Asicasic (australian Securities and Speculations Commission)

About ASICASIC (Australian Securities and Speculations Commission) is Australia's corporate, markets and money related administrations supplier. They give help to Australia's monetary notoriety and development by confirming that Australia's money related markets are unprejudiced and clear, moved down by hazard opposed backers and fulfilled customers. They were organized under the Australian Securities and Speculations Commission Act 2001 (ASIC Act) and are additionally in charge of its organization. They are a free Region government body. They are responsible to the Province Parliament, the Treasurer and the Parliamentary Secretary to the Treasurer. About One. TelOne. Tel was a group of Australian based telecommunications companies, including primarily the openly listed One. Tel Limited (ACN 068 193 153) founded in 1995 soon after deregularisation of the Australian telecommunications industry, most of which are currently under peripheral management by court allotted liquidators.

The company was created by Jodee Rich and Brad Keeling and had prominent sponsors such as the Murdoch and Packer families. James Packer and Lachlan Murdoch were included in the Board of directors of the company. One. Tel made an effort to create a youth-oriented image to sell their mobile phones and One.Net internet services. It grew as Australia's fourth largest telecommunications company before dissolving in 2001. Rich and Keeling continued to receive $7m in payments shortly before the company entered administration. The company's slogan was “You'll tell your friends about One.Tel,” to create a link between the brand and personal communication. The company also had a cartoon mascot known as "The Dude". The Dude was an animated representation of a man in his early twenties, created by Adam Long, Jodee Rich's brother-in-law.

IssuesIn 2001 ASIC brought proceedings against three former directors and the non-executive chairman (the officers) of the now defunct One.Tel Limited and its relevant subsidiaries (the company). ASIC purported that the officers had breached their duty of care and due diligence under section 180(1) of the Corporations Act 2001 (Cth) (the Act) by failing to disclose the company’s true financial position to the board and to the market over a five month period from January to May 2001.The proceedings were previously discontinued in 2003 and 2004 against one of the executives and the chairman following settlement agreements which effectively banned those directors from future directorship for defined periods and held them liable to pay various amounts of compensation to the company. ASIC maintained the proceedings through a marathon hearing against the joint chief executive and director, Jodee Rich, and finance director, Mark Silbermann (together the defendants).

ASIC’s Arguments

The sole cause of action pleaded by ASIC against the defendants was a breach of the duty of care and diligence under s 180(1) of the Act. In this regard, ASIC alleged that the defendants contravened s180(1) by, among other things, misleading the board about the true financial position of the company. ASIC sought the following relief in relation to the alleged contraventions:

• civil penalties, including banning orders preventing the defendants from holding future company directorships;
• compensation in the amount of $92 million on behalf of the company’s creditors for losses alleged to have resulted from the alleged contraventions by the defendants of their duties of due care and diligence. More particularly, ASIC alleged that the defendants misled the board and the market as to the true financial position of the company across an extended period in 2001.

That meant that the Court was required to consider the financial position of the company, and the group of which it was a part, in order to determine whether the defendants had breached their respective duties.

Arguments of the Defendants

The defense focused on ASIC’s failure to prove its case as pleaded.

The defendants also relied heavily on the business judgment rule contained in section 180(2) of the Act. The rule provides a defence where commercial decisions are made as long as there is a rational belief that the business judgment is in the best interests of the company.

Relevant Laws and Rules180

Care and diligence—civil obligation onlyCare and diligence—directors and other officers1. A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:a) were a director or officer of a corporation in the corporation’s circumstances; andb) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

Business Judgment Rule

A director’s duty of care under section 180(1) of the Act is an objective reasonable person’s standard. According to Austin J:“the unbiased standard in the case of an executive officer or executive director has regard to the knowledge and expertise of persons in the same recognised calling as the person charged with contravention, and therefore alternative evidence of experienced people may had to be taken who have occupied similar offices. ”The business judgment rule, contained in s 180(2) of the Act, essentially provides a protection to an alleged contravention of section 180(1) in circumstances where the director or officer has made a business judgment (that is any decision to take or not to take action in respect of a matter relevant to the business operations of the corporation) in relation to which the director or officer has satisfied the following four elements:

• • the judgment has been made in good faith for a proper purpose;• the director or officer does not have a material personal interest in the subject matter of the judgment;• the director or officer has informed themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate;
  • the director or officer rationally believes that the judgment is in the best interests of the corporation (the director’s or officer’s belief being treated as rational unless it is one that no reasonable person in their position would hold).Austin J’s judgment provides a thorough analysis of the above elements of the rule. In particular, we highlight three areas of significance identified by his Honour.
  • Onus of Proof

Austin J concluded that the onus of proving the four elements of the business judgment rule rests on the defendant.

• • Informing oneself about the subject matter

In relation to this element of the rule, Austin J made the following comments:“The qualifying words, to the extent they reasonably believe to be appropriate, convey the idea that protection may be available even if the director was not aware of available information material to the decision, if he reasonably believed he had taken appropriate steps on the decision-making occasion to inform himself about the subject matter.”Court OutcomeAustin J found against ASIC on all aspects of its case and granted judgment for the defendants.

In his mammoth written decision, running to more than 3,000 pages, Austin J has painstakingly analyzed the relevant facts and the law supporting his decision in favor of the defendants. We do not propose to go into detail in this paper about the evidentiary basis for the decision, as the basis can be succinctly summarized from the following extract of the judgment:

• ASIC’s contentions have a superficial appeal, but time and again they were shown to be unpersuasive when the underlying financial detail was investigated.
• Instead, we propose to focus in this paper on two particular aspects of the judgment which are likely to be of interest to Directors & Officers (D&O) insurers going forward, namely: The criticisms of ASIC’s handling of the case; and Austin J’s analysis of the business judgment rule, both of these issues may help shape the future direction of ASIC’s enforcement activity.

Criticisms of ASIC

The most significant criticism was that ASIC’s case was far too broad in that ASIC directly put in issue the financial condition of the company over an extended period of time, rather than at a single date. In the words of Austin J: There is a real question whether ASIC should ever bring civil proceedings seeking to prove so many things over such a period of time as in this case. A case might have been brought focusing attention on One.Tel’s financial condition at a particular point in time ¦ I do not mean to express an opinion about the likely outcome of such a case ¦ Rather, my point is that such a case would have established much more limited boundaries of relevance and would have required an assessment of the Group’s financial position at the precise time of publication of the media statement. Instead, we have had a case which seeks to prove the financial condition of a large multinational corporate group with various businesses, some in start-up mode and some more established, over a period of four months, with a view to establishing not one but many breaches of the statutory duty of care and diligence. I wonder whether that is beyond the bounds of reasonable scope of civil litigation.

Conclusion

In my opinion, Judgment of Austin J. was fair enough. ASIC’s case had become strong if they had ben able to produce solid witnesses against the directors of One. Tel.