The main issue of this case is to determine whether the alleged company One.Tel has breached the provisions of Corporation Act 2001 or not.
The main subject matter of the case is based on certain provisions of Corporation Act such as director’s duty and business judgment rule. Australia is a business country and all the rules regarding the processing of a company are very strict. Corporation Act 2001 is the main legislative approach to deal with the matter related to the company acts. Australian Securities and Investment Commission is the main regulating body in this case. It works to inspect the acts of all the companies to inspect whether there are any illegal thing is going on. The rules provided in the Corporation Act 2001 are mandatorily imposed on the directors of the companies. According to section 180 of the Act, every director of the company is required to perform their acts with due care and diligence and they should not act against the interest of the shareholders. According to the general principle of Company Law, company is the separate entity from its director; however, the director takes all the important decisions of the company (Farrar 2016). Therefore, they are regarded as the mind of the company. Considering their acts in the company, the directors have certain duties towards the shareholders and to the company. They could not earn illegal profit from the company by deceive others. They should be loyal and should employ good faith while perform for the interest of the company. Under the Corporation Act 2001, the directors should have to maintain all the provisions of the Act and in case of any failure found by the Australian Securities and Investment Commission, the alleged director has to face penal action. There are many cases where the directors of companies have to face serious penal action for non-performing the provisions of the Corporation Act (Huebner and Klein 2015). However, there are certain provisions under the Corporation Act, where certain defences have been mentioned for the directors so that they can defend their position. The case of ASIC v Rich is an important case in this matter. The principle of business judgment rule has been established in this case.
The directors of the company play an important role and it is their duty to deal with all the operational matter in good faith (ANDREW 2016). There are number of cases pending before the Australian court where the directors have failed to comply with the provisions of Corporation Law and case like ASIC v Adler and ASIC v Cassimatis are certain examples in this regard. According to the Act, a director has to consider certain matters while taking important decisions for the company. They are not expected to think about their personal interest and should not deceive the shareholders. An allegation has been brought against the directors of One.Tel by ASIC that they have failed to assess the financial position of the company and they have taken certain decisions by which the company become insolvent. Further, they should assure the existence of system to facilitate the flow of financial information to the board. However, the directors of the company had taken the assistance of the defence provision of Corporation Act 2001 and the whole onus of proof has been passed on their buck.
According to the allegation of ASIC, the financial condition of the company was very bad and without assessing the financial condition the directors of the company has taken certain steps that affects the shareholders of the company. Further, it has been alleged that the directors of the company have all the knowledge about the company’s condition and they have failed to maintain the balance of probabilities. In addition, it has been stated by ASIC that the directors of the company has failed to discharge their duty with due care and diligence and therefore, should be charged under section 1317E of the Act. In this perspective ASIC has shown certain case citations to support their case. In ASIC v Adler, it has been held by the court that the directors of the company has contravened section 180, section 181, section 182 and section 183 of the Corporation Act 2001. Further, the court has cancelled the licence of the directors and imposed penalties on them. Similar situation has been observed in ASIC v Cassimatis, where the court has observed that the directors of the company are not required to feather their own nest through the company and it is their duty to secure the interest of the shareholders. In this case, ASIC has able to prove that the directors of the company had the knowledge about the financial condition of the company and still they have asked the shareholder to invest their money in the company (Engert and Goldlücke 2017). After the investment, a financial break down happened in the company, all the investments have been downsized, and the company has become bankrupt. According to section 9 of the Act, directors are appointed to settle down all the acts of the company. They are required to do all the acts to protect the interest of the company and should not engage him in certain illegal acts like fraud and mismanagement. Apart from this, certain sections are involved in this.
ASIC brings allegation of special responsibilities against the Mr. Greaves, who has occupied several positions in the company. According to ASIC, being the Chairman of the company, he has to maintain certain provisions of Corporation Act that he has failed to perform. Further, being in the position of financial supervisor, he should not take certain decisions that make the company bankrupted. According to the explanatory memorandum of Corporate Law Reform Bill 1992, a director should have to do his job with due care and diligence. Further concentration has been given on section 181 of the Act, where the directors are required to perform their duties in good faith. They should not earn illegal profit from the company (Keay 2015). There are certain responsibilities imposed on the Chairman of the company. The Chairman should have to take certain leadership role and should be responsible for the conducts of the board. Further direction is required for monitoring the management and ensures accuracy in the financial section of the company. Every director of the company should have to inspect the financial condition of the company before making any decisions and failure to do so will lead great dilemma for the company. According to the allegations made by ASIC, the alleged director of the company is required to perform all the special responsibilities and make reasonable steps to secure the interest of the company and the shareholders. According to section 182 of the Corporation Act, a director of the company is restricted to make any irresponsible decision regarding the financial position of the company. ASIC brings allegation against the director of the company that he has failed to perform either of the duties and he could not able to make rational decision.
On the other hand, the directors of the company have taken the plea of section 180(2) of the Corporation Act 2001 that deals with the business judgment rule. According to this rule, if the directors of the company could prove that all the decisions made by him is for the interest of the company and he does not all the decisions made by him is for the interest of the company and he does not gain any illegal interest or profit from the same, the director will not be held guilty under the Corporation Act. This provision is one of the great defences that secure the responsibilities of the director. If any director of the company has been charged under section 180 of the Corporation Act 2001, the business judgment rule will protect the interest of the directors. However, the directors of the companies are required to submit all the reasonable facts in their favour.
The case of ASIC v Rich (2009) is a historical case regarding the corporate sector and the principle of business judgment rule has been established in this case. In this case, the NSW Supreme Court has dismissed the allegations made by ASIC against the company by stating that ASIC has failed to prove all the facts of their allegation and failed to prove that the directors of the company has taken irresponsible decisions to make certain personal gain from the company. ASIC plays an important role in Australia, as it inspects the works of the company and in case they have certain proves that the directors of any of the company have failed to perform their acts according to the provision of Corporation Act, ASIC could filed case against the company and if all the allegations could be proved, court will impose penalties against the director of the company and may cancel his licence for the offence. There are many cases where the institution (ASIC) has played a significant role and able to prove their capabilities in the corporate sector and create a strong implication against the white collar crime.
However, in this present case, similar allegation has been made against the director of the company. It has been alleged that one of the directors of the company has failed to make all proper inspections and the company has to suffer detrimental effects due to it. However, ASIC has failed to prove the basis of the allegation and the Supreme Court of NSW has freed the directors of the company from all the charges by establishing the principle of business judgment rule mentioned under section 180(2) of the Corporation Act 2001.
The directors of the company have able to establish the fact that they have taken all the decisions for the interest of the company and they have not earned any illegal gain from this. Further, all the witnesses are not examined by ASIC and they have failed to produce any strong evidence against the company to verify their allegations. Further, the director of the company has able to prove their innocence by submitting relevant facts and proves all the essentials. It is quite clear to consider that the alleged director could not take any step that can lead against the corporate rule. The Court has declared that the directors are able to maintain all the special responsibilities and no irresponsible steps are taken by the alleged director cum Chairman of the company.
Conclusion:
The court has set aside the allegations of ASIC against the company by establishing the principle of business judgment rule.
Reference:
ANDREW. KEAY, L.L.B., 2016. DIRECTORS’DUTIES. JORDAN PUBLISHING Limited.
Australian Securities and Investments Commission v Adler [2002] NSWC 171
Australian Securities and Investments Commission v Cassimatis [2016] FCA 1023
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229
Engert, A. and Goldlücke, S., 2017. Why agents need discretion: The business judgment rule as optimal standard of care. Review of Law & Economics, 13(1).
Farrar, J., 2016. Book Review: Directors’ duties: Principles and application.
Huebner, M.S. and Klein, D.S., 2015. The Fiduciary Duties of Directors of Troubled Companies. American Bankruptcy Institute Journal, 34(2), p.18.
Keay, A., 2015. The shifting of directors’ duties in the vicinity of insolvency. International Insolvency Review, 24(2), pp.140-164.
Schnell, B.B. and Gardner Jr, R.K., 2015. Battle over the Franchisor Business Judgment Rule and the Path to Peace. Franchise Law Journal, 35(2), p.167.
Smith, D.G., 2015. The Modern Business Judgment Rule.
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