In the given scenario, the issues that exist are related to disclosure obligations of financial statements, issue of shares, misleading and deceptive conduct in relation to advertisement of financial products and the right of directors to rely on the expert advice provided by experts and competent personnel. All these issues have been identified in context of the case study of Austin Retail Ltd.
The law which governs the conduct and the operations of businesses in Australia is the Corporations Act 2001 (Cth). This act provides the liabilities, right and duties of the people who are in charge of the operations of the business and management of the affairs of the company. It can be stated that after the incorporation of a company, a company enjoys separate legal existence. This principle of separate legal entity of a company had been established in the landmark English case Salomon v Salomon. However, company only enjoys separate artificial existence; it has to rely on human help for conducting its operations.
This legislation provides that any director or officer of an organization has the obligation to ensure that the company or organization in consideration complies with the provisions as provided in the aforementioned act. If any of the persons who are in charge of managing the affairs of the company fail to comply with the provisions of the Corporations Act, fines and penalties are imposed on the company and on the directors or officers on some occasions.
It has been specifically provided in section 189 of the Corporations Act 2001 that an officer or director of the company can rely on the expert and professional advice provided if it is believed by the director of the company that the advice provided by the expert was within the expertise of the director. The reliance on the expert advice provided by an expert is considered to be reasonable and accepted in the court as a ground of defense if it is established that the reliance had been made in good faith, the director had made an independent assessment of the information that he relied upon and the reliance was reasonable.
Section 180(1) of the Corporations Act 2001(Cth) lays down the provisions of the breach of duties of directors. In accordance with this section it can be stated that directors or the officers of the company have the duty of care and diligence while discharging their duties. The duty of diligence and care of directors are assessed by the perspective of any reasonable person acting in the same circumstances and the position of directors. In the case ASIC v Australian Property Custodian Holdings Limited [2013] FCA 1342, it had been held by the court that a director cannot be considered to have acted with due care and diligence if it is established that he did not make any personal enquiries about the truth and genuinely of the information which had been provided by the outsider and on which he relied. A director has the statutory duty of discharging his duties as any reasonable director acting in his position would have done. If it is established that any other director would have discharged their duties with additional care and diligence such director would be held to have breached his duty according to the provisions of section 180(1).
Further in accordance with section 674 of the Corporations Act 2001 it can be stated that every organization and company has the responsibility to inform the ASX or ASIC in relation to information that is available to participants of the market. The ASIC and ASX are independent government bodies which act as market operators. It has been provided in subsection 674(2) of the Corporations Act that this section would be applicable to a disclosing entity. This section states that companies and corporations have the duty of informing the market operators about any information which is not readily available to the public and is expected by a person, reasonable in nature to have material effect on the price and value of the companies’ securities when such information is disclosed to the public. It can therefore be stated that the market operator has to be notified about the information as discussed above as per the provisions of law. Any contravention of this section imposes a civil penalty as per the provisions of section 1317e on the contravening party. It has been clearly specified in section 674(2) of the Corporations Act 2001 that any person who is responsible for making the company breach the obligation of the company to continuously disclose information will personally liable for Contravening the provisions of this section. Contravention of the provisions of this section can also be considered to be an offense under 1311(1) of the CA.
Section 728 of the Corporations Act 2001 lays the down the provisions of misstatements and omission from a document of disclosure. It can be stated in accordance with this section that any person who indulges in offer securities by a disclosure document must not disclose any document which he suspects to contain deceptive and misleading statements. In case a new situation arises after the disclosure document has been lodged the person concerned must not offer any securities. In subsection 728(2), it has been clearly provided that any person who produces any statements in relation to future matter without having reasonable grounds to believe that the statements made in relation to the future matter to come true would be held to have provided a misstatement. In accordance with subsection 728(3) it can be mentioned that any person who contravenes the provisions of subsection 728(1), such person would be held to have committed an offense as such misstatement is reasonably believed to hae adverse impacts on the investors. The case Australian Securities and Investment Commission v Sino Australia Oil and Gas Limited (in liq) [2016] FCA 934 discussed the provisions of misstatements as provided in the aforementioned section.
In section 764 (a) of the Corporations Act 2001 it has been clearly provided that a security of a company is a form of financial product. Section 1041 of the CA deals with the provisions of misleading and deceptive conduct in relation to financial product. In subsection 1041H it has been clearly provided that any person who is associated with a company must not indulge in any conduct which is likely to deceive and mislead the audience specially when such conduct is in relation to the financial products and services of the company. It can be further stated that if any company fails to notify about the financial situation of the company which is likely to have an impact on the price of the shares, such conduct can be considered to be misleading and deceptive or likely to mislead and deceptive. In case of breach of this section a civil penalty in imposed on the person who engages in misleading or deceptive conduct.
Under the provisions of Corporations Act 2001 any person who consented to the issue of statements which are related to the prospects of the company, and director and underwriter of the offer is personally liable to the investors for the losses incurred by the investors due to the mistakes in the prospects of the company. A prospectus of a company would be considered to be defective if such prospectus contains misleading and deceptive information. A prospectus can also be considered to e defective if it contains any omission related to change of situation which has not been disclosed.
Thus by analyzing the facts of the case which has been provided through the given scenario, it can be stated that Austin issued prospectus for the purpose of raising twelve million dollars. The company issued shares for raising the capital. In accordance with the provisions of the Corporations Act the prospectus had been lodged with the ASIC. However, it later turned out that the Prospectus issues was faulty as the information contained in it was incorrect. Bob, commercial sales manager of Austin had relied on the information based on the research which had been poorly conducted by DB Consultants. However, in this given scenario it is been clearly provided that the sales manager Bob Brown had an intuition that the information that had been provided to him was erroneous however, he did not make any effort to inspect the validity of the report provided by DB consultants, neither did he make enquiries into the matter personally. Therefore, in accordance with the provisions of section 189, it is clearly evident that Bob Brown, an officer of the company failed to comply with provisions of the aforementioned section. It can be stated that for claiming valid reliance, he had a duty to be reasonably sure that the information provided to him through the report was accurate. However, his failure to make personal enquiries about the correctness of the report provided by DB consultants, in spite of having a suspicion clearly indicate that his action was not reasonable and therefore he cannot claim his right to rely on the expert advice
Further it is evident in the given set of circumstances that by virtue of being the Sales Manager of the company Austin he had a duty under section 180 of the Corporations Act to act with due care and diligence. However, he did not inspect the forward book of orders personally which can be considered to be within the scope of a sales manager. It can be stated in reliance with the provisions as provided in section 180 that any reasonable director or officer of Austin, acting in the same circumstance and in the same position as Bob Brown, would have taken additional care to inspect the forward books of orders and make personal enquiries when he had a suspicion that the information was not accurate. Thus in this case it can be illustrated that Bob Brown breached his duty of diligence and care as provided in provided in section 180 of the Corporations Act. Further in accordance with the provision as provided in sub section 180(1) of the CA, it can be stated that Bob can be held to personally liable as he was responsible for making the Company breach the legal provisions of the CA.
In this case study, it is evident that the company Austin had issued a prospectus to raise capital for the company. The prospects that had been issued by Austin was incorrect and the company had become aware that the information contained in the prospectus was incorrect. Therefore according to the provisions as provided in section 674(2) of the CA it can be analyzed that Austin had the obligation and responsibility to inform the ASX about the change in the circumstances of their financial prospects. Any reasonable person would have felt that the change in the financial prospects would adversely impact the price of the shares issued by the company. In this given case study the forward book of orders had been showing an amount which exceeded the original amount and therefore, it was the duty of the company to inform the ASX about the matter. However Austin did not notify ASX about the same and subsequently breached the provisions of the section 674 of the Corporations Act 2001. Further it can be stated that the directors who had been responsible for making the company breach the duty of continuous disclosure as provided in section 674 would also be liable personally.
Further in this give scenario, it is evident that the directors of the company breached the provisions section 728. This can be substantiated by the fact that information which had been contained in the prospectus in relations to the future matters of the company was incorrect. The company projected the forward book of orders to be 25 million for the next three years where as in reality it was only 15 million in reality. Dendy Securities, who were underwriters of Austin Ltd would also be liable in the given circumstance.
The company had also breached the provisions of section 1041H as it did not notify about the present financial situation of the company and thus engaged in misleading and deceptive conduct.
The two defenses can be available to the company under section 180(1) and 189 of the CA provide the defense of due care and diligence and right to rely on expert advice. However these defences would not be applicable due to the reasons discussed above.
Conclusion
Thus in conclusion, it can be stated that Austin, Bob Brown, DB consultants and Dendy securities could all be held liable for the incorrect disclosure of documents
Corporation Act 2001 (Cth)
ASIC v Australian Property Custodian Holdings Limited [2013] FCA 1342
Australian Securities and Investment Commission v Sino Australia Oil and Gas Limited (in liq) [2016] FCA 934
Bottomley S, Hall K, Spender P, and Nosworthy B, Contemporary Australian Corporate Law 1st edition 2017 Sydney Cambridge
Harris, J. Hargovan, A. Adams, M., Australian Corporate Law LexisNexis Butterworths 5th edition, 2015.
Austin R.P. & Ramsay, I., Ford’s Principles of Corporations Law, Butterworths, Australia, 16th edition, 2014.
Baxt, R., and Fletcher, K.L., Fridman, S., Corporations and Associations Cases and Materials on, Butterworths, Australia, 10th edition, 2008.
Hanrahan, P., Ramsay I., Stapledon G., Commercial Applications of Company Law. Oxford 18th edition 2017
Redmond, P., Companies and Securities Law – Commentary and Materials, Law Book Co., Sydney, 5th, 2009.
Parker, Clarke, Veljanovski, Posthouwer, Corporate Law, Palgrave 1st edition 2012
Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, Sydney, 9th edition 201
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