- This unit is based on the case of Mr Stephen Vizard was a non-executive director of Telstra cooperation and market information was made known to him but he interpreted it wrongly for three-time
- Performance of research on an Australian case relating to a breach of the company's director's duties under the corporation's Acts 2001.
- Presentation of different points for covering of above question effectively such as case introduction, duties/responsibilities breached critical analyses of the court/tribunal decision and the reason for the decision in view of the Corporations Act and contribution of the decision in the development of Australian corporations law.
Australian corporation laws are the essence of UK company law. There exist only a single statute that regulates the corporation area in Australia that is Corporation Act 2001. the Australian Securities and Investment Commission is the only organisation that withhold the administration and regulate the provisions of the statute. The history of corporation laws is somewhat related to the Constitution of Australia, according to which Australian parliament has been provided limited power to control the corporation laws. As per the Article 51(1), power to makes laws related to the betterment of the corporation has been given to the parliament. Also foreign corporations, and financial or trading corporations are formed within the limits of Commonwealth. (Newburn, T. ed., 2012)
The corporation are established by charters, legislations or prescription, is entirely a separate legal organisation. The recognised corporation are known as corporation sole, similar to UK laws. But it is also separated from Australian statutory meaning of corporation, in some scenario. Mainly, corporation limited by shares are functioning in Australia. The directors appointed to an organisation has certain liabilities and he has to comply with those duties, such as reasonable care and diligence (section 180) and good faith and proper purpose (section 181). The directors are personally responsible for the breach of such liabilities under section 588G. Also, directors are obliged with some fiduciary liabilities such as mentioned under section 182 and 183, duty on conflict of interest and the utilisation of confidential information, respectively. The directors are also liable for criminal obligations as per section 184.
In this assignment ASIC v Vizard 2005 case has been taken to explain the fiduciary and statutory duties of a director.
ASIC v Vizard, 2005
Background of the case
Mr Stephen Vizard, was designated as non-executive director of Telstra Corporation (herein after TC) in 1996. Market related information was provided to him before disclosing such in to the market by Telstra. Mr. Vizard acted on information wrongly for the three times which was gained by him during the course of directorship in the company.
Firstly, he brought the shares of a firm named Sausage Software which was merging with Telstra, and the merger was resulting into the growth of the shares of that company, so it was a profitable move by him.(Gorris, J. M., Hamermesh, L. A. and Strine, L .E., 2011)
Secondly, he sold his shares of the company Computershare, as Telstra was dissociating his share from the company which would result in the drop of the shares of that company.
Similar to the Sausage case he brought the shares of another company who was going to merge with Telstar, which was ended up in the increase of the value of its shares.
Mr. Vizard, used his position for his own greed and that was a foul conduct by him, so he was responsible for the breach of the director's duties. The matter was presented before the ASIC and an investigation was launched and on 4th of July 2005 proceedings against Mr. Vizard was initiated. He was penalised with an amount of $390,000 according to the judgement made by Judge Finkelstein of the Federal Court of Australia.
In his sentence, judge expressed two notes of disagreement in the respect of penalties. In the first situation, it was decided by him that the amount of penalty made upon the convict was very low and it could have been a bit higher. In the second criteria, disagreement was against the disqualification for five years, it was suggested by him the term was less and could be more in the respect of such breach. According to him it should be double the said period.
The case was criticised by the public, as according to them Mr. Vizard has been treated very leniently due to some political pressure over ASIC and DPP. Moreover, he should be criminally charged with the civil one and the penalty that has been raised upon him was not sufficient.
Duties and responsibilities of a director
A director is liable for the management of its company. It is mandatory for him to abide by the legal obligations as a director under Corporation Act 2001. A director has been vested with several liabilities some of them are, to work in good faith of the company for its best interest, to perform his duties with care and diligence also to avoid conflicts between the interest of the company and his personal interest, to intercept the company trading at the time of insolvency and during the winding up of the company it is his duty to report the liquidator on the affairs of the company and help him by providing him the books and records which is in possession of the director.(Ciepley, D., 2013)
In order to meet the liabilities it is necessary for a director to be honest and careful with the dealings of the company, also to understand the responsibilities and keep informed about the company's financial position and functioning. It is essential for a director to do all the paperwork and levy the taxes and debts in time. It is his fiduciary duty to utilise the information provided to him for the betterment of the company and not for his personal use. Also, it is his liability to get professional view if he is in doubt.
In the case of ASIC v Vizard, the director has breached all his fiduciary duty for his own use. He missuses his power and access the information given to him for earning profit for his own.
Breach of duty under section 181
It is the responsibility of the director to act in good faith of the company. According to the section 181, it is essential for the directors and other officers perform their powers and duties in the good faith and for the best interest of the corporation and for a proper purpose.
Mr. Vizard intentionally use his power to earn profits for him. He sold his share before the merger of Sausage Software and earned a good amount of m0ney from his share. It was all possible because he use his position to extract such knowledge before the merger also in order to save himself from the loss he sold his shares of another company before Telstra was revoking his liabilities. ( Kaczorowska, A., 2015)
Criminal breach of liability under section 184
A director is criminally liable for the act which is does without due care and dishonestly. According to section 184 of the Corporation Act 2001, a director of a corporation is liable for an offence if they does any act recklessly and dishonestly with intentionally causing harm to the company.
Also according to the sub-clause of section 184, a person obtaining information because of his position as director or other officer or an employee, if he uses his powers and designation dishonestly, with intention, in order to earn direct or indirect advantage for himself or for someone who is related to him.
In the decided case it was exactly what happened. Mr. Vizard used his position for his own use. He utilized the information to earn more profit and save himself from the losses.
Breach of Duty under section 599G
It is the duty of director to prevent insolvent trading by company. According to sub-clause 1 of section 588G of the Act, implication of this provision is on such person who is a director for the time when the company is under debt and is insolvent at that time or becomes insolvent by facing such debt.(Gond, J. P., Kang, N. and Moon, J., 2011)
If the person has the knowledge of debt during the insolvency and he is fails to prevent the company from such debt and his action was proven to be dishonest then he liable for an offence under this section.
Contrast of the decided case with Rodney Adler
The case of Mr. Vizard was similar to the case of Rodney Adler, who was a former director of HIH insurance. He was punished for jail, 21 years equal to life imprisonment. The charges that charges was similar to that of Mr Vizard case that is intentionally dishonest and failing to discharge his duties as a director of HIH, also he did some act which was not in good faith of the company.
It is an illegal act of trading by getting confidential information and using such advantage for practising trading on the stock exchange. The person is known as inside. As per section 1043A of the Act an insider is such person who has the inside information of any share related to stock exchange. That person has knowledge of such information which is not available in the market and if such information is available then an accountable man would have expected to have a material impact on the cost or value of such financial product.
The situation of Vizard was also similar to the Rene Rivkin's case. Rene use his position of director to obtain the inside information an d that help him to earn profits for his own. Rene was punished for nine months detention and was fined for $30,000.
Mr. Vizard was held liable for only civil breach of liability. The conflict was that Vizard was not charged with the criminal liability, as his acts were according to that responsibility. According to the report of ASIC the reason for not charging him for criminal liability was because the witness was not ready to give evidence. Gray Lay who was a key witness refuses to provide information regarding the offence. This was the only reason Vizard was not charged under section 184, breaching his director's duties, intentionally and recklessly. This is how ASIC defend their decision for not pursuing criminal charge against him.
ASIC v Cassimatis [No.8]  FCA 1023
Storm Financial Limited is a finacial consulatany company situated in Townsville. It was founded by Emmanuel and his wife Julie as a private limited company. The allegations upon them was related to the section 180 of the Corporation Act 2001, that they have breached the duty of care and diligence.
According to ASIC, the couple permits storm to give advice to a particular investor, according to the 'Storm Model”, which resulted in contraventi
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