This essay will discuss the provisions that are provided in the Corporations Act 2001 which are related to disclosure obligations, issuance of shares and the liabilities of the companies for engaging in false and misleading conduct. The paper also discussed the breach of duties by officers of the company and the remedies available. The paper also through light upon advertisement restriction imposed in a company when a prospectus is issued.
The Corporations Act 2001 (Cth) is the statute that provides the rules and the regulations which are binding upon the companies in Australia. It is worth mentioning that the provisions of duties, rights and the liabilities of the corporations are also provided in the legislations. This legislation has also codified the provisions of common law such as the duties of the directors of the company to the shareholders of the company and the public. Thus the officers and the directors of every corporation in Australia have the obligation to comply with the provisions of the section which contains the duties of directors of the Corporations Act 2001 (Cth). In addition it is the obligations of the company to provide proper information in the prospectus document while making it unambiguous and clear by avoiding unnecessary information. Nowadays companies are providing lot of unnecessary information in the prospectus document which is making is difficult for the investors to understand.
It has been provided in section 674 of the Corporations Act that corporations have the liability to disclose the information in accordance with the rules of listing as provided by the ASX.
In Australia, the applications in relation to the section is appropriate to the listed revealing entity, in which the provisions of the listed rule orders the organization for informing the ASIC or ASX who are the market operators, with regards to the events or matters which might occur towards the facts which are ready for use to the market applicants.
As mentioned in the subsection 674(2) under which it is stated that any such section can be appropriate on the certain disclosed entity, the company had the information’s with regards the facts, under the provisions mentioned in the section the responsibility to inform all the market operators regarding the information’s which are not mainly accessible and is such an information what every sensible individual would want to get. When it is made accessible it has the material effect over the price and value of the company’s securities. Market operator’s need to be informed about the information which is related to the law. In cases where the provisions which are mentioned in the section are not be abided, therefore it leads towards the violation of the civil penalty by s. 1317E and also an offence by s. 1311(1). It has also been stated in s. 674(2A) if any individual is seen to be involved in the process of letting the company violate the provisions, will be responsible for the violation of this sections himself.
It has been stated in section 710 of the CA that a prospectus document of a listed entity has to be have all information any reasonable investor would need to make a proper assessment of the offer. In relation to determining the information to be included the natures of securities have to be considered. These are the general disclosure requirements. The specific requirements to be included in a prospectus have been provided through section 711 of the CA. This section provides that the prospectus must have the terms and conditions in relation to the offer, the interest of each party must be set out by the prospectus, and the prospectus must also have information about the amount which a person has paid for the project and the expiry date of the prospectus. Under this section a copy of prospectus must also be provided to the ASIC. There are a few offers which do not require prospectus such as small scale offering having 2 million or less to be raised from 20 investors as per section 798 of the CA.
According to the situation, it is stated that any individual who would indulge in offering the securities through a revelation documents will not be working if there is misleading or deceptive statement. In case, a fresh situation arises and the revelation documents have been lodged until then the securities are not to be offered. It was also mentioned in the provisions mentioned under the subsection 728(2), if any sort of misleading statements are considered to be made up by any individual in regards to the upcoming problems if the individual is lacking sensible grounds by which he made this statement. In subsection 728(3), if any crime is done by any individual of the company then the violation of the subsection 728(1) contrary’s towards the investors.
Under section 729 of the Act right to recover for damages or loss resulting of the contravention had been provided. Under this section it is stated that a person who has suffered damages or losses due to a securities being offered in relation to a disclosure document in breach of section 728 has the right to recover damages form a person provided in the section even if such person had not committed or was not involved in a breach. This include an underwriter. It had been provided under section 731 of the CA that a person has not committed a breach of section 728 and would not be liable under section 729 of the CA if they made all inquires which were reasonable in the situation and after the inquiry believed that the statement was nit misleading or deceptive or there was no omission in the prospectus. Under section 732 of the CA a person is held to have not committed a breach of section 728 of the CA if such person did not have knowledge that the statement was misleading or deceptive or a omission was made.
In s. 764A a form of the financial product is security. It is mentioned in the provisions of s. 1041H, in Australia any individual has not been given the right to interfere in any financial matters of the company which might be deceptive or misleading. If this section is seen to be violated it will lead towards the provisions of the civil penalty. In this circumstances, the company failed to inform, which made a huge impact on the price of shares and hence this behavior was said to be deceptive or misleading.
The duties of directors are provided in section 181 of the Corporations Act. Such duties include the requirement of directors to act with diligence and care while discharging their duties. Therefore in relation to this duty it can be stated that directors of registered companies in Australia have to be careful and diligent while conducting the operations of the company. If a director fails to act as a reasonable person would have acted in the position and the circumstances of the director, such director would be held to have breached the duty to act diligently and carefully as provided in the aforementioned section. Therefore the statutory provision of this section can be interpreted as the duty of director to act as a reasonable director. In the case ASIC v Australian Property Custodian Holdings Limited [2013] FCA 1342 it had been held by the court that a director would be held to have breached his duty to act with due care and diligence if he fails to conduct enquires before providing financial advice to the third parties.
Therefore in relation to the given case study it can be stated that the sales manager of the Bob had the obligation to comply with the provisions of section 180(1) it is a role which falls within the meaning of officer in section 9 of the CA. It has been provided in the case study that he had failed to make personal enquiries about the forward orders of the book which were within the scope of the duties of the sales manager. Any reasonable director acting in the same position as Bob, in the company Austin would have taken additional steps for the purpose of ensuring that the report was genuine. However, in this scenario Bod was suspicious about the reports but he failed to conduct personal enquiries to inspect the validity of the matter. Therefore by the application of the case ASIC v Australian Property Custodian Holdings Limited [2013] FCA 1342 and the provision as provided in section 180(1) of the Corporations At 2001, it can be pointed out that he did not act diligently and with due care as reasonable director acting in his position would have done.
According to the case given, Austin was seen to be issuing the prospectus as to the intention to raise the company’s capital. Meanwhile, the provided information stated that even though the prospectus is said to be wrong, it came under the knowledge of the company as well. According to the rules given by Australian Securities Exchange, the responsibility of Austin to notify in regards to the change of the circumstances to the ASX, while any sensible individual would understand that such an issue might change the share’s price. It was noticed that more amount was shown by them then the amount actually present by the forward books, it was the company’s responsibility to notify the ASX regarding this matter. But, they were not able to notify the ASX regarding this issue, and so the provisions under s. 674 were violated. The directors too were responsible in this situation for the violation of the contract.
It can be clearly stated that violation of s. 728 was made by the company and its directors. It happened as the information given was by the prospectus in regards to the future matters was incorrect. The estimate shown by orders of the forward book was of twenty five million but was actually of fifteen million. Therefore, the violation of the section was seen. Change in circumstances too took place as the amount was dropped by million in a time span of three years. Therefore, the provisions are clearly seen to be violated. If this prospectus document was seen to be defective the underwriters of this company will also be said be responsible. In this scenario, the underwriters of the Austin who was Dendy Securities Limited, will be said to be responsible in case this prospectus is said to be defective. Similar situation was seen in the case of ASIC v AOGL [2016]. The breach of these sections results in to both civil liabilities under section 1317E and criminal liability under section6.1 of the criminal code. The underwiter would also be liable under section 729 of the CA.
Section 1317 E – declaration of civil penalty provisions breach
Section 1317 G- under these provisions the officers may be subjected to pecuniary penalties upto $20000
Section 1317H- The court may provide compensatory order by which these who have contravened the provisions of the Act are made to pay compensation to those who have suffered losses.
The company issued the share and every person included in it will be responsible to the investors who have faced losses as because of the misleading behavior the prospectus was defected. It was seen by the above mentioned statements that DB consultants, Austin, Dendy Securities and Bob all were responsible for the violation. The defenses which can be put on this case are the defense of due diligence and care and in case the sensible reliance has been placed by the provisions mentioned in the s. 731 on any person, then it is said as a defense.
There the business judgment rule under section 180(2) cannot be availed by Bob as he did not take steps to verify the report provided by DB consultants and it did nit meet the required of informed decision under the section.
Meanwhile, we know that Bob was unable to abide by the provisions which were mentioned in the s. 189 and also the underwriter had failed to do so. DB consultants were seen to state the report in a reckless manner and thus the defense could not be accessible.
A similar issue had been discussed in the case of ASIC v Sino Oil and Gas Ltd where the court held the director liable for the breach of section 728(3) and 180(1) of the CA. the same provisions and result had been obtained in the case of ASIC v Forrest and Fortescue [2012] HCA 39
Thus it can be concluded that Austin has failed to comply with legal provisions of the CA. The directors would be liable for the breach of such provision. The underwriters will also be liable along with DD consultants.
References
Austin R.P. & Ramsay, I., Ford’s Principles of Corporations Law, Butterworths, Australia, 16th edition, 2014.
Bottomley S, Hall K, Spender P, and Nosworthy B, Contemporary Australian Corporate Law 1st edition 2017 Sydney Cambridge
Cassidy J., Corporations Law Text and Essential Cases. Federation Press, 4th edition Sydney 2013
Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, Sydney, 9th edition 2013
Hanrahan, P., Ramsay I., Stapledon G., Commercial Applications of Company Law. Oxford 18th edition 2017
Harris, J. Hargovan, A. Adams, M., Australian Corporate Law LexisNexis Butterworths 5th edition, 2015.
Lipton, P., and Herzberg, A., Welsh, M, Understanding Company Law, 18 edition Thomson Reuters 2018.
Redmond, P., Companies and Securities Law – Commentary and Materials, Law Book Co., Sydney, 5th, 200
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