Functions and powers of ASIC.
ASIC refers to the Australian Government’s independent commission having the duties of a national corporate regulator.
Functions
- ASIC regulates the company and financial services and is responsible for enforcing laws that protect Australian consumers, creditors, and investors.
- Its key objective is to promote efficient and fair financial markets, mainly characterized by transparency and integrity(Zamanov et al. 2018).
Powers
ASIC has enforcement, facilitative and regulatory powers, and these include powers for:
- Making rules promoting the integrity of the financial markets.
- Making investigations pertaining to suspected breaches of the law makes it a basic necessity for people to produce books and provide solutions to questions in an examination.
- Issuance of infringement notices with regards to the alleged breaches of various laws.
- Seeking civil penalties from courts(Ramsay 2015).
- Commencement of prosecutions.
2. Purpose of liquidation.
Liquidation is primarily done when a company becomes insolvent, and its crucial aim is to collect the company’s assets, determine its outstanding claims, and satisfy those individual claims in an order or manner prescribed under the law. However, the most significant issue in this aspect is that the liquidator has the mandate of determining the organization’s title to the property under its possession(Patakyová and Gramblicková 2016).
Further, liquidation ensures that the debiting company is wound up fairly and equitably, and the outstanding debts are paid in due time. Hence, failure to pay the debt within the due timeline renders the company insolvent(Reinhart and Sbrancia 2015).
3. Fiduciary duties of a director plus importance to a company.
There are two significant fiduciary duties for directors operating a solvent corporation. The duties entail the duty of loyalty and duty of care which is owed to the corporation itself and the shareholders. As described under s81 of the Corporations Act 2001(Cth), a director must have the capacity to act in good faith, to the company’s best interests, and with reasonable care that any sound-minded person would similarly execute the same operations if allowed to perform such duties(CORPORATIONS ACT 2001). A director is required to exercise their duties with reasonable skills, diligence, and care on functions that should be carried out on the business’ behalf. Failure to do so raises issues of negligence claims hence requiring compensation for the director’s mistakes. Moreover, abiding by their fiduciary duties promotes the company’s success, for example, when they act in good faith.
4. Differences between a dividend and a debenture.
A dividend refers to the distribution of profits by an organization to the shareholders responsible for its development from the general definitions. Simultaneously, a debenture is a form of debt instrument usually backed by any collateral and lasts for more than 10 years.
A dividend does not necessarily constitute a business expense; hence, it is not allowed as a deduction, while the interests on a debenture constitute an expense, hence allowing it to be deduced(Hossain 2019).
When bound to winding up, the debenture preferably gains higher payment priority when compared with the dividend. Unlike the debenture holder, a dividend holder will considerably have a voting right.
A dividend is the company’s capital, while a debenture is its debt(Scichili 2015).
5. Duties and responsibilities of an Auditor
According to s307 of the Corporations Act 2001 (Cth), an auditor has a moral obligation to form an opinion regarding whether the financial reports comply with the accounting standards and if it provides a fair and accurate view regarding other matters. Besides, as described under s309 of the same Act, they should always ensure that they provide reports to other members(CORPORATIONS ACT 2001). An auditor further ensures compliance with the established internal control procedures by examining records, operating practices, documentation, and reports. Also, they verify assets and liabilities by making a comparison of items to the already laid documentation. Finally, the auditor completes audit work papers through documentation of audit tests as well as the findings.
PART 2 – CASE QUESTIONS – 25 %
Q1. Breach of director’s duties.
The Act of discovering a piece of land that would preferably adjoin a new high way, buying it and consequently selling it at a higher cost while in a mission of locating a suitable site for the company constitutes a massive breach of the directors’ moral obligations to the company stipulated under s.181 of the Corporations Act 2001 (Cth). According to this section, a director is bound to act in good faith to its employing company. The section directs that “a director or another officer of any particular corporation has a liability of exercising their powers and consequently discharging their duties in good faith in the corporation’s best interests”(ANDREW. KEAY 2016). The purchase and selling of the piece of the land are coincidental to breaches regarding acting to the company’s best interest and in its good faith. Thus, Hawkins needs to acknowledge that this provision legally bounds all directors working for any particular corporation. Any director or a corporation’s officer is considered to commit an offense when they are reckless or dishonest in their undertakings hence failing to exercise the powers entitled to them and duties they are enchanted to in good faith the best interests of the corporation as described under s184. An interim injunction should be brought against Simpson, preventing any further loss resulting from a breach of the director’s duty. He should also give the company all profits obtained from the private sales made in absentia of the company’s consent.
Q2. Potential Liability for prospectus and defenses
Advise John of the potential Liability that he and the company may face under the
Corporations Act 2001. Also, advise John of any defenses that may be available under
Corporations Act 2001. (5 Marks)
Under section 729 of the Act, an individual can acquire or recover losses or damages incurred from a given contravention. The person should rightfully be compensated as dictated by the Act. According to the section, an individual presumed to have suffered damage or loss as a result of an offer of securities provided under a disclosure document as regarded to have contravened s728(1) of the same Act and should therefore recover such an amount of the loss or damage from causing individual. In such an instance, the person should seek John’s compensation, given that he is the director of the body that had previously made the offer(Evans 2015). The contravention, which has to be compensated, entails states that an individual should not necessarily offer securities under a disclosure document when there is a deceptive or misleading statement in the document. Despite making the offer, the prospectus provided by Aust. Co. Ltd had a claim which forecasts the doubling of earnings within the upcoming three years. However, within the next two years, the company experienced a drastic fall in the earnings proving that this was a misstatement hence should be compensated.
In its defense, John could base his arguments under s732 of the same Act claiming that he should not necessarily suffer the Liability given that he lacked knowledge regarding the defects. The argument could solely be based on a statement stating that he was not involved in the prospectus preparations and would therefore have not ascertained the defects incorporated within the prospectus.
Q3. Liability for paying the company’s expenditures.
Every director of a given company acts as its trustee hence performing duties on its behalf. One such duty involves making the purchase of goods to be used within the company. A director shall not hold an individual liability when the purchase made is for the company’s benefit and better growth. In instances where a purchase is made the company yet is not registered, either of the directors can use such an opportunity in defense, hence avoiding making payments provided, there is a mutual misunderstanding. However, when the company is registered as in the provided case, making payments remains to the company whose responsibility of management relies upon the directors. Thus, both Ali and Peter should be liable for the supplied tablecloths.
Q4. Benefits of being a shareholder, rights, and responsibilities.
Benefits
There are three conspicuous benefits of being a shareholder. First, being a shareholder enables an individual to make money on the stock market, preferably at massive growth rates. The person has the advantage of determining their own risk strategies hence suiting their profile, and this enables them to cover the potential areas of losses and determine strategies to manage their profits.
Secondly, a shareholder owns part of the company by the mutual fact that they won shares. Thus, the person has an opportunity of sharing the capital growth of that particular company through receiving dividends(Goergen and Renneboog 2016).
Finally, the person has a voice and, consequently, a vote in the company’s operation, attending the Annual General Meetings and expressing their views concerning the operation of the company.
Rights and responsibilities of a shareholder.
Every shareholder has a right and responsibility to vote, access the company’s financial records, sue for wrongful doings, attend the AGMs, and transfer ownership.
Q5. Liability by a director under limited liability company
In most instances, a director is never held personally liable for payment of a company’s debts implying that the company’s assets remain at risk in the event that a creditor brings a court action against a company due to unpaid debt. Disregarding this fact, there are certain instances when the limited Liability is disregarded, making the director liable for paying the company’s debts(Jelsma and Nollkamper 2018). These include a case when there are an overdrawn director’s loan accounts, signing of personal guarantee, debts that have accumulated as a result of fraudulent actions like taking on credit the director knew they would not pay, misconduct by the director, continued payment of the shareholders’ dividends while the company remains insolvent, withdrawal or usage of the company’s funds for non-business actions and disposition of the assets belonging to a company at no value or undervalue.
References
ANDREW. KEAY, L. 2016. DIRECTORS’DUTIES. JORDAN Publishing Limited.
CORPORATIONS ACT 2001. CORPORATIONS ACT 2001 – SECT 45A Proprietary companies. Available at: http://www5.austlii.edu.au/au/legis/cth/num_act/ca2001172/s45a.html [Accessed: 9 September 2020].
Evans, M. 2015. Adding a Due Diligence Defense to Sec. 13 (b) and Rule 13b2-2 of the Securitie Exchange Act of 1934. Wash. & Lee L. Rev. 72, p. 901.
Goergen, M. and Renneboog, L. 2016. 17 The Social Responsibility of Major Shareholders. A handbook of corporate governance and social responsibility , p. 287.
Hossain, M.B. 2019. Regulatory Issues on Raising Capital through Debentures by Public Companies in the United Kingdom. Sriwijaya Law Review 3(2), pp. 111–123.
Jelsma, P.L. and Nollkamper, P.E. 2018. The limited liability company. LexisNexis.
Patakyová, M. and Gramblicková, B. 2016. Bankruptcy and liquidation: current legal situation in European and international context, solutions under the European model company act (EMCA). European Company and Financial Law Review 13(2), pp. 322–350.
Ramsay, I. 2015. Increased corporate governance powers of shareholders and regulators and the role of the corporate regulator in enforcing duties owed by corporate directors and managers. Eur. Bus. L. Rev. 26, p. 49.
Reinhart, C.M. and Sbrancia, M.B. 2015. The liquidation of government debt. Economic Policy 30(82), pp. 291–333.
Scichili, M. 2015. Liquidity proxies in the Brazilian debenture market. PhD Thesis.
Zamanov, A.R., Erokhin, V.A. and Fedotov, P.S. 2018. ASIC-resistant hash functions. In: 2018 IEEE Conference of Russian Young Researchers in Electrical and Electronic Engineering (EIConRus). IEEE, pp. 394–396.
