Australian Securities and Investment Commission v Cassimatis Case Study

Document Type:Case Study

Subject Area:Law

Document 1

The case provides succinct analysis of the breach of the duties by the directors and how they should have reasonably acted in accordance to the rules provided under the Corporations Act. Background of the case Storm Financial Limited (herein referred to as “the company”) was one of the companies registered in Australia and a holder of Australian financial services license. The company was providing financial services to their clients in accordance to a model which had been prepared one of the company’s director, Mr. Cassimatis. According to the model, clients would borrow funds against their homes’ equity and earning a form of margin loan. The company failed to provide a prospect that would help the clients recover their assets in case of loss.

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According to ASIC, the model which Storm used to provide financial services had failed shows any recovery possibility or clients who were almost retiring and who had invested both their incomes and assets (Australian Institute of Company Directors). Therefore, Storm was allegedly in breach of the Corporations Act that there should be all possible reasonable grounds when offering financial advice to retail investors. Moreover, ASIC clearly pointed out that the breach of section 180(1) of the Act occurred in two perspectives. One, Storm caused or permitted to offer advice to various investors using a model that caused them to contravene a section of the Corporations Act. Moreover, the court pointed out that analysis of the test involved several issues. Firstly, the consideration of whether there was any foreseeable harm interest of the company but at the detriment of the investors.

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Additionally, the analysis of the harm’s magnitude and the consideration of any possible benefits that would accrue to the directors were necessary. Lastly, whether there was any burden on the part of the company that pertained alleviation of the foreseeable harm to the investors. In its finding the Federal Court indicated that Storm had breached section of the Corporations Act offering financial services in accordance to a model that exposed the clients to vulnerabilities pointed out by ASIC. However, the court concluded such honesty and genuineness would not be excused owing to the provisions of section 3175 of the Corporations Act. The reason for the conclusion according to the court was because of the seriousness of the contravention and the vital roles as well as the responsibilities which the directors were expected to meet.

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Also, before the court was the issue of whether the directors solely owed the duties prescribed in section 180(1) of the Act only to the company. According to the defendant the duties was solely owed to the company but as argued by the applicant, section 180(1) was a norm prescription which extended to the members of the public as opposed to shareholders only. In this case, the court, however, accepted the submission of the directors but indicated that at no time should the company’s interest be narrowly construed and limited only to the interests of the shareholders. There is a possibility that section 180 of the Corporations Act would not be limited to the affairs but to the breach of other laws such as environmental laws.

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It is doubtless that the decision in the case above case never involved any breach of the environmental laws but the honorable judge revisited the question of whether breach of section 180 may be used to bring proceedings against companies’ directors who are in breach of environmental laws; “For instance, suppose a director makes a decision to commit a serious breach of the law, by intentionally discharging large volumes of toxic waste. Suppose the decision is made on the basis that the financial cost of avoiding the breach would be far greater than the cost of a pecuniary penalty under the relevant environmental regulation. This conduct might nevertheless involve a breach of the director’s duty of care and diligence, irrespective of any other breaches.

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