Company Law Assignment: Case Analysis of “Asic v Vines [2006]”
Question
Task
Write a report on company law assignment briefing the below case using IRAC method:
Asic v Vines [2006] NSWSC 760 (2 August 2006) http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2006/760.html?context=1;query=asic%20v%20vines;mask_path=
Answer
Facts
In case of “Asic v Vines [2006]”, selected herein company law assignment, the supreme court found that the defendant breached his obligation to perform with proper diligence and care as Vines failed to advise Due-diligence committee regarding profit forecast. Supreme Court disqualified defendant for 3 years and imposed $100,000 penalty on Vines. As per court’s decision all the directors and financial officers of GIO group including Mr. Robertson, Mr. Fox and Mr. Vines had breached their “Duty of Care” all of these directors did not inform financial advisors and management of GIO regarding potential impact of Hurricane George on achievement of $80M profit as per their forecast. Court held that no one of these directors should be relieved from their liabilities under provisions of “Duty of Care” and “Duty of Honesty”(Austlii.au, 2006). As per court’s decision, all of these directors had to give civil penalties due to their negligence in providing proper information.
Issue
GIO Insurance was one of subsidiaries of GIO group Australia and the defendant (Vines) was financial-officer of this company. There were two executive directors of GIO insurance Mr. Fox and Mr. Robertson. AMP limited’s subsidiary took over bid for GIO-Group and executive board of GIO published part-B profit statement as per which GIO is supposed to contribute $80 million of that forecasted profit. However, during final preparation of Part-B statement Hurricane Georges affected entire insurance market that called for preparation of part-B statement for finalising claim. A due-diligence committee was set up in which Vines was central member for preparation of part-B statement. ASIC is responsible for investigation of civil breaches of directors’ duties (Eprints.uk, 2015). Hence, as per allegation of ASIC, Mr. Vines neglected to act with due diligence and care during preparation of Part-B statement as being a financial officer it was known to him that Hurricane Georges would make it improbable to achieve forecasted profit. Vines totally relied upon directors for getting information regarding Hurricane claims and before November 1998, he thought that liability would not get exceeded more than $25 million; however, at the end of that year, Fox found a probable loss of at least $105 million.
Rule
As per case brief, it is evident that Mr.Vines breached his “Duty of Care” as he constantly supported integrity of GIO profitability forecast to DDC. In this case, directors of GIO group were protected from liabilities as per “Section 232” of “Corporations Act, 2006”(Everymanadvisroy.uk, 2016). According to this section of Corporations Act, court can protect company’s directors against liabilities for “Breach of Duty” or “Breach of Trust”. In this case, Mr.Fox had also breached his “Duty of honesty”; however,he tried to get relief from his liabilities by arguing on exercise of his “Duty of diligence” and “Duty of Care”. Based upon principle of “Section 1317A his claim was rejected as court found that Mr. Fox also violated civil-penalty provisions. As per principle of this section of Corporations Law, Court can charge civility penalty to a person (company’s directors) for breaching his or her provision of “Duty of Care” or “Duty of Integrity.” As per “Section 1318”of “Corporations Act”, directors are liable for insolvent trade breaches associated with organisations (Xynas and Xynas, 2021). As per “Section 1317EA(3)(a)” of “Corporations Act”, court can prohibit an individual from managing an organisation for a specified period by order in case of an civil-penalty disqualification. Corporations Law requires directors and supervisors to act with diligence when making any decision and their negligence results in violation of their “Duty of Care” (Petrin, 2019).Therefore, in case of “ASIC Vs Vines (2006)”, both director and financial officer ended up breaching duty-of-care and failed to act with integrity.
Application
Case example of “Australian Securities and Investments Commission Vs McDonalds can be provided for understanding applicability of different sections of Australian “Corporations Act” in case of “ASIC Vs Vines (2006)”. In this case, JHIL was one of ASX listed holding companies major operation of which was manufacturing and sale of asbestos products. In 2001 it established Medical compensation and research foundation and after this establishment, it released an ASX announcement stating that it had $293 million for meeting legitimate compensations claim anticipated from individuals affected by their asbestos products. Mr. Macdonald, CEO of this company announced that it had enough funds for addressing the claims. However, ASIC investigated this case as it seemed to be breaching civil-liability and in 2007, Australian-Securities and investment-commissions initiated civil-proceeding against this company for deceptive and misleading contact as it released false financial statement in relations to continuous exposure to breaches (Austlii.au, 2021). CEO of this company failed to act with “Duty of diligence” as he failed to advise board-of-directors properly for effective disclosure of deed. Court imposed pecuniary penalties in accordance with “Section 1317” of “Corporations Act” that was payable to Commonwealth-of-Australia.
Supreme court disqualified Macdonald from operations for a tenure of at least 15 years and imposed penalty of 350,000 dollars (Austlii.au, 2021). In this case, court protected board-of-directors from their liabilities as per “Section 1318” of “Corporations Law” as CEO acted with utter irresponsibility and could not provide proper information to board-of-directors. Hence, decision was in favour of appellant. In case of ASIC VsCassimatis [2020],court found directors (Mrs and Mr Cassimatis) of Storm Limited to be irresponsible in complying with their duties of care. They provided improper information to their clients regarding investment due to which they had to suffer from huge losses (Bennettandco.au, 2020). ASIC investigated this case and sued Cassimatis for breaching their “Duty of Diligence” as well as “Duty of Care” while carrying out their business operations as per “Section 180(1)” of the “Corporations Act.”
Conclusion
Finally, it can be concluded that in “ASIC Vs Vines” case, both director and financial-officer of GIO group were negligent in carrying out their activities with proper care. None of them cared to develop an amended financial statement after incident of Hurricane Georges. Due to their negligence, they could not predict whether achievement of $80,000 profit would be possible or not. However, Mr, Vines was largely responsible for this issue and for this court disqualified him.
Reference List
Journals
Petrin, M., 2019.Corporate Management in the Age of AI. Colum. Bus. L. Rev., p.965.
Xynas, L. and Xynas, A., 2021. Insolvency and the Australian Safe Harbour Reforms of 2017–Do they Adequately Support all Australian Directors in Fulfilling their Role as a Fiduciary of their Company in 2021?. Company law assignment Australian Journal of Corporate Law, 36.
Website
Austlii.au, 2006.Asic v Vines [2006] NSWSC 760 (2 August 2006), viewed on 22/09/2021
Austlii.au, 2021.ASE NOTE AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V MACDONALD [NO 11][*] CORPORATE GOVERNANCE LESSONS FROM JAMES HARDIE, viewed on 22/09/2021
Bennettandco.au, 2020.Director Duties and the Perfect Storm, viewed on 22/09./2021
Eprints.uk, 2015.ENFORCING BREACHES OF DIRECTORS’ DUTIES BY A PUBLIC BODY ANDANTIPODEAN EXPERIENCES viewed on 22/09/2021
Everymanadvisory.uk, 2016.Directors’ and Officers’Liability Insurance, viewed on 22/06/2021
Iknow.au, 2021.VINES v AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION , Supreme Court of New South Wales, Court of Appeal, 22 June 2007 viewed on 22/09/2021
