The breach of duty by the director of a company or corporation has been elaborately discussed through Corporation Act, 2001, which was enacted to regulates laws regarding business entity and provides duties for the directors of an Australian company (Tills and Wills 2016). The director of a company plays a very important role in case of the company’s management and its constitution. Directors are responsible for a company’s daily business and owe duties to every shareholders of a company (Burba 2017). However, there are certain situations where it has been noted that the Directors are held liable for breach of duties imposed on them. A few cases show the discrepancies on behalf of the directors in their dealing with the company. In Australian Securities and Investment Commission (ASIC v Cassimatis 2016) the Court has observed that the director of a financial company has failed to show due diligence and care to its share holders, which resulted in cataclysmic consequence for the company and the effect was detrimental in nature.
The case was evolving with Storm Financial Limited, which was a financial company. The company got license from Australian financial services license (Asic.gov.au 2017). Mr. Emmanuel Cassimatis and Mrs. Julie Cassimatis were the founders and directors of that company. Storm was a renown company in the financial sector and highly profitable company and very popular among the share holders. This company was known about its low risk factor. In the middle half of 2008, Mr. Cassimatis and Mrs. Cassimatis developed an investment model, which invited the clients to borrow equity for their homes irrespective of their aptitude and regrettably, the investors suffered from a huge loss. Many of them lost their homes and properties and became bankrupt. The downslides of the company has made a historical preview regarding the same and the Australian Securities and Investment Commission (ASIC) had filed a suit against the respective Directors for breach of duties as theywere unable to show due diligence and care [Coffee, Sale and Henderson 2015]. According to ASIC, the clients who had invested their money in the model were close to retirements and had limited assets. Mr. Cassimatis had breached the provisions of duties mentioned under section 180(1) of Corporation Act, 2001.
As per Court’s view, the director of Storms made a serious breach of duty, as it was his responsibilities to involve the investors who had the capacity and had no limited assets and to foresee the consequences that the downslide of the investment plan may cause harm to the investors. Many investors in the Storm Financial Limited lost billions of dollars. There is some Notable victims also faced loss, which include Australian cricketer Andrew Symonds who lost one and a half million dollars and former Australian rugby player Wally Fullerton smith who lost his home and business. It was held by the court that his conduct cannot be exempted from the provision of the Corporation Act 2001 and he could not be got release from liability for contravention of civil penalty provision mentioned under section 1317S of Corporation Act, 2001. The Federal Court of Brisbane, Australia was pleased to pass an order against Cassimatis and found them guilty under section 180(1) of Corporation Act, section 945A(1)(b) and section 945A(1)(c) of Criminal Code.
Relevant provision regarding the breach of duties:
The Corporations Act of 2001 governs the breach of duties of a director or an officer of company or a corporation. The Corporations Act of 2001 is the primary statute governing companies and corporation in Australia including duties of directors and officers of companies and corporations and the provision regarding the consequence if they failed to entertain their duties properly. There are certain sections laid down under the Corporation Act that deals with the clause regarding the breach of duties by directors and consequences of such breach.
Section 180(1) of the Corporation Act 2001 envisages the provision by stating that a Director should take due diligence while exercising their duties and it is desirable that they will act like a prudent man.
Section 181 of the Corporations Act of 2001 implies that a director or an officer of a company or a corporation must act and deliver their duties, responsibilities and obligations not only in good faith but also in a purposeful manner.
Section 1317E of the Corporations Act of 2001 enshrines that acting in violation of Section 181 being a director or an officer of a company or a corporation would attract penalty through a Declaration of Contravention issued by Court (Gilligan and Bird 2015).
Section section 945A(1)(b) and section 945A(1)(c) of Criminal Code are the penalty provision regarding the criminal proceeding against the accused who held liable under the offence of breach of duties (Tillman 2014).
Submission by Cassimatis and observation of Federal Court:
Cassimatis were defended themselves by saying that they are not liable for breach of duty under section 180(1) of Corporation Act. The provision of the Act has provided a provision that where the directors and share holders of a company are same, no ratification is necessary (Ramsay 2015). In the above mention company, both Mr. Cassimatis and Mrs. Cassimatis play the same role. Therefore, he should get that benefit. However, the Federal Court of Australia observed that Mr. Cassimatis had acted unreasonably and performed breach of duties within the definition of section 180(1) of Corporation Act (Ross 2014).
Further, Mr. Cassimatis stated that he had no intention to cause harm to the investors. ASCI submitted that a director, who had failed to ensure any strict liability, could be held liable under section 180(1) of the Act. Federal Court observed that it is not necessary to ensure a strict liability as section 180(1) does not permit so. The strategy of the directors was a bit of double gearing (Kayihura 2016). Many investors, who had limited source of income, invest their money in it and after the economic fall, lost everything and forced to join back to work again.
As per the observation made by Federal Court, ASCI unable to prove breach under section 1041E of the Act as there were no evidence that can prove the fact that the investors were retired.
It was also pleaded against Storm that they contravened section 945A(1)(b) and section 945A(1)(c) of Corporation Act as they have contravened the provision by breaching its duty (Spamann 2016).
Critical analysis of the decision
The Federal Court of Australia at Brisbane held that by Mr. Emmanuel Cassimatis and Mrs. Julie Cassimatis are liable for breach of duty as envisaged in Section 181 of the Corporations Act of 2001 (Cooper 2016). Additionally, the Federal Court of Australia at Brisbane also came into a consideration that Mr. Emmanuel Cassimatis and Mrs. Julie Cassimatis curtailed from managing any kind of corporation for a period deemed fit by the Court on application by the Australian Securities Investment Commission with reference to the provisions envisaged in Sub-section 1 of Section 206E of the Corporations Act of 2001(Lott and Fremont-Smith 2016). The Federal Court of Australia at Brisbane also found that Mr. Emmanuel Cassimatis and Mrs. Julie Cassimatis acted in contrary to Section 945 of the Corporations Act of 2001.
The decision of the Federal Court of Australia at Brisbane did not set out any kind of precedent. Mr. Emmanuel Cassimatis and Mrs. Julie Cassimatis being the directors of Storm Financial Limited should have taken reasonable care and diligence as far as the delivery and discharge of duties, responsibilities and obligations is concerned (Velasco 2014). However, during the course of proceedings, Mr. Emmanuel Cassimatis and Mrs. Julie Cassimatis defended themselves by stating that they should not be held liable since they acted in good faith being the directors of Storm Financial Limited.
Such a decision made by the Federal Court of Australia at Brisbane implies that a director or an officer of a company or a business entity would be held liable for acting in contrary to Section 181 of the Corporations Act of 2001. Subsequently, such kind of breach would result in penalty as per the provisions enshrined in Section 1317E of the Corporations Act of 2001 by a Declaration of Contravention issued by Court. The laws applied by the Federal Court of Australia at Brisbane seems to be quite logical in nature since Mr. Emmanuel Cassimatis and Mrs. Julie Cassimatis simply failed to perform and deliver their duties and responsibilities being directors of Storm Financial Limited.
Furthermore, the Federal Court of Australia at Brisbane observed that Mr. Emmanuel Cassimatis and Mrs. Julie Cassimatis applied the Storm Model to those kinds of people who are financially and economically weak. As a result, Mr. Emmanuel Cassimatis and Mrs. Julie Cassimatis failed to take reasonable precautions by misleading such kinds of people as far as making financial investments is concerned.
The case of Australian Securities Investment Commission v. Cassimatis signifies that a director or an officer of a company or a corporation must take due care and diligence while exercising their duties, responsibilities, functions and obligations with reference to the provisions enshrined in Section 181 of the Corporations Act of 2001. Failure to do so would result in severe penalties with reference to the provisions enshrined in Section 1317E of the Corporations Act of 2001.
During the press release of the Australian Securities Investment Commission, Commissioner Greg Tanzer stated that the decision made by the Federal Court of Australia at Brisbane in the case of Australian Securities Investment Commission v. Cassimatis (2016) implies that a director or an officer of a company or a corporation cannot act in contravention of the law (Jacobs 2014). Commissioner Greg Tanzer also stated that a person who holds the license for providing financial advice is under a mandate for providing financial advice in an appropriate manner taking into account the economical and financial background of the person to whom such kind of financial advice is being provided.
Therefore, from the given case study it can be concluded by stating that Mr. Emmanuel Cassimatis and Mrs. Julie Cassimatis are liable for breach of duty with reference to Section 181 of the Corporations Act of 2001. As a result, penalty is bound to be imposed with reference to Section 1317E of the Corporations Act of 2001 by virtue of a Declaration of Contravention to be issued by the Court (Storm.asic.gov.au 2017).
Thus, the decision made by the Federal Court of Australia at Brisbane in the case of Australian Securities Investment Commission v. Cassimatis 2016 is justified and appropriate. Greg Tanzer (Commissioner of the Australian Securities Investment Commission) rightly pointed out with reference to the violation of law as per the decision of the Federal Court of Australia at Brisbane in the case of Australian Securities Investment Commission v. Cassimatis (2016). It is also observed that Mr. Cassimatis has contravened the provision regarding section 945A(1)(b) and section 945A(1)(c) of Corporation Act, but it was not proved yet that he had done any criminal breach under section 945A or section 1041E, as alleged by the ASCI. Thus, Mr. Cassimatis, director of Storm Financial Limited, is guilty for breach of a company director’s duties under section 180(1) and section 945A(1)(b) and section 945A(1)(c) of Corporation Act.
"Cassimatis Civil Penalty Proceeding | ASIC - Storm Financial Website". Storm.asic.gov.au. N.p., 2017. Web. 7 June 2017
(ASIC) v Cassimatis  FCA 1023
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