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LAWS6203 Corporations Law

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LAWS6203 Corporations Law

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Course Code: LAWS6203
University: Australian National University

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Country: Australia

Question:
Research on an Australian case (not more than 10 years old since the decision by the Court) involving breach of company director’s/officer’s duties.Write a report outlining the following:1. Case introduction.2. Outline the duties/responsibilities (eg CA s. 181) breached and explain why the duties were breached.3. Discuss and critically ANALYSE the court/tribunal decision and the reason for the decision in view of the Corporations Act.
Answer:

Introduction:
In the referred case, Storm Financial Limited provides an financial service and is the holder of the Australian Financial Service License. Mr. Cassimatis a director of the company developed a model in which the customers of the company would borrow fund against their equity and invest the funds in the cash reserve of the company. All its customers who has the ability to borrow funds were provided with the same model. The “double gearing” model was correct in its way and so the investors suffered heavy losses in the situation of Financial Crisis all over the world.  
Duties and responsibilities Breached:
The Australian Securities and Investment Commission started its proceedings in the year 2010 against Mr. & Mrs Cassimatis alleging that the directors contravened   S 108(1). the directors have breached the duty to take  care . Directors are duty bound to do their duties with responsibility and reasonable degree of care that a prudent person generally do. ASIC brought charges against the Cassamatis based on the alleged breach of S 180(1) by providing advice to the investors in such a manner that the company has c  has made the breach (Conaglen and Hill 2017). The licensee company under S 945A(1) shall only provide advice to its client which the company Storm has contravened. The company provided financial services its customers based on the model established by the company. The company advice those  who were on the verge of retirement and have very limited assets or they were not in a position to recover their financial position in case of loss. ASIC alleged that the directors of Storm has violated S 180(1) of the CA by permitting the company to advice the investors in accordance with the model as per S 945A(1)b and breached S 945A(1)c for providing financial advice to its customers in such a manner. However, both the sections have been Sections have been repealed in the year 2012 (Legg 2016).
Critical analysis of the Courts decision:
In the case of Vrisakis v Australian Securities Commission, the court examined under S 180(1) that whether the directors in performing their duties have exercised reasonable care, the same test has been applied by the court in the present case. The Court pointed that the test will provide the clear picture of the risk or harm that could have been foreseen, the type and degree of harm, the benefits received due to the decisions of the directors and any action take by the company against the harm (Langford 2016). The court viewed that the directors of the company has breached its duties  by exercising its powers to permit the model and apply on the customers who were on the way to retire and has limited assets to recover from the loss suffered.
The court also found that the alleged breaches were reasonably foreseen and the directors should have taken reasonable care  in the matter. The directors have made a single contravention to the Corporations Act as it was constituted of a single vulnerable class of investors (Hanrahan 2017). Moreover, the court viewed that the directors Mr and Mrs Cassamatis have acted honestly and it is genuine that in case of index fund investment model capital loss does not occurs. They are liable for their conduct U/S 1317S of the Corporations Act  for the breach  and the magnitude of the contravention has made them liable before the court (Hanrahan and Ramsay 2016). The Judgment of the court was based on the issues that whether S 180(1) was required to constitute the breach . ASIC’s submission is rejected on the ground an actual breach was enough to establish breach U/S 180(1). ASIC raised the issue that the directors duties U/S 180(1) is a duty to the general public while the directors submitted before the court that the directors duties are only to the company (Hanrahan 2016). The court too rejected the plea of ASIC and accepted the submission made by the directors but the court contended that the interest of the company is not limited to the financial loss but also reputational loss. The directors also claimed that a breach done by a director does not falls U/S 108(1). The court said on the submission that it is contrary to the principle and is not supported by the authorities (Du  2017). Thus, the plea to cancel the AFSL of the company  is right inthe view of the court.
Conclusion:
Thus, it can be concluded that the harm to the company U/S 180(1) does not limit itself to the financial harm. (Tills and Wills 2016). The duty of the directors as per S180(1) states that a director should balance between the foreseeable risk of harm to the company. Therefore, the decision of the court was right on its way of findings as it says that the advice provided by the storm was inappropriate and before giving the advice the company did not investigate into the subject matter and so it is not fit to perform advisory role and so its license must be revoked.
References:
Conaglen, M. and Hill, J.G., 2017. Directors’ Duties and Legal Safe Harbours: A Comparative Analysis.
Du Plessis, J.J., 2017. Corporate Social Responsibility and’Contemporary Community Expectations’.
Hanrahan, P., 2016. Corporate governance, financial institutions and the “social licence”. Law and Financial Markets Review, 10(3), pp.123-126.
Hanrahan, P.F. and Ramsay, I., 2016. Regulation of Mutual Funds in Australia.
Hanrahan, P.F., 2017. Regulating Financial Advice for Retirement–The Recent Australian Reforms.
Langford, R.T., 2016. Managed Investment Schemes: Liability of Directors of Responsible Entities Where the Responsible Entity Breaches the Law.
Legg, M., 2016. A comparison of regulatory enforcement, class actions and alternative dispute resolution in compensating financial consumers. Sydney L. Rev., 38, p.311.
Tills, M. and Wills, C., 2016. Corporate law: Directors found guilty of breaching duties following corporation’s breaches. Governance Directions, 68(10), p.624.

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