Australian Securities And Investments Commission V Padbury Mining Limited: Analysis And Decision

Facts

Discuss about the Investments Commission V Padbury Mining Limited.

As per the facts,

Padbury Mining Limited (Padbury) (1^st Defendant) is a public company who shares are normally listed at the Australian Stock Exchange. The 1^st defendant aims at constructing and developing a deep water port at Oakajee and along with it an associated railway network. On 8^th April 2014, there were several contracts that were made by the 1^st Defendant with several parties. One of the party to the contract was Superkite Pty Ltd (Superkite), which agreed to provide $6 billion to a subsidiary of Padbury provided there are few pre conditions which must be comply with by the 1^st defendant. The money was required for the funding of the construction of the Oakajee project.

After 3 days, that is, 11^th April 2014, an announcement is made by the 1^st Defendant at the ASX wherein it made a declaration that the company has acquired $6 billion for the

development and construction of the Oakajee project, but, nothing was disclosed regarding the pre conditions that must be fulfilled by the company in order to secure the money from Superkite. Nothing was also disclosed regarding the entities that agreed to comply with the pre conditions as mentioned by Superkite.

When all these proceedings were going on, at that time, the 2^nd (Managing Director) and 3^rd (executive director and chairman) defendant were the directors of the 1^st defendant and were part of the drafting of the funding announcement and the responsible for the release of the said announcement. The 1^st defendant also request ASX to halt the trading of the shares till the announcement is made which resulted in the increase of the trading of the shares from $0.02 per share to $0.045 a share.

However, on 29^th April 2014, the agreement to secure funding was terminated, funds were never raised and the project was never constructed. 

Because of the above facts there were several duties that were violated. The duties which were violated are discussed below along with the reasons as to why the duties were violated.

As per the facts, the directors were authorized to make the disclosure but the acts of the directors are in violation of section 180 (1) and section 674 (2A) of the Corporation Act 2001.

For 1^st Defendant (Padbury Mining Limited)

1. That there is violation of Section 1041 H (1) of the Corporation Act 2001

That 1^st defendant has violated Section 1041 H (1) of the Corporation Act 2001. The violation is incurred because the defendant has procured the publication of the announcement that was made in the market by the Australian Stock Exchange on 11^th April 2014 which was  known as ?akajee Funding Announcement. The announcement carries with it a secured funding representation that the 1^st defendant has attained funding of $6 billion which is required to build a deep water port and related rail network at Oakajee.

The duties/responsibilities breached and reasons

However, the representation was misled and deceptive or likely to mislead or deceive. The deception is likely to deceive or mislead mainly because the representation that was made by the  1^st defendant requires it has to comply with certain pre conditions which are likely not to be comply with by the its defendant. The inability of the defendant to comply with the conditions exists when the announcement was made.

2001. That pursuant to section 1317E, there is violation of sub section 674 (2) of the Corporation Act 2001.

That the 1^st defendant has not notified to the Australian Stock Exchange Limited any information regarding the funding pre conditions that the defendant is required to be comply with and that are mentioned under Paragraph 22 and 31 of the statement of claim. The information must be provided amid the date of release of the Oakajee Funding Announcements, that is, 9:40 am AEST and at or about 2:15 pm AEST on 11 April 2011.

For 2^nd Defendant (Gary Wayne Stokes)

2001. That pursuant to section 1317E, there is violation of sub section 674 (2) of the Corporation Act 2001.

That the 2^nd defendant was involved with the 1st defendant, when the contravention of sub section 674(2) was incurred by the 1st defendant.

1. Violation of section 180 (1) of the Corporation act 2001

That the 2^nd director being associated as a director with the 1^st defendant was found to be in contravention of section 180 (1) of the corporation act 2001. The degree of care and skill that is required from the 2^nd defendant wile complying with his duties are not met as what is expected from a normal prudent man. Te position, responsibilities and the duties that are associated with the post of the Managing Director of the 1^st defendant was not met by the 2^nd defendant when compared with a normal prudent man. He approved and authorized the release of the Oakajee funding Announcement and thus resulted in allowing the 1ts defendant to make a Secured Funding Representation which is nothing but the violation of section 1041H of the corporation Act 2001.

 For 3^rd Defendant (Terence Martin Quinn)

2001. That pursuant to section 1317E, there is violation of sub section 674 (2) of the Corporation Act 2001.

Reasons

That the 3^rd defendant was involved with the 1st defendant, when the contravention of sub section 674(2) was incurred by the 1st defendant.

1. Violation of section 180 (1) of the Corporation act 2001

That the 3^rd director being associated as a director with the 1^st defendant was found to be in contravention of section 180 (1) of the corporation act 2001. The degree of care and skill that is required from the 2^nd defendant wile complying with his duties are not met as what is expected from a normal prudent man. The position, responsibilities and the duties that are associated with the post of the Executive Director and chairman  of the 1^st defendant was not met by the 2^nd defendant when compared with a normal prudent man. He approved and authorized the release of the Oakajee funding Announcement and thus resulted in allowing the 1ts defendant to make a Secured Funding Representation which is nothing but the violation of section 1041H of the corporation Act 2001.

The court makes the following order

1. Against 2^nd defendant – Taking into consideration section 1317G of the Corporation Act 2001, the 2^nd defendant is found to be in violation of section 180 (1) ad section 674 (2A) of the Corporation Act and thus he must be penalized with pecuniary penalty for $25,000. He is also disqualified from the post of the Managing Director for 3 years from the date of the orders by applying section 206C
2. Against 3^rd defendant – Taking into consideration section 1317G of the Corporation Act 2001, the 2^nd defendant is found to be in violation of section 180 (1) ad section 674 (2A) of the Corporation Act and thus he must be penalized with pecuniary penalty for $25,000. He is also disqualified from managing the corporation for 3 years from the date of the orders by applying section 206C

• Against 2^nd and3rd Defendant – that both the defendant will pay the cots of the proceedings, that is, a fixed sum of $200,000.

The decision is laid down on 19^th August 2016 by Siopis J.

1. Misleading conduct – The defendant admitted that the acts that are carried out by them were misleading and deceptive in conduct. It is admitted by the 1^st defendant that the publication that is made to ASX regarding the funding announcement actually makes the potential inventors to believe that the company has secured $6 billion to construct the Oakajee project which was not true. The representation was deceptive and misleading in nature because in reality in order to secure the funds the 1^st defendant needs to comply with certain conditions which were not discoed along with the announcement.

Thus, the acts of the defendant were misleading and deceptive in conduct which resulted in the violation of the provisions of section 1041H the Corporation Act 2001

2001. It is also admitted by the 2^nd and 3^rd defendant that their conduct through which they authored the publication to the ASX regarding the funding announcement was an act of deception and misleading the potential investors and thus are in violation of the provisions of section 1041H the Corporation Act 2001.

• Section 674 (2) of the Corporation Act 2001 - The 1^st Defendant along with 2^nd and 3^rd defendant agreed that section 674 (2) of the corporation Act 2001 was violated by them mainly when:

2014. It was agreed that the information that the 1^st defendant requires to comply with few pre conditions before securing findings from the third party was not made available to the public amid 9:40 am to about 2:15 pm on 11 April 2014. This was the information which has the influence over the proposed investors before making their investment decisions and has a significant effect over the share price of the 1^st defendant company.

There is an obligation on the 1^st defendant under section 674(2) of the Corporations Act and 3.1 of the ASX Listing Rules to bring such information in the notice of ASX which was not complying with which resulted in the violation of section 674 (2) of the Corporation Act 2001.

2001. That the 1^st defendant also not available any information regarding the party or the parties who are responsible for providing funding under the agreement and the non-disclosure has resulted in the violation of section 674 (2) of the Corporation Act 2001.
2002. Section 180 (1) of the Corporation Act 2001 – the 2^nd and 3^rd defendant agreed that they are in violation of section 180 (1) of the Corporation Act 2001. They agreed that on 10^th April 2014 when the approval of the funding announcement at ASX was made then they must be aware that:
2003. non disclosure of all the information regarding the funding announcement will likely to deceive and mislead and which is untimely result in the violation of section 1041 H of the Corporation Act 2001.
2004. That if the misleading and deceptive acts of the defendant will be disclosed then it will hamper the good will of the company and will deteriorate its funding requirements. It will also result in litigation and regulatory actions against the company;
2005. That failure to disclose information as per section 674 of the Corporation Act is nothing but contravention of section 674 of the Act and will ultimately hamper the reputation of the business and will hamper its ability to raise finance for the project.
2006. That the defendants must be aware that no disclosure of the information regarding the funding requirements is nothing but failure on their part to act with careful and in diligent manner resulting in the violation of section 180 (1) of the Corporation Act 2001.

The relevance of the decision to the development of Australian Corporations law or the impact of the decision on the operation of companies in Australia

After the decision  of Australian Securities and Investments Commission v Padbury Mining Limited [2016] FCA 990, it is clear that responsibly is imposed on the managing director , executive director and chairman  on the company that their acts must be such that does nit result in any kind of misleading and deceptive conduct. It is necessary that all relevant information must be provided by them in order to avoid any kind of breach under section 674 and section 180 of the corporation Act 2001.

Reference List

Books/Articles/Journals

Australian Securities and Investments Commission v Padbury Mining Limited [2016] FCA 990 < https://download.asic.gov.au/media/3985403/asic-v-padbury-mining-2016-fca-990.pdf>.

Case law

Australian Securities and Investments Commission v Padbury Mining Limited [2016] FCA 990