Business Corporations Law and Consultants

Question: Discuss about the Business Corporations Law and Consultants. Answer: Introduction The Corporations Act, 2001 lays down various duties which are to be followed by the directors, as well as, the officers of the companies. Such duties are assigned on the directors, as well as, on the officers of the company, as the companies are managed under or by the directors of the company, with the help of the officers. And the directors and the officers are in a position of trust; and their position can be easily used for personal benefits. The duties covered in the act relate to the duty of care, the use of information, and the like (Australian Institute of Company Directors, 2016). In the following segments, the case of Vines v ASIC has been discussed to evaluate the duties breached by the executive officers of the company. Vines v ASIC (2006) Geoffrey Vines was a former chief financial officer of the GIO Australia Holdings Limited and he had violated the duty of care regarding the forecasts of profits during the takeover bid (Jacobson, 2007). The ASIC, i.e., Australian Securities and Investments Commission, initially started the civil proceedings, in 2011, against Geoffrey William Vines, along with two other executives, Francis Timothy Robertson and Timothy John Henry Fox in relation to the Part B Statement which was published by the GIO when the takeover bid, in the late 1998, was being carried out (Piper Alderman, 2007). This Part B Statement contained a forecast of profit at $80 million, from the reinsurance division of the GIO. However, the reinsurance division of GIO was exposed to some major allegation due to Hurricane Georges, which struck in September 1998, at the Virgin Island and Puerto Rico. The predecessor of section 181(1) of the Corporations Act, 2001, i.e., section 232(4) of the Corporations Law was alleged to be breached by Vines and the two executives (Webster and Swan, 2007). The directors also failed to exercise the duty of care covered under section 180 of the Corporations Act, 2001. This matter was majorly related with the rationality of inclusion of the $80 million forecasted profit due to the allegations as a result of exposure to Hurricane Georges (Piper Alderman, 2007). Duties Breached Section 180 of the Corporations Act, 2001 contains the provisions regarding the duty of directors to act with care and diligence. As per 180(1) the directors have to discharge their duties and exercise their powers with a degree of care, as well as, diligence, which a prudent person in similar circumstances would do (Australasian Legal Information Institute, 2016a). As per section 181(1) of the Corporations Act, 2001, the directors, along with the officers of the company, have to act in good faith. As per this section, while discharging their duties and exercising their powers, a director has to do so in good faith, which is in the best interests of the company, and for a proper purpose (Australasian Legal Information Institute, 2016b). The contravention of both these sections attracts civil penalties stated under section 1317E; under which a declaration of contravention is made by the court. Decision of the Court The Court of Appeal affirmed that the standard of care contained in section 232(4) of the Corporations Law did not require a high order of negligence to established, in comparison to the duty stated under the general law. The court was of the view that the standard of care and diligence, that was applicable on Vines, did extend to the Part B Statements contents. Moreover, the information that was provided did fall in the structure of the due diligence procedure, which was designed to make certain the materially, as well as, adequately finalized disclosures to the shareholders of GIO as per the law, and in such a manner which would safeguard the involved individuals from liability in case a defect is established at a later stage (Webster and Swan, 2007). The Court of Appeal agreed with the earlier findings of Justice Austin regarding the contravention of directors duties by Vines on three instances: When Vines signed the management sign-off regarding the due diligence report, without even taking the requisite positive steps, which required the advise to the due diligence committee of GIO regarding the assumption of the forecasted profit of $80 million. When he did not inform the due diligence committee of GIO that he had no issues with the reliability of the profit forecast of GIO. And when he did not provide the proper attention to the fact, whether or not the reinsurance division of GIO could be attained in the estimated time subsequent to the issuance of the Part B Statement, and prior to the end of the takeover process (Webster and Swan, 2007). Though the contentions of the ASIC regarding some of the issues were overturned and the court held that Vines was not in violation of the duty of care: On November 9, 1998, when Vines made the unqualified statement of management confidence to the board within the reinsurance division of GIO regarding the profit forecast. When Vines did not provide the information pertaining to the basics on the forecast of profit calculations, in the email of November 22, 1998 sent to the due diligence committee and the report of November 17, 1998 which formed the base for the media release (Webster and Swan, 2007). Even though Vines was found to have acted with honesty, the seriousness of contraventions could not grant him relief. And it was held that Vines had to consider, whether or not the material information had to be disclosed, which he was aware about (Stephens Lawyers Consultants, 2007). Upon finding that the directors had indeed breached their director duties, in accordance with the draft of ASIC, the court made the declaration of contravention. And disqualification orders were made for Vines and Robertson for a period of three years, and for Fox, a disqualification order for a period of 12 years was made. The directors were also awarded pecuniary penalty order, as follows: Vines- $100,000; Robertson- $50,000; and Fox- $220,000. Along with this, a compensation order was also passed against Fox for AUS dollar which is equivalent to US$143,750 at the exchange rates of June 3, 1999. The ASIC costs to be paid by the three were Vines- 22%; Robertson- 28%; and Fox- 33% (Jade, 2016). Conclusion From the above case study of Vines v ASIC, it can be summarized that Vines, along with two other directors, i.e., Fox and Robertson had failed in their duties of care and diligence and to act in good faith, by being the executive officers of the company. The verdict of this cases helps in establishing the responsibilities of the executives of the company, especially while preparing the forecasts of profits during a takeover bid. References Australasian Legal Information Institute. (2016a) Corporations Act 2001 - Sect 180. [Online] Australasian Legal Information Institute. Available from: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s180.html [Accessed on: 16/12/16] Australasian Legal Information Institute. (2016b) Corporations Act 2001 - Sect 181. [Online] Australasian Legal Information Institute. Available from: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s181.html [Accessed on: 16/12/16] Australian Institute of Company Directors. (2016) What are the duties of directors?. [Online] Australian Institute of Company Directors. Available from: https://www.companydirectors.com.au/membership/the-informed-director/what-are-the-general-duties-of-directors [Accessed on: 16/12/16] Jacobson, D. (2007) ASIC v Vines Appeal Decided. [Online] Bright Law. Available from: https://www.brightlaw.com.au/asic-v-vines-appeal-decided/ [Accessed on: 16/12/16] Jade. (2016) ASIC v Vines [2006] NSWSC 760. [Online] Jade. Available from: https://jade.io/article/1022 [Accessed on: 16/12/16] Piper Alderman. (2007) Piper Alderman Legal Update. [Online] Piper Alderman. Available from: https://www.piperalderman.com.au/__files/f/4017/PA%20eBulletin%20June%202007.pdf [Accessed on: 16/12/16] Stephens Lawyers Consultants. (2007) Corporations Law Update: Recent Decisions About Directors' Duties And Liabilities. [Online] Stephens Lawyers Consultants. Available from: https://www.stephens.com.au/Sites/2196/Images%20Files/Newsletters/October%202007%20-%20Corporations%20Law%20Update.pdf [Accessed on: 16/12/16] Webster, J., and Swan, C. (2007) Focus: Implications Of Vines v ASIC. [Online] Allens. Available from: https://www.allens.com.au/pubs/ma/fomamay07.htm [Accessed on: 16/12/16]