Having regard to the above facts answer the following:-
a)Did the Board of Ardent Leisure recognise and manage the risk arising from this incident?
b)Assuming the Board failed to manage the risk, did the company and the directors breach Principles 7 of the ASX principles of Good Corporate Governance? What is the consequence, if any, for the company failing to comply with Principle 7? Can the ASX take any disciplinary action against the directors and company for failing to recognise and manage the risk in this instance?
c)Could it be argued that the directors had breached their duty of care and diligence or is the significant financial harm suffered by the company sufficient penalty?
d)After the incident did the Board review and improve the effectiveness of the company’s risk management framework?
Principle 7 of Good Corporate Governance
It is the said duty of the board of directors involved in the all the Listed companies to identify risk and take proper measure to deal with them, says ‘Principle 7 of the Australian Security and Investment Commission’. If the stringent measures are not taken when required, the company and its Stockholders, creditors, consumers and even the society might suffer from adversity. It is so recommended by the ASIC (Australian Security and Investment Commission) that all the listed organization’s board should have a separate committee with the sole purpose of Risk Management in mind. It is further stated that the committee must have at least three directors controlling its proceedings. Not only that, but, the Principal 7 also makes it very clear the the risk management has to be revised by the board of the company or at least, the committee at least once a year with the safety of the company in mind insuring that the process of review is kept at full disclosure to enable proper accountability. It is the said duty of the organization to not only reveal the internal audit of the entity with accordance to the structural role but also the full disclosure of its part in any social, environmental and economic risks and state how these risks are to be managed in the near future. In similar circumstances, it was seen that the company, Ardent Leisure Ltd (Ardent) suffered substantial financial harm in relation to the Dreamworld leisure Park, property of the Queensland Gold Coast. This occurred due to technical failures in the particular ride which then lead to the unexpected death of a few patrons. Though accidents can never be foreseen and are beyond the control of man, they can be avoided when taken certain measures which may not stop them, but are sure to minimize the chances of them happening any time soon. In this particular incident, it was further seen that Queensland Gold Coast had taken little to no precautionary measures and was criticized for not being able to do proper risk management in the first place. The owner is held liable to undertake full responsibility done to anyone who was harmed due to any certain instances related to the place whatsoever. So, in this case as well, it was the company to be blamed. If the risk management measures were taken beforehand, the said company might have had avoided the accident to begin with. Even if the accident might have taken place after taking the said precautionary measures, it can very well be stated that the damage might have been comparatively lesser. Thus, this case can be seen as prime example of how the society is at constant harm if a company fails to make proper Risk Management schemes so as to minimize the occurrence of any further accidents which lead to mass harm and civilian casualties.
Lessons from the Ardent Leisure Case
The Principal 7 of ‘Good Corporate Governance Recommendations’ imposes an obligation on the listed companies to identify and manage risk according to a proper set of Management frameworks with respect to the provisions mentioned in the former section of this assignment. As mentioned before, the principle further highlights the organizing of more committees within the Company who will deal with any risk involved. Considering the adversity of the circumstances Dreamworld was in, it needed a crisis management team which would critically examine the damage and make arrangements to deal with them and minimize its to the best of their individual abilities. The Principal 7 had further stated the full disclosure of any social, economical, environmental and any other kind risk all together. Such measures if taken by Ardent, they would have been more aware of the self risk and in the best case scenario, might even have avoided the accident to begin with. The violation of such stringent principles (Principle 7 of ASX good governance principle) was clearly seen in the case of Ardent in their lack of risk management and identification of risk involved in their work.
The breaching of principle 7 not only exposes the company to Legal Consequences, but also un-solidifies its grasp over market and competition, leaving it to a complete disadvantage. The inability of a company to identify risk and manage them in good care leaves it wide open to all sorts of risk which are neither beneficial or are of any good interest whatsoever. Thus, it leaves the organization in a fatal state where it neither has the strength to deal with any unforeseen disasters nor has the capability to manage the future losses and debts that it is sure to suffer. The good will of the said organization is hampered, leading to a long term liability resulting from the downfall of its reputation in the society as a whole. Furthermore, it leads to the withdrawal of any potential investor, back lashing the company to an extreme degree. This also doesn’t impose any sort of accountability toward its employees, resulting to loss of productivity and decrease in quality of the work done.
It falls under the executive office of ASX to enforce law on any organization that violates its rules and regulations. The “If not, why not” policy of ASX allows the organization who are unwilling to take up and follow the set rules to not consider them, if and only if a good reason is provided to justify its action. The enforcement decisions are made by the ASX Chief Compliance officer and then an appeal lies in the ASX appeal tribunal. A penalty of $250000 may be imposed my ASX on a breach of operating rules, as provided by ASX Enforcement and Appeals Rulebook. Furthermore, a penalty of $1000000 is charged on a breach of Austraclear Regulations. In the case of Sino Australia Oil and Gas Limited (Company), ASX was able to impose a penalty of $80000. Civil penalties are also common in cases of breach of rules like disqualification of the directors.
Consequences of Breaching Principle 7
Section 180 of the Corporation Act 2001 states the duty of the directors to take care and provide diligence to the organization in any way possible. It is further stated by the Section 180 that any director or officer must relieve their duty and exercise power if need be in case of prime diligence and care with can also be exercised by any reasonable person if their circumstances and situations demand it. Any kind of breach will result to civil penalties according to the Section 1317. In case of business, a judgment is considered most appropriate if it is taken without a hitch of self interest, involves the overall benefit of the organization in mind, has good faith in it and of course, is rational in every way imaginable. The actions of director are considered rational and fitting if it seen that a parson with a rational mind can agree to them. The same section is also applicable to common law and equity. A business decision is of course, a decision that can only involve the business of a company.
The recent case of Australian Security and Invest Commission (ASIC) v Cassimatis (No. 8)  FCA 1023, the court lawfully held the directors liable for the breach of the section 180(1) of CA. It was seen that their actions were contravening to its provisions. In case of Centura Global Holdings PTY LTD (2015), it was held responsible by NSWSC 1744, the judge held breaching of the ‘Environment Planning Assessment Act of 1979’, Section 180 and penalized the directors. ASIC v Mariner Corp (2015) 327 ALR 95 at  was held responsible by the court on the breach of Section 180. Though, it did not impose its obligations on the directors but the obligation was to act in accordance to the existing legal provisions. Sheahan (as liquidator of SA Service Stations) (in liq) v Verco (2001) 79 SAR 109, the court of law ruled the duties of the directors under section 180(1) are only towards the company and not the environment or any shareholders unless and until any required proceedings are brought ASIC, they are liable to prove that actual loss was suffered by the company or the organization.
In the previous sections, particular circumstances so established that the breach of Principals done by Ardent as per the regulations laid down by ASX was in relation to risk management. It is understood by the brief discussion of all the above cases that a breach in the Section 180 of CA by the directors is established when they are in contravention of any legal provisions which is ought to be followed by any other rational person in similar circumstances. It is hence thought that a reasonable person is less likely to breach any given principles of law provided by the ASX and identify risk as well as manage it most appropriately. It was seen that the breaches made by the directors of Ardent were under the Section 180 of CA and penalization seems to be most appropriate outcome, though it would without a doubt, increase the financial burden of an already suffering organization.
Directors' Duties Under Section 180 of the Corporation Act 2001
The fatal accident at Dreamworld Leisure Park led to the resignation of Deborah Thomas, it’s former CEO. She attracted a lot of criticism towards herself as she was unable to respond to the disaster in an adequate manner. The company itself has far-fledged ambitions of becoming the the global leader in the entertainment industry. Its primary focus is to capitalize on the market in the US. The fatal accident at the Dreamworld Leisure Park resulted in a sharp drop in the value of the company’s shares by 7.8%. Formal investigation has been launched against the organization and that attracted a lot of public scrutiny towards it. The massive accident forced the company into submission and it went on its back foot trying to control the damage. They collectively extended their condolences to the victims and their families. In addition to this, they accepted that they were deeply saddened by the incident. In the aftermath of this horrific tragedy, the company shut down Dreamworld Leisure Park for a period of 45days. The financial losses suffered by the company were to the tune of 49.4 million. They assured the public that they are working in tandem with the police department along with the emergency authority to discover the circumstances and the mechanism that caused the fatal accident. The company claims that they have carried out massive commissioning and undertook substantial safety checks as well as reviewed all the operations in the park. The company accepted that they handled the situation poorly in the 48 hours immediately after the accident. The company hired a former Queensland police officer named Mike McKay to assist them in the crisis management operation. They also hired a crisis management honcho straight from Deloitte named Graeme Newton. The company also elected to permanently foreclose the ride that caused the fatal accident named “thunder ride”. They have also laid down guidelines and safety tests that each ride must pass before they are incorporated into the Dreamworld Leisure Park. They have also stipulated guidelines that ensure that whenever any accident occurs in the park that result in a death of a patron, their primary job is to inform the victim’s family. The company established a proper committee for crisis management in the wake of the disastrous consequences that the company had to face following the fatal incident. On the other hand, the company has formulated policies that facilitate collaboration with the private sector for an outcome process that is properly planned. However, it has been observed that the company still defends its traditional strong policies and procedures that attracted about 30 million patrons to the leisure park since the year 1981. This essentially provides us with the conclusion that company is still majorly defensive in relation to the fatal accident. They are consistently trying to provide an excuse for the tragic accident.
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