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Analysis of Case: Australian securities and Investment Commission, (ASIC) v Cassimatis director of the Storm financial services

Question:

1. Research on an Australian case (not more than 10 years old since the decision by the Court) involving breach of company director’s/officer’s duties under the Corporations Act 2001 (Cth).

Write a report outlining the following:

a. Case introduction.

b. The duties/responsibilities breached (ex. CA sections 181 or 588G) and explain why the duties were breached.

c. Discuss and critically ANALYSE the court/tribunal decision and the reason for the decision in view of the Corporations Act.

d. Where possible and applicable, the relevance of the decision to the development of Australian corporations law or the impact of the decision on the operation of companies in Australia.


Answer

a. Introduction of the case

In the recent case of Australian securities and Investment Commission, (ASIC) v Cassimatis director of the Storm financial services in Australia the commission has accused for breaching the duties. In this case, the court or the tribunal has observed that as financial director Cassimaties has not performed his duties and responsibilities towards the financial organization. As a result of this the growth of the organization has stopped in a certain stage and in this regard, the developmental process of the society or the country also hampered. According to the Corporation Act 2001, the financial director of an organization must responsible for any circumstances of the company and it is the duties of a director to observe all catastrophic consequences of the company (Coffee, Sale & Henderson, 2015).


In  addition to that, the duties of a director is to corporate governance of the company according to the Corporation Law, the director must observe the shareholder rights of the organization as well as the director has to observe the company’s constitution. Cassimaties has not performed all these duties and he has breached the duties toward the Storm financial companies for which the company achieve a huge loss in that financial year. In addition to that, the director of the financial company always perform in the best interest of the organization and all those interest ,must beneficial for the shareholders of the company. In this case, Cassimaties not taking any type of decision for which the shareholders of the company can maximize their benefit so the court file a case breach case against him (Smith & Duke, 2014). 


Background of the case

Cassimaties is one of the directors between the two directors of the Storm financial company in Australia. In this, financial firm a model was involved to provide loan to the people of Australia against the company’s equity and the company is raising funds to invest in the index funds. By following this model, they were also establishing a cash reserve. This is known as the ‘double gearing model’ by investing money on the basis of this model the investors has sustained a massive loss in the period of the global financial crisis. In this regard, the Australian court or the tribunal file up a case against the directors of the storm financial company under s180(1) of the Corporations Act as they breached their duties and responsibilities (Lucadou-Wells & Bourke, 2015)


The ASIC has stated that the storm financial company has incorporated a financial that has no future prospect and most vulnerable investors who are close to their retirement have incurred the loss. In this case, most of the investors had the limited resources and assets and most of them have no prospect to recover again. Therefore, by analyzing the situation the commission has file up the case against the directors of the company. In this regard, the financial model of Cassimaties has no financial base and it was not developed by following the rules of the Corporation Act. The storm financial services have not advised their clients according to the Corporation Act for which the risk of the investment has not exposed to the investors in that time of investment (Beaton-Wells, 2015).


b. The reason why the duties and responsibilities were breached

The Australian Court has found that the Storm financial company has advised the investors to invest by following the ‘double gearing model’ of Cassimaties not on the basis of the guidance of the Corporation Act. As a result of this the vulnerable clients have incurred a huge loss for which the court has file up the case of breaches duties and responsibilities under the s180(1) Corporation Law. In addition to that, Mr. and Mrs. Cassimaties were the highest power of the Storm financial company and their decisions were the last decisions of that organization for which the court has file up the case against them (Tricker & Tricker, 2015). If the directors of the organization will be more serious then they can be able to protect the investment of the investors and the assets of the vulnerable clients can be saved. In this case, the decision of the court was right in the light of the Corporation Law. In this regard, a strong suggestion and the duties were required but Mr. and Mrs. Cassimaties were unable to perform those duties for which most of the investors have lost their limited assets. As a result of this, they are suffering from a dangerous financial crisis. 


In this regard, the court has noted the Mr. and Mrs. Cassimaties as the offenders because of their performances, the investors were suffering from this type of situation. The financial organization has no offence because all the responsibilities were in the hand of the directors of the organization and their duties were to perform all the responsibilities and taking the decisions which maximize the benefits of the shareholders. However, the director of the storm financial organizations has not taken any decisions for which the shareholders can maximize their benefits (Grinblatt & Titman, 2016)


On the contrary, the activities and the decisions were wrong for which the shareholders of the company is suffering from a severe financial crisis and most of the clients of the company has lost their assets no space were left to recover the crisis. In this regard, the directors were identified as the offenders according to the Corporation law under s180(1) and some legal steps will be taken by the Australian securities and Investment Commission and also taken by the Australian court or tribunal. According to the current situation, the decision of the court was totally ethical and very much appropriate because of the casual performance of the directors of the storm financial company the society and the people were in danger. In addition to that, the financial company also lost their reliability from the mind of the people of Australia (Winter & moffit, 2017).


Therefore, it is clear that all the decision of the court was in favor of the clients who has incurred a huge loss and in this case, the directors of the storm financial company may ask to provide the financial compensations to those investprs.


c. Critically analyzing the court/tribunal decision

The Court connected the test under s180(1) of whether the chief had practiced a sensible level of care and determination in the activity of his forces in the release of his duties. The Court noticed that the utilization of the test includes a thought of all conditions including the predictable danger of mischief to the interests of the organization, the extent of that damage, the potential advantages accumulating from the chief's lead and the weight to the organization of any activity to lighten the predictable damage (Beekes, Brown & Zhang, 2015). The Court found that Storm had ruptured the Corporations Act by giving budgetary administrations as indicated by the model to the class of defenseless customers distinguished by ASIC and the chiefs had broken their obligations of care and ingenuity on the grounds that: 


A sensible chief of an organization in Storm's conditions and with Mr. and Mrs. Cassimatis' duties would have known about a solid probability of a repudiation of the Corporations Act. In the event that he or she practiced his or her forces to cause or allow the Storm model to be connected to customers who were in a class argued by ASIC, especially financial specialists who were resigned or close retirement with couple of benefits and constrained pay (Hanrahan, Ramsay & Stapledon, 2013).


Discussing the reason of the decision in the light of the Corporation Act

The Court found that the ruptures by Storm were not only sensibly predictable but rather that a sensible executive in the position of Mr. and Mrs. Cassimatis would have viewed them as likely. The Court found that the course of lead by the chiefs was a solitary contradiction by each of Mr. and Mrs. Cassimatis and not various negations steady with the quantity of speculators who constituted the class of defenseless financial specialists. ASIC surrendered that there had been just a single contradiction by each of the executives (Smith & Shiells, 2016). The chiefs presented that an executive who is a sole investor of a dissolvable organization couldn't break s180(1) by direct liable to repudiate the Corporations Act. The accommodation was put on the premise that it is for the chiefs and investors to decide the hazard an organization is set up to expect in the quest for benefits. The executives presented a chief would be acting with care and steadiness regardless of the possibility that he or she acts purposefully in repudiation of the Corporations Act since where executives and investors are the same, endorsement of the executives' demonstrations is understood.


d. Discussing the impact of the decision on the operation of organizations in Australia

In very specific terms, the Australian Court of Tribunals has lodged a case against one of the key executive directors of the Storm Financial Company under the acquisition of violating some major responsibilities appointed to Cassimaties. The case has been lodged under the section of s180(1) of the Corporation act prescribed by the Australian securities and Investment Commission (AISC) and the respective charge is of violating major duties and heralding the financial firm towards collapse (Ruggie, 2014). After critically evaluating the legislative verdicts, it has been evident that the allegation is chiefly driven by the employment of the ‘double gearing model’ in order to generate the required cash index. However, the lack of systematic strategies and prudent management skills succumb the respective financial firm to collapse. This collapse on the backdrop of global financial decline can be characterized by the significant negligence and lack of attention while monitoring the percolation of residual capital. As it is a general practice to employ the double gearing model while pursuing the ultimate objective to generate cash index, most of the financial firms has started to scrutinize their prevalent practice of cash generation (Allen & Kraakman, 2016)


This considerable and flagrant breach of organizational duties has made the identical concerns alert and aware about their efficiency and proportion of liability they are endowed with. Albeit it is difficult to abide the prescribed Corporation act all the time since it is impossible to be ethically, correct all the time. In this course of legislative vulnerability, the corresponding financial firm has acquired a chance to exploit the potential loopholes underlying within the infrastructure. In order to evade the issues of taxation business executives of several financial firms are prone to exploit the double gearing model in order to enhance the cash indices while ensuring the return of assets to the potential shareholders. In this course of time, the improper exploitation of the prescribed model may collapse the entire cash structure of the respective financial firm. This improper exploitation can be characterized by the sheer negligence of the relevant authorities. As the current issue has been founded upon the previous apprehension regarding the exploitation of double gearing model, potential practitioners of this model started catering the purpose where they appear to adamant to revise their system of cash monitoring (Strine Jr, 2015)


Moreover, as the presence of financial loopholes is an inherent fact, this issue and the associated legislative verdict have facilitated the previous process of revising the percolation of cash. Usually it is seen that, organizations tends market to use the facts of the study in order to make changes in the prevalent case structures of the o company. In addition you that, it also helps in identification of the key issues that may arise and accordingly formulate action plan in order to mitigate the same. The presence of financial problems is common in the normal course of business in an organization. In this regards, it becomes the responsibility of the management of the organization , to adopt stringent policies that will help; to eliminate any risk and avoid any kind of future contingencies. 

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