Corporate Law Securities and Investment

Question: Discuss about the Corporate Law for Securities and Investment. Answer: Introduction: The present case had been commenced as civil proceedings in the Supreme Court of New South Wales by the Commission of Australian Securities and Investment against James Hardie Industries Limited. The case was commenced in context to false and misleading preparation and presentation of public statements and breached the regulations of section 180(1) under Corporations Act. It was found that the case involved James Hardie Industries NV along with the seven directors, former non- executive and three former executives of James Hardie Industries Limited. The decision of the case presented the significance on the role of directors including executive and non- executive directors, along with the senior executive management of the organization. Further, the case also highlighted the appropriate implementation of legal regulations for considering the strategic matters, issues on corporate governance and other business decisions. Background of the case: James Hardie Industries Limited was holding/ parent company of the organizational group James Hardie that was engaged in the manufacturing and trading business of asbestos till the year 1937. Until the year 1987, the James Hardie group including its two subsidiary companies engaged in the business of same products. Later, in the year 2001, early February, the board members of the organization formed a foundation named Medical Research and Compensation in order to manage and satisfy the claim for asbestos products. Accordingly, the organizational executives prepared a draft ASX announcement for the purpose of public release which was approved by the board of directors. Another event occurred during the same time was formation of covenant and indemnity deed between the company and Coy Jsekarb to indemnify the organization from the liabilities against the trading of products. As per the release of ASX draft by the James Hardie Group, the total assets of the foundation was valued and stated to $293 million. It was mentioned that the said amount would be enough to meet the required funds for compensatory claims for the injury on using the asbestos products. In view of the press conference, it was noted that the organizations CEO, Mr. Macdonald, presented statements on the Foundations sufficient funds. Moreover, it was found that The Deed was not presented and revealed in any announcement made by ASX. Further, it was observed that the group of James Hardie was restricted after the formation of the Foundation, in terms of new parent company and incorporated in the Netherlands. During the year 2002, the CEO of the enterprise, Mr. Macdonald provided presentation across several regions stating the statement on sufficient funds in the Foundation with respect to the holding company, James Hardie Group. Accordingly, the Commission of Australian Securities and Investment initiated civil proceedings against the organizations (JHIL and JHNIV) for presenting false and misleading statement. The commission contended that the organizations provided false statements with respect to the securities leading to deceptive conduct and breach of continuous disclosures in compliance with the principles of Corporations Act. Apart from the organization, the proceeding was also commenced against the non- executive directors, CEO of the organization as well as the General Counsel along with the organizational CFO. Legal Issues The following case involves civil proceedings with respect to the supervision and regulation of the relevant principles of Corporations Act. The case incorporates whether the announcement made for the Foundation statement was approved at the meeting of the directors and whether the minute was prepared in compliance with the principles under section 251A and 1305 of the Corporations Act. It had been observed that the statement issued by the organizational directors contained fraud and misleading information to the investors and other stakeholders of the company. It is required to be determined that whether the directors of the company including senior executives breached the regulations of section 180(1) of the Corporations Act. Further, the present case requires to determine whether the principles of section 995(2) of the Corporations Act had been complied while making the announcement for the release of statement to ASX. Since the released statement contained the information on exis ting funds with the Foundation, it is essential to disclose the true and fair value of assets and funds for the benefit of stakeholders, investors and public. Accordingly, the final release of the statements requires to be approved by the directors as well as it is important to check the compliance of legal regulations for correct and fair disclosure of value of assets. Therefore, it is required to be analyzed whether the company followed the principles of section 995(2) and 999 along with the regulations of section 180(1), 181 under Corporations Act. It is to be determined whether the directors failed to comply the regulations of Corporations Act section 180(1) with respect to the approval of draft statement and public announcement made through ASX. Apart from the company and directors, the case includes analysis on compliance of Corporation Act regulations in part of CEO and general counsel with respect to the draft Information Memorandum to be used for the arrangement of members scheme. Additionally, regulations of section 1041 under Corporation Act along with the analysis of Listing Regulations 3.1 for the purpose of restructuring disclosures. Legal Principles According to section 251A under Corporations Act, the organization is required to prepare and maintain the minute book within the period of one month to record the resolutions and proceedings of the meetings. It is also important to record the proceedings of meeting of directors as well as other resolutions passed by the company directors or members. Further, section 1305 of the Corporations Act requires a company to maintain the corporate books for the purpose of admissible in evidence for proceedings or any other legal matters (Austlii.edu.au 2016). As per section 180 of the Corporations Act on care and diligence to be performed by the directors and executives, it is significant to exercise the duties for business activities by maintain reasonable care and diligence. The directors and executive officers are required to discharge the requisite duties with proper care so that the business decisions and activities reflects true and fair results for the stakeholders and public (Madsen and Rodgers 2015). For the purpose of any business decisions, directors and executives are responsible to make judgment based on good faith and it should not include any personal interest material to the company. Apart from that, section 180 provides that the directors and executives should inform themselves including the company for the purpose of appropriate and fair business decisions. It is important to conduct business activities as well as business decisions in the best interests of the organization as well he stakeholders (Crane, Graham and Himick 2015). Moreover, section 180(1) along with the sub- section (2) should be operated in compliance to the regulations of common law with respect to the directors duties. Further, section 995 as well as section 999 of the Corporation Act states the regulations on misleading or deceptive conduct for preparing and presenting the statements for dealing in securities. It states that any person, director or executive of the organization should not be involved in relation to the deal of securities for allotment, issue or for the purpose of publishing the related statements (Austlii.edu.au 2016). Moreover, it is stated that the contravention of section 995 would be considered if the statement of securities value or any other relevant information if it contains deceptive or misleading information. Accordingly, section 181 of the Corporation Act requires the organizational directors to present the business documents and statements in true and fair view as well as in good faith for the benefit of investors and other stakeholders of the company. If the any director or executive officer contravenes the principles of section 181, then the offender would be liable under civil penalty as per the limitations mentioned under section 1317E. Accordingly, section 1041 provides that the person engaged with the organization should not be involved in any transactions whether directly or indirectly to create artificial trading price (Austlii.edu.au 2016). Decision Considering the legal regulations and principles of relevant to the circumstances laid in the present case, the court contended that the directors and other organizational executives failed to comply the requirements of Corporation Act. It was found that the secretary, general counsel and other directors of JHIL breached the principles of section 180(1) since the concerned executives failed to ensure the accountability and fairness of the ASX announcement. As the statement mentioned the information on sufficient funds for paying off the compensation, it is significant to present the same with transparency and accountability. The responsibility of presenting the true and fair statement lies on the CEO, CFO, secretary as well as general counsel of the company ensuring the compliance of required provisions of Corporations Act. With respect to the indemnity deed, it was contended by the court that the organizational CEO and General Counsel did not comply the provisions of 180(1) for providing approval to release the deed with misleading information. Accordingly, in case of ASX announcement, the court found that the CEO of the company breached the principles under sections 999 and 995 of Corporations Act since the announcement contained misleading information. In order to present any statement for providing information to the public it is essential to provide correct and appropriate information, which was not presented by the senior executives of JHINV. Since the principles of sections 999 requires the company and concerned senior executives to present the appropriate announcement or public statements, it is essential to provide ASX announcement in compliance with the provisions (Trautman, Triche and Wetherbe 2013). The court found that the CEO of the company Mr. Macdonald did not comply the provisions of se ction 1041 subsection (E) and (H) for involvement in ant transactions. As per the regulations of section 1041(E) and 1041(H), any concerned executive of the organizations should not be involved in the business transactions or any financial products or services. According to the relevant provisions, financial products or service includes dealing or issue of services that involves offer price for securities, bidding or any other pricing recommendations (Augustin, Brenner and Subrahmanyam 2015). In case the requirements of section 1041(E) and 1041(H) are contravened then the offender would be assessed for civil liability under section 1041I, division 4. As per the analysis of the court, it had been found that the senior executives of the company including directors and CEO, regulations of section 1041 of the Companies Act had been contravened (Austlii.edu.au 2016). As a result, the concerned executives would be held liable under civil proceedings to contravene the provisions of Compani es Act for presenting deceptive information in the ASX statements. In addition, the court also found that the company as well as the concerned officials failed to act in good faith following the provisions of the Corporations Act. On the contrary, Australian Securities and Investment Commission failed to form the allegations against the group of James Hardie including senior executives. Accordingly, the court decided that the CEO of the company Mr. Macdonald and other senior executives failed to provide appropriate suggestions to the board of directors for compliance of section 180 and 199 under Corporations Act (Austlii.edu.au 2016). It was found that the secretary of the company, general counsel and CFO failed to verify the compliance of section 1041 and listing rules while disclosing the ASX announcement and other public statements. The Supreme Court of New South Wales held Mr. Macdonald guilty for non- compliance of section 180 subsection 1 of Corporations Act for approving the release of ASX final announcement without eliminating the misleading information. Similarly, while presenting and releasing the indemnity deed, the senior executives and directors failed to comply the provisions of section 995 and 999 in the best interest of the stakeholders and other investors. Therefore, the concerned officials i.e. directors, CEO, company secretary, general counsel and other senior executives held liable for civil penalty for contravention of Companies Act affecting the good faith and best interest of the public. Reference: Agrawal, A. and Cooper, T., 2015. Insider trading before accounting scandals.Journal of Corporate Finance,34, pp.169-190. Aryan, S. and Mirabbasi, B., 2016. Good Faith Principle and Its Consequences in Pre-Contractual Period: A Comparative Study on English and French Law, The.J. Pol. L.,9, p.232. 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