Australian Trawler Co Ltd or ASIC

Question: Discuss about the Australian Trawler Co Ltd or ASIC. Answer: Introduction: The management of any company depends on the manner in which directors of the company perform their duties. Company is distinct from its directors and members, but it operates through its directors. Therefore, it is necessary that directors perform their task and fulfill their obligations with honesty. Corporation Act 2001 imposed number of duties on directors of the company, and it also stated that directors have fiduciary relationship with the company and shareholders (William Roberts, n.d.). Some general laws which define the duties of directors are stated below: Apart from the statutory duties of directors of the company which are stated in the Corporation Act 2001 under common law, there are some general duties also which attract civil penalty in case of failure such as it is the duty of director to exercise their power and fulfill their obligations with due care and diligence, directors must not have any personal interest in the matter of the decision which is taken on companys behalf, it is the duty of the director to make decision in the best interest of the company, and director must act in good faith. Corporation Act 2001 also imposes many duties on directors of the company and these duties are specified in Section 180-184 of the Act (Brooke, 2013). Section 180 of Corporation Act 2001- this provision is the most important provision under Corporation Act because it defined the duties of directors and officers of the company. This section states: A director or officer of the company must exercise their power and discharge their duties with due care and diligence that any reasonable person would exercise if they were director or officer of the company or had the same responsibilities as the director or officer. A director or officer must take the decision on behalf of the company in good faith, do not have any personal interest in the matter of the decision, and believes that decision he take is in the best interest of the company (Corporation Act 2001, n.d.). Section 181 of the Corporation Act- this section states that it is duty of the director to act in good faith while he is acting in the official capacity of the company as director or officer. This legislation performs both the task such as defense as well as provision which impose stringent liability on the directors of the company (Corporation Act 2001, n.d.). Section 182 of the Corporation Act 2001- this section states that it is the duty of the director not to make improper use of position to make personal benefits for himself or for some other person at the cost of the interest of the company. Contravention of this section attracts civil liability (Corporation Act 2001, n.d.). Section 183 of the Corporation Act 2001- A person who receives any information because they are or have been the director or officer of the company, then it is the duty of director and officer that they do not use such information for their own personal advantage or for someone else advantage. It is also their duty that they do not use such information to cause harm to the company. Contravention of this section attracts civil penalty (Corporation Act 2001, n.d.). Section 184 of the Corporation Act 2001- this section provides series of offences which are criminal in nature, and it may arise when directors fail to meet the acceptable standards because of dishonesty. A director or officer of the company commits a criminal offence if they are reckless or intentionally dishonest, and they are failed to exercise their power and discharge their duties for proper purpose, good faith, and in the best interest of the company. A director or officer of the company commits a criminal offence if they use their position for gaining any personal advantage for themselves or for some other person, and cause harm to the company. Director or officer of the company commits a criminal offence if they recklessly use their position for gaining any personal advantage either directly or indirectly for themselves or for some other person and cause harm to the company. A person who receives any information because they are or have been the director or officer of the company commits criminal offence if they use that information dishonestly for gaining any personal advantage either directly or indirectly for themselves or for some other person and cause harm to the company. Director or officer of the company commits a criminal offence if they recklessly use information they received as director or officer for gaining any personal advantage either directly or indirectly for themselves or for some other person and cause harm to the company (Corporation Act 2001, n.d.). Penalties imposed on director for breach their duties under section 184 of the Corporation Act 2001: ASIC can initiate proceedings against the directors of the company for misconduct and breach of duties under Corporation Act 2001, and these penalties are depend on the seriousness of breach. Following are the penalties imposed on director and remedies available to the company: Company has right to banned the director from managing the company. Director is personally liable to compensate the company for any loss or damage they suffered. Financial penalty is imposed on director that is up to 2000 units or imprisonment up to 5 years, or both (Bartholomeusz, 2014). The best example for breach of duty under section 183 of Corporation Act 2001 is ASIC v Vizard [2005] FCA 1037; (2005) 145 FCR 57. In this case, Stephen Vizard was a non-executive director of Telstra, and he received information because of his position as a director of Telstra that Telstra expressed its interest in buying shares in three IT companies, and by using this information he buy shares in that companies. Later, Vizard admitted that he breach his duties, and Court held that Vizard contravenes the section 183 of Corporation Act 2001 and ordered him to pay penalty of $ 3 90000 and also disqualified him for 10 years from being the director of any company (Bartholomeusz, 2014). Application: South Australian Trawler Co Ltd engage in the business of building small and medium sized vessels, and they also owns a shipyard in Adelaide. Mr. Horatio Nelson is the director of the company and also appointed as chief designer of the company. Company received order for manufacturing 12 boats from a local fishing company, and at the time of commencing the project the hull on the first vessel was cracked at the time of first test. Company discovered that Nelson does not conduct the steel test in rough seas. This act of Nelson result in delay of production by 3 months and company suffered loss of $ 1 million. Company also discovered that at the time of attending the Australasian Shipbuilders Conference in Cairns, Nelson received order from the company that runs tours in Victoria for the construction of five luxury houseboats, and also receive information from Clive Hander that there are gold deposits in the outside area of Adelaide. After receiving this information Nelson incorporates two companies that is Victorian Pleasure Craft Ltd and South Australian Gold Mining Ltd. Victorian Pleasure Craft Ltd constructs the house boats and Nelson earned profit of $ 2 million from this company. Other company was South Australian Gold Mining Ltd, which exploits the mining opportunity, and Nelson earned profit of $ 3 million from this company. It is clear from the above facts that Nelson breaches his duties as director which are imposed by both general law and common law in Australia. Nelson breach the duties of directors specified under section 180-184 of Corporation Act 2001. Nelson breaches his duties under section 180 of the Act because he does not discharge his duties with due care and diligence by not conducting the proper test of steel in rough seas. Nelson also breach his duties under section 183 and 184 of the Act by using the information he received as director of the company that is order for construction of house boats and gold deposits in Adelaide. Nelson uses this information for his personal advantage and earned profit of $ 2 million from the construction of house boats and $ 3 million from mining of gold. As stated in case ASIC V Vizard if any director received any information as the director of the company and use that information for his personal benefit then it will be considered as contravention of section 183 and 184 of Corporation Act 2001. Nelson contravenes section 183 and 184, and contraventions of these sections are considered as civil and criminal offence respectively. ASIC can commence proceedings against nelson for contravene of section 184 and impose criminal penalties on Nelson, and Company can remove him from the position of director for breach of duties. Nelson is also personally liable towards the company for the loss suffered by the company that is $6 million. Conclusion: In this case, Nelson is held liable for the breach of directors duties under section 180- 184 of Corporation Act 2001. ASIC and Company both has right to commence proceedings against the Nelson, and he is also personally liable towards the company for the loss suffered by the company. References: ASIC v Vizard [2005] FCA 1037; (2005) 145 FCR 57. Bartholomeusz, S. (2014). Criminalisation Of Directors Duties. Retrieved on 7th December 2016 from: https://youlegal.com.au/criminalisation-directors-duties/. Bartholomeusz, S. (2014). Directors duties in focus duty not to make improper use of information. Retrieved on 7th December 2016 from: https://youlegal.com.au/directors-duties-focus-improper-use-information/. Brookes, M. (2013). Directors and Officers Liability Its a Jungle Out There. Retrieved on 7th December 2016 from: https://www.carternewell.com/icms_docs/183636_Directors_and_Officers_Liability_-_It_s_a_Jungle_Out_There.pdf. Corporation Act 2001- Section 180. Corporation Act 2001- Section 181. Corporation Act 2001- Section 182. Corporation Act 2001- Section 183. Corporation Act 2001- Section 184. William Roberts. Directors' Duties. Retrieved on 7th December 2016 from: https://www.williamroberts.com.au/News-and-Resources/News/Articles/Directors--Duties.