Legal Issues And Corporate Veil In The Case Of Slater And Gordon Limited

1. What were the corporate legal issues facing Slater & Gordon Limited?

2. What avenues may be open to law enforcement authorities and directors confronted by these issues?

3. In your view, should the corporate veil prevail in these circumstances? Explain. In doing so, briefly outline any earlier major decided cases where similar issues have arisen, might those cases be significant?

It has been stated through the facts of the case that shareholders of the Law firm named Gordon and Slater have initiated a class action against them. There was an allegation from Maurice Blackburn by Andrew Watson that there was a misrepresentation of their financial prospects as it had gained the division of the organization Quindells in the date of April 2015. This class action has been taken by 3,000 members and is in relation to an amount of $250,000. There was an accusation by Mr. Watson that this organization had provided them with falsified statements about their financial status. There was an allegation made by this plaintiff named Matt Hall that he lost a million dollars and it was known by the company that they would lose their money[1].

The issue which has needs to be analyzed in relation to this section of the paper is the legal breaches which the law firm Gordon and Slater have indulged into.

According to the section 674 of the Corporations Act 2001 (Cth), all the business organization carried their responsibility to disclose all the material facts as per the rules listed. According to the subsection 1041 A, an individual should not carry out any transaction in business that may affect the formation of artificial price in the trading of financial products[2].

According to the section 728 (1a) in the Corporation Act 2001, it has been said that an individual should not offer the securities by the document that is exposed as it has a misleading and deceptive statement. Further according to section 728(2), an individual who provides a statement about the matter of the future without having proper grounds, leads to giving a misleading statement. As per the subsection 728(3), it is stated that if an individual is found committing a crime or an offense, that person has violated some provisions that are given in the subsection 728(1) or if a person provides a misleading and deceptive statement or whether an individual neglects the latest situation in the given statements[3].

Possible Avenues for Law Enforcement Authorities and Directors

As per the article 1041b, an individual who is involved in business should accomplish any actor if he ignores to perform such act, that omission might create a false appearance[4]. As per the section 181 of the Corporations Act 2001 (cth), it is stated that there are some duties that must be performed by the directors for acting bonafide and for a proper purpose[5].

It has been said in the above-mentioned case, which the directors of Gordon and law Firm Slater had failed to provide some statements in the market about its financial prospects. Later on, it has also been said that these directors gave certain misstatements about the performance of the company. Therefore there has been the violation of the provision by Gordon and Law Firm Slater according to this section 728 of the Corporations’ Act 2001 (cth).

In addition to this case, Gordon and Slater had a false representation of financial prospects and there were several shareholders who relied on their false representation and made an investment in that law firm. The organization made a presentation of a false image of their performance.

Later on, in the above-mentioned case, these directors of the company did not act Bonafide as they were not able to disclose the truth of their business.

Conclusion

To conclude this answer it is mentioned that this firm Gordon and Slater will have to face actions for getting involved in this Act by providing people with deceptive and misleading statements.

The avenues available to the directors and the regulatory body in relation to the legal issues identified are at issue in this section

Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited (prov liq apptd) - [2016] FCA 42 is another case where a similar issue has been identified[6].

According to the provisions that have been provided in the section 1041H it has been explained that in relation to the exposure of their Financial Service or product any individual should not be a part of any deceptive and misleading action. It has also been stated that if an individual fails to abide by this section he will be charged with a civil liability provision[7].

An independent governing body of Australia named as the Australian securities and investment Commission commonly known as ASIC and duty is to regulate the actions of several organizations of Australia. The responsibility of ASIC is to administer the requirements of the CA. According to the section 1317E of the corporations' act 2001 that a Court has a power to declare the convention if it is influenced that a person has breached a civil penalty provision. The name of the court, the breached provision of the civil penalty and the last is the name of an individual who breaches the provision of the civil penalty must be a part of in the declaration of the convention[8].

The Corporate Veil and Previous Decided Cases

According to the section 206C of this act, it has been explained that a person can be disqualified from acting as the director of a company where it has been found that the civil liability provisions have been violated by his or her actions under the rules provided in the section 206C of the act. The court can disqualify a person under two considerations that can be the behavior of the person in his management and any matter that is related to the person which the court considered to be suitable[9].

The court has provided with powers to any director of the company who has been found to violate the civil penalty provisions under the rules of section 1317s of the CA[10].

If some legal rules of the Corporation Act 2001 are applied it can be explained that these directors of Gordon and Slater have contravened their responsibilities to act bonafide as per the section 183. Therefore they will be charged in the provision of a civil penalty.

It has been said that these directors made misleading and deceptive statements in accordance with the prospectus of a company that has been provided in section 728 of the CA. Therefore, these people will also be charged with civil liability as it has been mentioned in section 1041H.

However, the directors of the company can ask for a relieving civil liability after proving that these people have acted honestly in the court while breaching a civil penalty provision as per the section 1317s.

Conclusion

Therefore, in conclusion, it is stated that the directors of the above-mentioned law firm can be sued by ASIC for getting involved in misleading and deceptive actions. These directors of this firm will be charged with civil liability for the same issue.

The issue in context is in relation to the lifting of the corporate veil in the situation which the law firm finds its self in.

The principles that a registered organization has a different identity from those who operate it had been provided through the case of Salomon v A Salomon & Co Ltd [1896] UKHL 1[11]. The court in this case stated that there is a corporate veil between the owners of the company and the company itself and thus their liability is also different.

However there have been various instances after this case where the courts although being reluctant had lifted or pierced the corporate veil in order to make the directors liable personally. This is usually done by the courts if the purpose of incorporation was to carry out fraudulent activities as discussed in Lee v Lee’s Air Farming [1960] UKPC 33[12]. However statue law prevails over common law.

Legal Obligations of Directors in Listed Companies

On the other hand, it is given in section 728 of the CA if a person who is engaged in giving a statement that is deceptive or misleading will suffer personal liability as stated in section 1041H. Thus, it states that the corporate veil can be pierced in some situation where an individual makes deceptive and misleading statements.

In this case, it was given that these directors of the firm of Gordon and Slater had some misrepresentation of facts and some misleading statements were provided about the financial prospects of the organization. The company’s shareholders believed in such information that was misleading and they also invested in the firm. It has been said that the price of the share of this firm had been dropped. This firm had suffered a loss of 1.2 billion dollars. Later on, it has been promised by the shareholders of this firm that the financial status of the organization will recover soon. This statement had breached the section 728 of the CA. Thus, according to Section 728 it has been stated that any individual who makes misleading and deceptive statements will have to forward civil liability as per the section 1041H. Further, the statement was made that the corporate veil can be raised in this case

Conclusion

Therefore it is concluded that corporate veil can be pierced in the above-mentioned case.

Conclusion

It can be concluded from the above discussion that the directors of a listed company have various legal obligations which they have to abide buy in order to operate the organization in a legally and avoid legal actions. They have to ensure that any disclosure document is free from any misstatement or omission and they also have to continuously disclose any change in circumstances of the company. Where the directors have not functioned according to legal requirements the corporate veil may be pierced and they may become liable personally.

Australian securities and investment commission v Australia oil and Gas Limited (prove liquid apptd) [2016] FCA 42

Corporations Act 2001 (Cth) s 674

Lee v Lee’s Air Farming [1960] UKPC 33

Salomon v A Salomon & Co Ltd [1896] UKHL 1

Slater And Gordon Faces $250M Class Action From Shareholders (2018) ABC News <https://www.abc.net.au/news/2016-10-12/slater-and-gordon-lawfirm-faces-class-action-from-shareholders/7925104>.

[1] Slater And Gordon Faces $250M Class Action From Shareholders (2018) ABC News <https://www.abc.net.au/news/2016-10-12/slater-and-gordon-lawfirm-faces-class-action-from-shareholders/7925104>.

[2] Corporations Act 2001 (Cth) s 674

[3] Corporations Act 2001 (Cth) s 728.

[4] Corporations Act 2001 (Cth) s 1041B

[5] Corporations Act 2001 (Cth) s 181

[6] Australian securities and investment commission v Australia oil and Gas Limited (prove liquid apptd)[2016] FCA 42

[7] Corporations Act 2001 (Cth) s 1041H

[8] Corporations Act 2001 (Cth) s 1317E

[9] Corporations Act 2001 (Cth) s 206c

[10] Corporations Act 2001 (Cth) s 1317S

[11] Salomon v A Salomon & Co Ltd [1896] UKHL 1

[12] Lee v Lee’s Air Farming [1960] UKPC 33