM because of the directorial meeting of which he was a part. He had already declared that he had become insolvent and had no assets left. This indicates that Dr. Dawes concealed none of the material facts. He came to know of the shares of MMM and advised his wife to invest in the shares. After that, he subsequently came to know of the falling prices of the shares and advised his wife to sell the shares off. She, in turn, earned a good amount of profits out of this transaction. It can be said that though the information was obtained from the position of an officer of the company by Dr. Dawes, yet he did not cause any detriment to the company because of the information and its use. He purely invested in certain stock and derived personal benefits. Moreover, Section 183 applies to those people who are the officers or directors of the company (Google Inc. v Australian Competition and Consumer Commission, [2013]). However, Dr. Dawes was not eligible to remain a director at that relevant time, and no permission was taken from ASIC in that instance as well (Mamutse, 2014). Thus, it can be said that Dr. Dawes is immune from receiving penalties in the given matter.

Mr. Foster was a Director of the company, and after he had come to know of the information about the stocks of MMM, he left GML and joined QECG. He advised the Board of QECG to make an investment in the shares of MMM so that they could gain profits. It is evident in the given situation that while Mr. Foster gave the financial advice to QECG, he was not associated with GML in any way and was not an officer or employee or director there. However, one cannot disregard the reality that the financial advice was given by Mr. Foster to QECG out of the information that he had received because of being a part of the directorial members of GML when it was discussed there. There is clear indication that he took an advantageous position and out misused the information he had gathered (Lichtenberg, 2010). QECG would not have known about the stocks of MMM has Mr. Foster not told them about it. This indicates misuse of information and though he did not cause any detriment to GML, yet his action was one that could have resulted in insider trading (Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed), [2011]). Thus, it can be said that Mr. Foster was liable for a civil penalty in the given matter.

Defenses

Mr. Huckenfusser is an employee of the company is but is neither an officer nor a director of GML. Because of his role in the office, he received the beneficial interest of knowing about the stocks of MMM and him passé on this knowledge to an outsider who was Mrs. Duck. This information was given out by him to gain personal advantage entirely and clear off his debts. Mrs. Duck in the given instance is not at fault because she wanted to take an independent financial advice from Mr. Huckenfusser (Symon, 2006). However, this advice given by him because he came to know about the shares of MMM from the Board meetings of GML. Thus, it can be said that this amounts to a breach of the fiduciary duties as stated in the Corporations Act and though Mrs. Duck is not liable in the matter, Mr. Huckenfusser is liable for his actions.

Each of the four people about whom discussions have been made can take certain defenses to state their innocence in the matter. Dr. Dawes has acted honestly in the matter and that he intended to do was gain some monetary advantage because he was already bankrupt and had also declared the same to the Directors of GML. Though he has contravened some provisions yet, his position does not make him guilty under the law, and he can claim immunity under Section 1317S (Hackner, 2010).

Mr. Foster, however, does not have any defenses in the matter, and all that he can state that is because of his actions, GML did not incur any losses in the matter. However, this cannot be used as a strong defense by him, and the ASIC will have to take up a procedural investigation in the matter (Wong, 2014).

As far as the position of Mrs. Duck is concerned, she is immune in the entire matter and she can claim that she was not at all associated with GML in any way. She just sought for some financial investment advice from her brother in law, and this was done in good faith by her (Wright, 2010). She initially invested according to the advice that she received and also sold off her shares from subsequent advice. Moreover, proceedings cannot be initiated against her because she is not a director or officer of GML (Keay, 2014). Hence, she is not liable under Section 183 of the Corporations Act.

It can be said in the matter that there are civil remedies in the given instance. Once breach of duty is proved, the Courts can decide on any one of the following remedies:

A pecuniary penalty amounting to $200,000 may be imposed for contravening the law;

They might be asked to pay compensation for damage for contravening a civil penalty provision under Section 1317E of the Corporations Act 2001 in relation to GML;

They might also face disqualification from managing other corporations thereon (Boral Besser Masonry Ltd v Australian Competition and Consumer Commission, [2003]).

Conclusion

Thus, it can be concluded saying that there are some who have breached the provisions of Section 183 of the Corporations Act and hence civil penalties can be imposed on them. However, the procedural process has to be taken up by ASIC before declaring breach in any instance.

References

Australian Securities & Investments Commission v DB Management Pty Ltd [2000] HCA p.7.

Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed) [2011] HCA p.18.

Boral Besser Masonry Ltd v Australian Competition and Consumer Commission [2003] HCA p.5.

Braun, D., Oehmichen, J., Wolff, M. and Yoshikawa, T. (2014). When Elites Forget Their Duties: The Double-Edged Sword of Star Directors on Boards. Academy of Management Proceedings, 2014(1), pp.10613-10613.

Chapman, G. (2005). Report on Australian Accounting Standards tabled in compliance with the Corporations Act 2001 on 30 August and 16 November 2004. Canberra: Commonwealth of Australia.

Google Inc. v Australian Competition and Consumer Commission [2013] HCA p.1.

Hackner, D. (2010). Going on Rounds: May’s ICU Director Contributions. ICU Director, 1(3), pp.135-136.

Keay, A. (2014). The Public Enforcement of Directors’ Duties: A Normative Inquiry. Common Law World Review, 43(2), pp.89-119.

Lichtenberg, J. (2010). Negative Duties, Positive Duties, and the “New Harms”. Ethics, 120(3), pp.557-578.

Lim, E. (2013). Directors’ duties: improper purposes or implied terms?. Leg Stud (Soc Leg Scholars), 34(3), pp.395-418.

Lumbers v W Cook Builders Pty Ltd (in liquidation) [2008] HCA p.27.

Mamutse, B. (2014). Directors’ Duties. The Law Teacher, 48(3), pp.376-378.

Symon, H. (2006). Corporations Act 2001. Melbourne: Leo Cussen Institute.

Wong, S. (2014). Combating Phoenix Activities: Law Reform Proposals. Saarbrücken: Scholars’ Press.

Wright, F. (2010). Fiduciary Duties: Directors and Employees20102Andrew Stafford QC and Stuart Ritchie. Fiduciary Duties: Directors and Employees. Bristol: Jordan Publishing Ltd 2008. £155. International Journal of Law and Management, 52(5), pp.405-406.