Corporation And Business Law For Sino Australia Oil And Gas Limited

Corporation And Business Law For Sino Australia Oil And Gas Limited

Corporation And Business Law For Sino Australia Oil And Gas Limited

Questions:

1. Research on an Australian case (ideally not more than 10 years old since the decision by the Court) involving breach of company director’s/officer’s duties under the Corporations Act 2001 (Cth).
2. Group report: Write a report outlining the following:
a. Case introduction.
b. The duties/responsibilities breached (ex. CA sections 181 or 588G) and explain why the duties were breached.
c. Discuss and critically ANALYSE the court/tribunal decision and thereason for the decision in view of the Corporations Act.
d. Where possible and applicable, the relevance of the decision to the development of Australian corporations law or the impact of thedecision on the operation of companies in Australia.

Answer:

Part A

Case: Australian Securities And Investment Commission V Sino Australia Oil And Gas Limited (In Liq) [2016] FCA 934

Introduction

The case of Australian Securities and Investment Commission v Sino Australia Oil and Gas Limited (in liq) [2016] FCA 934 has been selected for this part of the assignment. The case has been selected as it has two years since the case has been decided and the same is concerned with the director’s duties. This case resulted in a decision in favour of ASIC incurring a penalty on Sino of $80000 accompanied by a suspension for its director for a period of 20 years prohibiting him from being in the management of a company registered under the ASX. It has been contended by the court in this case that the company and its director has breached several provisions of the Corporations Act 2001.  In this case the director had lead the company to get involved in illicit activities owing to his poor understanding of English and failed to abide by the disclosure requirements as are mandatory in Australia.

The issue in this case has been initiated with the company raised an amount of 13.6 million form a public hearing and the prospectus issued for that purpose had failed to abide by the disclosure requirement as provided for under the Corporations Act. The failure to abide by the disclosure requirements had affected the worth of the shares drastically. The director was also alleged to have attempted to make a transfer of the whole cash holding of the company amounting to $7.5 million to China, which has failed because of injunction obtained by ASIC freezing the bank account of the company.

A liquidator has been appointed by the court in this case and had contended that the company is liable to have breached section 674(2), 728(1) and 1041H and the director has contravened section 180(1) and 674(2) of the Corporations Act.

Duties Breached

In this case, the ASIC has forwarded an allegation against the director of the company to have indulged into actions which are violative of section 180(1) of the Corporations Act. Section 180(1) of this Act requires a director to be diligent and to exercise due care to a level of a reasonable person while exercising his duties as a director. However, in this case the director had failed to maintain that degree of care while discharging his duties.

The director in this case has also contravened the provision of section 728(1)(a) of the Act by making a misstatement in  the prospectus. The disclosure requirements provided by the provisions contained in section 674(2) has also been breached by the director in this case, which has affected the worth of the shares materially.

The director was also alleged to have violated the provisions contained in section 728(1)(b) of the Act for the failure to disclose the loan, which has been extended to the Chinese Subsidiary and section 728(1)(c) for failure to disclose an accurate profit forecast in the prospectus.

The Director’s contravention of several provisions of the Act points towards the directors failure to act in a reasonable manner exercising due care and diligence. This makes him liable for the violation of section 180(1) of the Corporations Act.

Decision

The court in this case while analysing the allegation of contravention of section 674(2) held that the director has failed to disclose the negative growth in the profit of the company and the increased expenditure in the leased equipment, which information was not supposed to be disclosed or assumed by the public if not disclosed by the company. This disclosure would have affected the worth of shares of the company materially. The court has based its decision on the evidence made available by the translator.

The director in his defence contended that the failure to satisfy the disclosure requirements in the prospectus was owing to his poor understanding of the English language as he could not realise the proper meaning of the contents of the prospectus. The court overruled this contention by saying that the director would have availed a translation of the same with the help of a translator before signing the same. In this context, the court has referred to the case of Australian Securities and Investments Commission v Healey [2011] FCA 717 per Middleton J at [22].

Moreover, the failure of availing a translation and signing a document without a proper understanding of the same has been viewed by the court as an violation of section180(1). This is owing to the fact that failure to act in such way implies a failure to exercise due care and diligence that a director must exercise under this section. The director also argued that it was not possible for the director to have knowledge about the law prevailing in Australia as he does not belong from the Australian origin. The court rejected this contention by stating the fact that his lack of knowledge about the law would not immune him to rely on the advice of other. In this regard, the court made a reference to the case of Australian Securities and Investments Commission v Citrofresh International Limited (No 2)  [2010] FCA 27 per Goldberg J at [56].

Moreover, the failure to make accurate disclosure of the regarding the profit, the loan and the lease  of the same have been a breach of the Corporations Act committed by the director and is likely to incur legal and financial risk to the company. Therefore, the court’s decision has been appropriately delivered in convicting the director to have violated the provisions contained in section 180(1), 674, 728 and 1014H.

Impact

The decision delivered in this case has an application in cases where the directors having inadequate knowledge of the English language seeks immunity under the same, in getting away with their misdeeds, which will arise in Australia. The directors are not supposed to sign a document unless they obtain a proper understanding of the same. They can avail an understanding through the use of a translator. The director should not rely on the advice of others regarding the actions, which will affect the company in a material way.