Discuss about the Australian Securities and Investments Commission.
The case of Australian Securities and Investments Commission v Mariner Corporation Limited  FCA 589 is in relation to the breach of directors duties. The proceeding is related to the legality of the defendants’ conduct of making a takeover bid. The proceeding is not only in relation to the company but also three of its directors namely Mr Darren Olney-Fraser, Mr Donald Christie and Mr Matthew Fletcher. The action has been brought with respect to the breach of Section 631 (2)(b), 1041H and 180(1) of the Corporation Act 2001 (Cth) (CA). Declarations have been sought by the ASIC against all the defendants in the case and specifically disqualification from management and pecuniary penalties against the individual directors. The trial was only in relation to the liabilities of the parties and issues in relation to penalties and relief were to be heard latter.
In this case it has been alleged by the ASIC that the defendant company violated the provisions provided by section 631 (2) (b) of the CA. The allegation was based on the fact that the company publicly proposed a takeover bid for Austock, recklessly without informing itself that whether it has the capability of performing its obligations and relation to the takeover bid at 10.5 cents for each share in case considerable proportion all the offers with respect to the bid are accepted. It has been provided by the ASIC that the organisation did not have financial resources on 25th June 2012 to fund the bid and in addition had not received relevant assurance from any third party as well as it did not have any agreement with any third party in relation to provisions of the required funding.
Section 1041H of the CA was allegedly violated by the organisation as the announcement made by the company resulted in a misleading and deceptive conduct or a conduct which is likely to deceive and mislead as there was no permission of making a takeover bid shares in Austock for less than 11 cent every share. The ASIC had also put its reliance on the provisions of section 621 of the CA. In addition it was stated by the ASIC that the organisation tried to mislead the market in relation to its ability of funding the bed at a lesser price or at a price which was required.
It has been denied by the defendants of the case that the organization have violated the provisions set out through section 631(2)(b) along with section 1041H of the CA. in addition it has been argued by the directors that the allegations which have been made by the ASIC in relation to the breach of section 180 of the CA are baseless. It has been submitted by each of the directors that their actions were not in the violation of their duties irrespective of whether the company itself indulged in the non-complying conduct. It has been asserted by the ASIC that section 180 of the CA has been violated by the directors whether or not they have breached the provisions provided in section 1041H of the CA.
Duties breached by the directors of Mariner Corporation Limited as alleged by the ASIC
It has been allegedly stated by the ASIC that all three directors of Mariner Corporation Limited have not complied with their duty stated in section 180(1) of the CA. the duty requires the directors to carry out their operations towards the company with diligence and care. Such care and diligence is evaluated and analysed when by putting a reasonable person in the same position and situation which the actual directors hold. If the reasonable person would have indulged in making the same decision the duty stands complied by the directors.
It has been alleged by the ASIC that section 180 of the CA has been violated by the directors and they have not acted diligently and carefully towards their functions which a reasonable director would have done by making the company:
- Contravene the provisions of s 631(2)(b) by making a public proposal
- Contravene the provisions of s 1041H by making an announcement to the ASX
- Contravened s 621 (3) by stating that they would make a bid which cannot be made lawfully (Stating to make the bid at 10.5 cents where they could not do so below 11 cents legally.)
- Not take into consideration regulatory constraints on the capacity of the organization of acquiring more than various share percentage in Austock
Critical analysis of the decision provided by the court in this case
In the given case it has been stated by the court that ASIC have failed to establish their claim against the directors of the company or the company itself. Therefore the court accordingly dismissed the case made by the ASIC.
The following view had been reached by the court in this case
- The test in relation to the term “Reckless” us a subjective test under the provisions of s 631 (2)(b). Through the application of the test in the situation the company is not reckless.
- Alternatively, in case the test of analysing whether a company or individual is reckless or not is objective even than the company is not reckless
- The company did not indulge in any conduct which contravened the provisions provided in s 1041H of the CA in relation to funding or price representation
- Alternatively, in case the organization did indulge in a misleading or deceptive conduct in relation to the representation of price, it would not be entitled to any relief on any reasonable ground.
- The directors of the company did not indulge in any action which violated the provisions of section 180(1) irrespective of whether they violated s 1041H or 631(2)(b)
- Alternatively in case section 180 has been violated by Mr Olney-Fraser, it cannot be held that Mr Fletcher or Mr Christie have done the same as they relied upon the information given to them by Mr Olney-Fraser along with their right to invoke section 189 of the CA.
The court in relation the issue considered the provisions provided in s 180(2) of the CA which discusses to business judgement rule to come to a conclusion that the directors of Mariners have not violated section 180(1) of the CA. According to the section the primary requirement is that there as to be a “Business Judgement”. Thus means an act of making a decision in relation to the business operations of the organization. Here, the business judgement made by the directors was to make a takeover bid for Austock. It can therefore be stated that the characterization of the business judgement rule by the ASIC was not in compliance to the provisions of the Act. The reliance of ASIC on the case of ASIC v Fortescue Metals Group Ltd is also a misconceived analysis of the decision taken by the directors.
In addition the directors consciously used their business judgements to support the bid. Evidence has also been provided by the directors that in the given situation funding for the bid would have even been provided by a “dover dog”. The evidence is viewed in the light of the relevant and substantial evidence of the directors in such deals.
Another requirement for the business judgement rule is that the bid is made in good faith towards a proper purpose. The requirement can also be said to have been satisfied. It was decided by the directors to make the bid and the announcement related to it in relation to the chances of the company of making significant profit along with the belief that the decision of making the bid and the announcement is in the best interest of the company.
In relation to the third requirement the person making the decision must not have any personal interest in the subject matter of the decision. This requirement is also satisfied as there was no personal interest which the directors had in relation to the bid and announcement.
One more requirement in relation to the defence under the business judgement rule is that the directors have the duty of informing themselves in relation to the subject matter of the decision to the degree that they believed that it is appropriate and correct. In the case of ASIC v Rich it has been stated by the judge that whether the decision was an informed decision or not is analysed by looking into factors such as importance of the decision, time in had to get information, cost of getting information, confidence of the directors, nature of the affairs of the company and availability of material information. The through considering these factors the judges in the present case held that the decision was informed. Moreover in relation to “to an extent they reasonably believed to be appropriate” The ASIC cited the case of People’s Department Store Inc v Wise where it was ruled that reasonably believed does not included what the directors actually know but what they are supposed to be knowing. However the court reject such submission by stating that such a ruling distorts the statutory language as it would deny the directors any protection unless they are able to show compliance of diligence and care in relation to other issues. The court in this case considered that the directors relied on the fact that they have been provided adequate information for making an informed decision by conducting various discussions and meetings and their knowledge about the level of interest in Austock.
The final requirement in relation to section 180(2) is that the decision has to be in the best interest of the company. The requirement is said to be satisfied when the defendants believed that the act was in best interest of the company and is supported by reasoning process which is adequate to describe it is being reasonably correct, irrespective of whether it is objectively convincing. The court held that the directors had this belief and it is not a kind of belief which would not be held by any reasonable person.
In addition it had been stated by Justice breach that it would be wrong to assert that causing the organization to breach a provision of the act would automatically lead to the violation of section 180 to the contrary of what has been stated in ASIC v Cassimatis
Future relevance of the case
- reasonably believed does not included what the directors actually know but what they are supposed to be knowing is not correct rather having adequate information to make the decision would satisfy this element of section 180 (2)
- It is now wrong to assert that causing the organization to breach a provision of the Corporation Act would automatically lead to the violation of section 180(1)
- The decision would give the directors who rely of their experience and skills power of taking calculated risks in relation to the organization
ASIC v Rich (2009) 236 FLR 1
ASIC v Cassimatis (No 8)  FCA 1023 4
Australian Securities and Investments Commission v Mariner Corporation Limited  FCA 589
Corporations Act 2001 (Cth)
Fortescue Metals Group Ltd v Australian Securities and Investments Commission -  HCA 39
People’s Department Store Inc v Wise  3 SCR 461 at 
  FCA 589 at 1
  FCA 589 at 2 (a)
  FCA 589 at 2 (b)
  FCA 589 at 2 (b)
 Corporation Act 2001 (Cth) at Section 180(1)
  FCA 589 at 4
  FCA 589 at 5
 Corporations Act 2001 (Cth) at section 180(2)
  HCA 39
  FCA 589 at 500
 (2009) 236 FLR 1
  3 SCR 461 at 
  FCA 589 at 472
  FCA 589 at 489
 (No 8)  FCA 1023