Get Instant Help From 5000+ Experts For
question

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing:Proofread your work by experts and improve grade at Lowest cost

And Improve Your Grades
myassignmenthelp.com
loader
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Guaranteed Higher Grade!
Free Quote
wave

Overview of the Corporations Act 2001 (Cth) and duties of officers and directors

Question:

Discuss about the Business & Corporations Law Vines v ASIC.

The officers and directors in the companies across the globe have been provided the duty through the legislations to work in the best interest of the company, along with a number of other duties. In the same manner, in Australia, the Corporations Act 2001 (Cth) enforces various duties on the directors, which have to be followed. The Corporations Act 2001 puts forward such duties for the directors, along with the officers of the company (Latimer, 2012). The rationale behind enforcing these duties on the officers and directors is that the company is managed by or under the directions given by the officers and directors. The officers and directors are in a position of trust and their position enables them to use it for their private welfare. Some of the duties covered in this act relate to the duty of care, good faith, use of position, etc (Australian Institute of Company Directors, 2017).

Vines v ASIC [2006] NSWSC 760 is one of such cases, where the duty of care, set out under the governing act, was breached by the officer of the company. Through this judgment, a clarification was given by the court regarding the responsibilities of the officers of the company, especially in cases relating to the forecasts of the profit during takeover (Australasian Legal Information Institute, 2006). The following parts cover a detail of this case.

In this case, Geoffrey William Vines was the previous CFO, aka the chief financial officer in GIO Australia Holdings Limited. It was alleged that Vines had contravened the duty of care, when it came to drawing the forecasts regarding the profits, under the takeover bid (Jacobson, 2007). In 2011, the Australian Securities and Investments Commission, aka ASIC initiated the civil proceedings against Vines. This was in addition to the initiation of proceedings against Timothy John Henry, as well as, Francis Timothy Robertson, both of whom were the executives in the company.

The proceedings were started regarding the Part B Statement which was published in the year of 1998 by GIO Australia Holdings Limited and that time, the takeover bid was being carried on (Piper Alderman, 2007). This particular statement contained a profit forecast of $80 million, particularly from the reinsurance division of the GIO Australia Holdings Limited. At the same time though, the reinsurance division of the company faced some major allegations due to the hurricane which struck in September 1998, i.e., Hurricane Georges, at both the Puerto Rico and the Virgin Island (Webster and Swan, 2007).

One of the sections, i.e., section 232(4) of the previous applicable act, i.e., the Corporations Law 1989 was claimed to have been violated by Vines and the other two executives and this is often considered as the predecessor of the Corporations Act, 2001’s section 181(1), along with section 232(2) of the old act (Webster and Swan, 2007). This section put a duty on the directors and officers to act with good faith and the same was a civil obligation. The issue was mostly related to the rationality of including the $80 million profit forecast, due to the claims and accusations pertaining to the exposure to Georges (Piper Alderman, 2007).

Introduction to the Vines v ASIC [2006] NSWSC 760 case

In this case, it was held that Vines had contravened four different provisions under the previous Corporations Act as he failed in disclosing the relevant information to the company even when he was obligated to do so, due to his position of CFO in the company. In face of the allegations, Vines pleaded honesty defense as per section 1317S (Stephens Lawyers & Consultants, 2007).

Section 232 (2) of the Corporations Act 1989 puts an obligation over the officers of the particular body corporate to act in an honest manner, at all times, while exercising the powers which have been given to them, and also while discharging the obligation or duties which have been put on them due to the office they hold. Section 232 (4) of the Corporations Act 1989 puts another obligation on the officers of the particular body corporate to exercise the reasonable degree of diligence and care at all the times, while exercising the powers which have been given to them, and also while discharging the obligation or duties which have been put on them due to the office they hold (Jade, 2017a).

The present day act, i.e., the Corporations Act, 2001 puts a civil obligation on the officers and directors of the company to exercise the powers which have been given to them, along with the discharge of the duties put on them, for a proper purpose, along with the same being in the best interests of the company and in good faith (Federal Register of Legislation, 2017). A breach of this section attracts the civil penalty contained in section 1317E of the company, which relates to the making of a declaration of contravention by the court (Australasian Legal Information Institute, 2017).

It was acknowledged by the Court of Appeal that there was no need of establishing a high order of negligence for the standard of care which has been set out in the old act, i.e., in the Corporations Law’s section 232(4), when the same is compared to the duty which is provided through the general law. In the view of the court, the standard set out for care and diligence, which in this case was applicable upon Vines, did not extend to the contents covered in the Part B Statement (Webster and Swan, 2007).

In addition to this, the information which was made available, fell in the structure of the procedure of due diligence. This was designed for ensuring that the final disclose which were made to the shareholders of the company were materially and adequately finalized and were as per the law. In addition to this, the disclosure were made in a manner which could allow the safeguarding of the individuals who were involved in this scenario, from the liability, which may be established in case of a defect being established at a future time period (Webster and Swan, 2007).


The finding of Justice Austin, made in the earlier case relating to the contravention of duties by Vines for being an officer of the company were upheld by the Court of Appeal on three key grounds:

  • The instance at which the management sign-off was signed by the Vines, relating to the due diligence report, which necessitated the advice to the committee of the company relating to the due diligence, in the matter of assumptions made for the profit forecast of $80 million, in absence of taking the required positive steps.
  • The failure on part of Vines for informing this due diligence committee of the company regarding him having no issue regarding the reliability of forecasted profit of the company.
  • And lastly, when he failed in giving the proper attention to the facts, irrespective of the attainment of the same by the reinsurance division of GIO, in an estimated time period after the Part B Statement was issued, but before the takeover process could end (Webster and Swan, 2007).

Background and details of the Vines v ASIC [2006] NSWSC 760 case

However, the Court of Appeals did overturn some of the contentions which were made by the ASIC relating to some specific issues. Further, it was held by the Court of Appeal that there was no violation on part of Vines, relating to his duty of care, in the following cases:

  • When an unqualified statement of management confidence was made by Vines on November 9th, 1998 to the board, regarding the profit forecast, in the reinsurance division of GIO.
  • At the instance when Vines failed in providing the required information relating to the bases of the profit calculations, for the made forecast in his email dated November 22nd, 1998, to the due diligence committee, in addition to the report which formed the base for the media release sent on November 17th, 1998 (Webster and Swan, 2007).

Even though it was held by the Court of Appeals that Vines had acted in a manner of honesty, the relief could not be granted to Vines due to the seriousness of the violations. It was also held by the court that Vines had to consider, the fact that the material information had to be disclosed or not, regarding which he had the knowledge. As per the findings in each of the cases, Vines acted out in a manner which had the effect of leaving out the substantial information. The failure of Vines, in providing the material information to the directors, left the directors to make the decisions based on mostly the incomplete facts (Stephens Lawyers & Consultants, 2007).

Geoffrey William Vines was also held responsible for making reliance over the senior executive who inaccurately reported a critical financial matter to him. This senior executive had been given the operational responsibility on the matter of the report. Though, it was the responsibility of Vines to investigate upon the report which was presented to him, due to his position as the chief financial officer, and he had to be satisfied about the presented report, by conducting an inquiry on his own behalf for the report to be valid. The grounds of heavy responsibilities, along with workload and the associated pressure were not considered as sufficient general excuses for Vines to have failed the discharge of his duties (Stephens Lawyers & Consultants, 2007).


In this case, the position of chief financial officer was considered as being equally relevant to the position of a director in a company. This position was accepted by the judges as being one with the special skills for a large company. And Vines had been appointed as one as he had special skill set. It was held by Justice Austin that the degree of diligence and care which was expected from Vines, encompassed the special skills which he had brought to the office, and for the degree of diligence and care which had to be exercised by Vines, the same in context of the actions of a reasonable person had to be judged (Black, 2015). Vines applied for relief from liability arising on 7 different contraventions, which were identified by the trial judge, i.e., Austin J. and the penalty imposed by the trial judge was appealed by both Vines and the ASIC (Australian Institute of Company Directors, 2011).

When it was held that there was indeed a breach of the duties set out in the Corporations Act 2001, as per the draft presented by ASIC, a declaration of contravention was made by the court of law. In addition to this, the disqualification orders were made for both Robertson and Vines for a period totaling to three years, and the same was made for Fox, for a period totaling to twelve years. Along with the period for which the individuals were disqualified, they were also awarded with pecuniary penalty orders, which put a penalty of $100,000 on Vines, of $50,000 on Robertson, and lastly of $220,000 on Fox. This was coupled by a compensation order passed against Fox, to such amount of AUS dollar which amounted to the equivalent of US$143,750, as per the rates of exchange on the date of June 3rd, 1999. The costs borne by ASIC were also held to be paid by the three in proportions of 22% for Vines, of 28% for Robertson, and lastly of 33% for Fox (Jade, 2017b).

Conclusion

The case study of this case, i.e., the case of Vines v ASIC could be summarized to state that the officer of the company, i.e., Vines, Fox and Robertson had failed in the duties of care and diligence, which have been put on them due to the applicability of Corporations Act, along with the duty of acting with good faith, as they were the executive officer of the GIO Australia Holdings Limited. The judgment given in this case helps in clarifying, as well as, in establishing the duties and responsibilities which have been affixed on the executives of the company, particularly in the matter relating to the forecast of the profit, in a takeover bid.

Apart from this, a broad interpretation of the judgment given in this case highlights that it is the duty of the executive officers and the directors of the company to make certain that the information which is given to the company’s shareholders, for making the investment decisions are not only accurate, but also complete in all the material aspects.

References

Australasian Legal Information Institute. (2006) ASIC v Vines [2006] NSWSC 760 (2 August 2006). [Online] Australasian Legal Information Institute. Available from: https://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWSC/2006/760.html?stem=0&synonyms=0&query=Geoffrey%20William%20Vines [Accessed on: 21/04/17]

Australasian Legal Information Institute. (2017) Corporations Act 2001 - Sect 181. [Online] Australasian Legal Information Institute. Available from: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s181.html [Accessed on: 21/04/17]

Australian Institute of Company Directors. (2011) Directors Counsel. [Online] Australian Institute of Company Directors. Available from: https://www.companydirectors.com.au/director-resource-centre/publications/company-director-magazine/2011-back-editions/may/directors-counsel-the-skills-you-need [Accessed on: 21/04/17]

Australian Institute of Company Directors. (2017) What are the duties of directors?. [Online] Australian Institute of Company Directors. Available from: https://www.companydirectors.com.au/membership/the-informed-director/what-are-the-general-duties-of-directors [Accessed on: 21/04/17]

Black, S. (2015) Australia: The responsibilities of becoming a director. [Online] Mondaq. Available from: https://www.mondaq.com/australia/x/412934/Directors+Officers/The+responsibilities+of+becoming+a+director [Accessed on: 21/04/17]

Federal Register of Legislation. (2017) Corporations Act 2001. [Online] Federal Register of Legislation. Available from: https://www.legislation.gov.au/Details/C2013C00003 [Accessed on: 21/04/17]

Jacobson, D. (2007) ASIC v Vines Appeal Decided. [Online] Bright Law. Available from: https://www.brightlaw.com.au/asic-v-vines-appeal-decided/ [Accessed on: 21/04/17]

Jade. (2017a) Corporations Act 1989 No. 109 Of 1989 - Table Of Provisions. [Online] Jade. Available from: https://jade.io/article/218423/section/6392 [Accessed on: 21/04/17]

Jade. (2017b) ASIC v Vines [2006] NSWSC 760. [Online] Jade. Available from: https://jade.io/article/1022 [Accessed on: 21/04/17]

Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia Limited.

Piper Alderman. (2007) Piper Alderman Legal Update. [Online] Piper Alderman. Available from: https://www.piperalderman.com.au/__files/f/4017/PA%20eBulletin%20June%202007.pdf [Accessed on: 21/04/17]

Stephens Lawyers & Consultants. (2007) Corporations Law Update: Recent Decisions About Directors' Duties And Liabilities. [Online] Stephens Lawyers & Consultants. Available from: https://www.stephens.com.au/Sites/2196/Images%20Files/Newsletters/October%202007%20-%20Corporations%20Law%20Update.pdf [Accessed on: 21/04/17]

Webster, J., and Swan, C. (2007) Focus: Implications Of Vines v ASIC. [Online] Allens. Available from: https://www.allens.com.au/pubs/ma/fomamay07.htm [Accessed on: 21/04/17]

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2018). Essay: Duties Of Officers And Directors Under The Corporations Act 2001 (Cth) - A Case Analysis.. Retrieved from https://myassignmenthelp.com/free-samples/business-corporations-law-vines-v-asic.

"Essay: Duties Of Officers And Directors Under The Corporations Act 2001 (Cth) - A Case Analysis.." My Assignment Help, 2018, https://myassignmenthelp.com/free-samples/business-corporations-law-vines-v-asic.

My Assignment Help (2018) Essay: Duties Of Officers And Directors Under The Corporations Act 2001 (Cth) - A Case Analysis. [Online]. Available from: https://myassignmenthelp.com/free-samples/business-corporations-law-vines-v-asic
[Accessed 27 February 2024].

My Assignment Help. 'Essay: Duties Of Officers And Directors Under The Corporations Act 2001 (Cth) - A Case Analysis.' (My Assignment Help, 2018) <https://myassignmenthelp.com/free-samples/business-corporations-law-vines-v-asic> accessed 27 February 2024.

My Assignment Help. Essay: Duties Of Officers And Directors Under The Corporations Act 2001 (Cth) - A Case Analysis. [Internet]. My Assignment Help. 2018 [cited 27 February 2024]. Available from: https://myassignmenthelp.com/free-samples/business-corporations-law-vines-v-asic.

Get instant help from 5000+ experts for
question

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing: Proofread your work by experts and improve grade at Lowest cost

loader
250 words
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Other Similar Samples

support
Whatsapp
callback
sales
sales chat
Whatsapp
callback
sales chat
close