Running head: CORPORATE LAW
Corporate Law
Name of the Student: Name of the University:
Author Note:
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Table of Contents Introduction......................................................................................................................................2 Inappropriate behaviour displayed by Adler as an officer of HIH and the other companies he had managed...........................................................................................................................................2 The ways Adler’s actions contravene Australian law, in particular, the Corporations Act. Discussion of the different areas of company law that were breached............................................3 Punishment suffer by Adler as a result of his conviction................................................................5 Lessons the case gives to those who manage an Australian company............................................6 Conclusion.......................................................................................................................................7 Reference.........................................................................................................................................8
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Introduction An unsecured and undocumented payment of ten million dollars was provided by HIH Casualty and General Insurance Ltd. in the year 2000. A trustee of Australian Equities Unit Trust (AEUT) was controlled by Adler and the name of the company was PEE. Adler was a shareholder of HIH through the Adlers Corporation limited. PEE bought shares from the stock market which worth’s four million dollars. This was done by PEE to show the stock market that the company is doing well. PEE, later on, sold the shares bought by then at a loss of two million dollars. PEE also bought a huge number of shares which were unlisted and these were the shares from the different communication companies. The investment done by them was a complete loss. All the transactions were done without the approval of the boards it was not being disclosed to the board and the investment committee of HIH. The loans were completely undocumented and it was found that Adler was the person who has contravened the law. Adler was held responsible for all the unaccounted transaction. He did these transactions to make it sure that the other board directors don't get the hint of these transactions. As stated by Hill & McDonnell (2016) there are various responsibilities of the directors of a company that he needs to abide by.
Inappropriate behaviour displayed by Adler as an officer of HIH and the other companies he had managed In the case of ASIC v Adler there were several aspects of inappropriate behaviour being seen on behalf of Adler. He is responsible for the loss in various reason. As stated by Bainbridge (2014) there are several important aspects that need to be followed by the director of a company. Inappropriate behaviours on behalf of the director can cause a major issue to the company. As stated by Klausner (2013) a job of a director is a responsible job. While there is a sign of
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irresponsibility from the director's end there are various scopes of loss that the company might have to incur. Diligence is one of the most important traits for the directors. While a director of the company is diligent there are very fewer chances that the company faces trouble in the long run. While the director had shown an act of diligence towards the action this problem would not have occurred. In the case of ASIC v Adler, the level of diligence of the director was very less. This was out of the intention to mislead the market. While Adler had shown the signs of Diligence he would not have allowed such a lump sum of a loan worth ten million to the company PEE. Furthermore, he would not have allowed the share of the money to be invested in the shares of HIH. Adler also failed to protect the benefits of HIH and has taken no measures to safeguard the interests of HIH. In fact, for the purpose of his own shareholding Adler had to take this step against the interest of others. Adler also invested an amount of four million for the purpose of buying unlisted shares. This was the steps to fake the cash flow and there was significant risk in it. Thus Adler as a shareholder of HIH and other company has shown the lack of diligence and has risked the various financial aspects of the company.
The ways Adler’s actions contravene Australian law, in particular, the Corporations Act. Discussion of the different areas of company law that were breached As stated by Bainbridge (2014) Section 9 of the Australian company law defines the director and the responsibilities he has for the company. The section also defines the act of a director even if he is not officially selected. As stated by Sharfman (2014) one of the primary duty of the director is to protect the interests and the benefits of the shareholders. This is one of the primary requisite for the directors to function in a better way. The directors are responsible for the protection of other stakeholders. While the director takes a hold over the assets of a company there are several
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chances of fraudulence and insecurity among the shareholders. In the case, ASIC v Adler Adler has contravened the provisions of section 9 of the company law.
As stated by Dammann (2014) section 180 of the company law of Australia defines the act of diligence as one of the primary responsibility of the director. As per section 180, the directors are given the power and the directors of the company need to exercise the power with due diligence. Being an executive director of the company is a complete responsible job. As stated by Gindis (2017) a director needs to be completely focused and diligent towards his job to ensure that his faults do not lead to negative consequences to for him and for others. This is one of the main goal and the aim of the director of the company. A no executive directors are also held responsible for the day to day management of the company. The only difference between the executive and the non-executive director is the fact that the executive directors are considered to be a full-time employee who is directly responsible for the day to day management while the non-executive directors are considered to be the part-time employees who are responsible for the time to time management of the office. However, be it an executive director or a non-executive director the diligence is one of the main aspects for them and their diligence are required for the hassle free operations of the company in the long run. In the case, ASIC V Adler the due diligence of the director was lacking. While the director would have acted in a diligent way then the problem would not have arisen. Adler being the director of the company needed to show due diligence and save the company from such a huge loss that it had to incur. Adler Failed to ensure the fact that the loan given to PEE was under a proper safeguard Thus Section 180 was being contravened by the director. As stated by Kanda (2015) section 181 (Statutory Duty to Act in Good Faith and for a Proper Purpose) is another section of the law that needs to be looked into
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for the purpose of evaluation of the case. Section 181 is one of the sections that states that the action being taken by the directors and the higher authorities needs to be taken under the good faith and as per the needs of the company. As stated by Law & Act (2016) the trust is one of the main factors for the directors of the company and the director of the company needs to be trusted upon. While the action being taken by the director is not in the good faith it is considered to be the breach of section 181. Considering the case if ASIC v Adler it is found that Adler has not utilised his power in the best interest of the company. Rather he has used his power for the protection of his personal interest. Thus, he is to be held responsible for the breaching of section 181 (1) of the Australian Company law. As stated by Riordan & Osterman (2016) section 182 states that the improper usage of the power of the employee or the officers is being restricted. The usage of power for their self-benefit is being restricted by the court. In the case of ASIC v, Adler Adler is responsible for the miss use of the power being given to him. Thus Adler is held responsible for the contravening the section 182. Section 183 stated that the improper usage of information is strongly prohibited. While an employee takes and uses the information being provided to him in the wrong way he is contravening the section 183 of the corporate law of Australia. In the case of ASIC v Adler, Adler being the higher authority of the company had several pieces of information with the scopes of manipulation. By the power of manipulation of the information being provided to him, he has misused the power. Adler is responsible for the breach of section 183 which states that Adler is not liable to use the information of the company for his personal and private interests.
Punishment suffer by Adler as a result of his conviction Adler had been convicted on various charges under several sections of 180, 181, 182 and 183. The recklessness and the dishonesty of the directors of a company lead to the criminal penalties.
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The criminal penalties for the breach of section 180, 181, 182 and 183 is being given under section 184 of the corporation act. For the criminal offence of such a breach of a corporation act the penalty might be an imprisonment up to 5 years or a fine amounting $200,000 or more. For serious grievances, the penalty might be both imprisonment and fine of $200,000. There are some of the cases where the directors are being disqualified from holding the post. In the case of ASIC v, Adler the director of the company showed a lack of morality in the commercial aspects. The director has also contributed to the act of immorality for the purpose of his own financial gains. This is one of reason which leads Adler to take all the inappropriate steps. While the court found that Adler has committed a series of offences he was giving the punishment of being disqualified from the post of director for 20 years. The further court has given a punishment of being imprisoned for 5 years and a fine of $900,000. As stated by Ventoruzzo et al. (2015) the case of ASIC v Adler is considered to be one of the major cases in the corporate history
Lessons the case gives to those who manage an Australian company The post of director is one of the most important posts for the company. This is one of the posts that needs a huge amount of responsibility to be shown. The post of director is to considered as one of the posts that have several other stakeholders depending upon. While a company holds a director who has the poor quality of handling the matters it becomes difficult for the company to keep away from the problems and the issues. It is the responsibility of the director of the company to look into the interests of the other stakeholders of the company. It is important to note that the Australian corporate law not only helps in the protection of the interest of the corporate entities but also helps in the protection of the employees and the other stakeholder. While conduction business in Australia it is very much necessary for the individual to understand the several aspects of the corporation law. It is important to understand that in Australia holding a
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business and being the director of the business is one of the most responsible aspects and needs to be handled with care and diligence. This is one of the most responsible posts of the company.
Conclusion Corporation law of Australia is one of the strictest laws. This is one of the laws that helps in the protection of the interest of both the employees and the business entities. This is one of the most important governing rules for running a business entity in Australia. The corporation law not only takes into account the commercial aspects of the business but also looks into the moral and the ethical aspects that are important while conducting a business in Australia. This is one of the most important bodies of law that helps in determining the responsibilities being held by the stakeholders at different positions. While personal interests are being met through the power being given to the higher authorities in a business, the corporation law imposes strict penalties. The corporation law of Australia has imposed strict penalties on Adler for breaching the moral and the ethical codes of conduct.
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