Asic vs Vizard : Case Analysis Against Corporation Act

Case introduction

As per the guidelines of the Corporations Act of 2001, the listed companies of Australia are liable or subjected to the compliance of several duties or responsibilities. Along with the operations of the companies, this act also obligates the directors and the officers of the companies with several duties. Breach of the duties are considered to be civil offence and the directors and the officers often face subsequent consequences regarding the gravity of the breach occurred.

Background

This report attempts to bring forth several facts regarding the ASIC Vs Stephen William Vizard which comes under the case category of corporate governance. This 2005 case significantly highlighted several potent layers of the director’s duties and responsibilities. The significance and gravity of the case lies in its judgment decision that significantly became the subject of criticism by Australian media. In the media release it was simply stated that Stephen William Vizard had been banned from managing any corporate activities for ten years and has been penalized to pay pecuniary penalties of $390,000. The charges in this case was considered to be civil but not criminal ( www.allens.com, 2017).

ASIC Vs Stephen William Vizard (2005) is primarily concerned with the liabilities of the director which demands refrain from the use of confidential information during the course of directorship for any kind of possible improper purpose. As per the guidelines of section 183(1) of CA, a person who have the capability to obtain information because of his or her positional power of being a director or an officer of any listed company along with being an employee of any listed corporation are subjected to protect important and confidential information that are associated with the operations of the organization. This guideline strictly prohibits improper use of the information for individual interest, profit or advantage (Barthle, 2012). Causing any kind of detriment to the corporation is considered to be offensive and breach of the Director’s duties.

Section 183 (1) comes under the civil provision by the statement of section 1317Eof the Corporations Act of Australia. By the virtue of this provision if a court is pleased that a person is guilty of contravening section 183, then it is legally important to make a declaration of contravention under section 1317E of the Corporations Act (Shay, Fleming Jr & Peroni, 2015). The court has the right to order under the stated section the guilty personnel or the director or the officer to pay the Commonwealth a pecuniary penalty. This penalty is considered to be a civil debt which needs to be paid to ASIC on behalf of the Commonwealth. The contravention in this case considered to be the following:

• Materially prejudicing the interests of the members of the corporation as well as the corporation
• Materially prejudicing the ability of the corporation for paying its creditors
• sombre breach of the duties

In addition to the mentioned activities the court also has the power to order under this section of the Corporations Act, the guilty officer or the director to compensate the damaged that occurred to the corporation as a result of the contravention. Other orders that the court can make includes disqualifying the director from managing the corporation activities for a particular specified period of time.

Facts of the case

In the year 2000 Mr. Vizard who was at time a non-executive director of Telstra Corporation Limited, had also founded a company which was known as Technology Investments Pty Limited. In this new company the accountant Mr. Lay was the sole director along with the sole shareholder of the enterprise ( www.allens.com, 2017). Another important fact is that in 1999 the beneficiary shares of the Brigham Pty Ltd was owned b y Mr. Vizard along with his wife and children. This company was a trustee company. After that Brigham had entered into a loan contract with CTI and it indicates that it took loan from CTI and the funds were provided by Mr. Vizard or entities who were related to him. The loan funds had been applicable to the purchase of a shared portfolio. As per the findings of the court, Mr. Vizard had entered into three share transactions in the year 2000 which was a result of obtaining confidential information in the capacity of Mr. Vizard as the director of Telstra. It is evident that these transactions indicted his profit (Payne, 2014).

The details of the transactions are;

1. In case of the first transaction, Telstra held a stake in Sausage limited and Solution 6 Holdings Limited. in 2000 these three companies had confidential conversations as the court found out. The Telstra CEO had sent an important email to the board of directors including Mr. Vizard regarding the proposed Solution 6 transaction. As a consequence of the whole transaction incident ultimately the Sausage Share price increased substantially and CTI made an immediate profit. In 2000 because of Mr.Vizard’s instruction to Mr. Lay CTI ultimately faced a loss of $150,000 on the investment (Legg & Jordan, 2013). As per the findings of the court the loss was due to the dramatic drop in the price of the shares of Sausage.
2. The second transaction that was associated with the shares that CTI had acquired in Computershare Limited, on the instruction of Mr. Vizard. Telstra held an interest of about 15 per cent in Computershare as far as this transaction is concerned. Mr Vizard instructed Mr Lay to sell CTI's holding in Computershare which resulted in CTI’s small profit on the sale. Telstra then announced regarding the investments of its shares in Computershare and the market price of Computershare's securities decreased initially but then it increased.
3. The third transaction was associated with an acquisition by Telstra of an interest in Keycorp Limited. Justice Finkelstein considered that the Telstra CEO had previously advised the directors in late June and early July 2000 of a proposal by Telstra that concerned acquiring a 51 per cent interest in the company Keycorp. The price of Keycorp shares was supposed to rise when the proposed acquisition was announced and this instigated Mr. Vizard to instruct Mr. Lay to acquire a number of Keycorp shares. The price of Keycorp shares increased following the announcement and Mr Vizard ultimately attempted to realise a profit by instructing Mr Lay to dispose of the shares.

Breached duties or responsibilities

The fiduciary duties of officers and the directors of the corporations have been provided with statutory force by the provisions that are contained in the second chapter of the Corporations Act. The provisions that regulate the conduct of the directors are given immense importance. This case provide a significant instance of breaching the duty of the director to prevent a corporation from trading while being insolvent (Sarens, Christopher & Zaman,  (2013). This is one of the evidences of recent years that indicates the subject of a range of litigation.

 In this case the breaches were Mr. Vizard being a director of Telstra was involved in the following activities:

• He was found guilty of obtaining confidential information by using his positional power by the virtue of being a director of the company.
• He had also made improper use of the information as he had based his decision to purchase or sell the subsequent shares because he had the information.
• This improper use of information indicates toward his opportunity to gain profit or advantage for CTI for Brigham.

Vizard pleaded guilty of the breaches of section 183(1) of Corporations Act along with section 2329(5) of the act. As found in the findings of the court report he admitted of breaching his duties and carried out share dealings for his personal benefit and misused the information that he had obtained by the virtue of being a director of Telstra.

Critical analysis of the court or tribunal decision

Penalty considerations by the court

The court considered whether the contraventions were serious enough to make a pecuniary penalty order and the Chief justice Finkelstein noted that:

• The white collar crime has the potential to make a huge number of people suffer who are associated with any corporation
• If adirector has denied his capability to use the confidential information for his or her own interest, it is not important whether the activities of the director has caused any harm to the company.
• The relief that has been provided under Corporations act is directed in order to avoid the harmful consequences that are associated with a particular conduct.
• As section 232 had mentioned earlier and section 183 also acknowledges it is significant to establish a code of behaviour in order to ensure proper conduct of commercial life.

However, the court accepted Mr. Vizard’s submission which mentioned that he will not engage in such conduct in future and acknowledging the instances of his philanthropic roles and his service to the community for the principle consideration of the imposed punishment.

Considering the factors like the reason of lack of profit due to decline in the share market and considering the general deterrence before imposing the penalty the court had charged the appropriate penalty for each contravention and that was $130,000. The Justice frank also noted that the current amount of maximum payable penalty is of $200,000 and it requires Parliament review ( www.allens.com.au, 2017).

The order of disqualification

As per the section 206C of the Corporations act, ASIC has the power of asking the court to disqualify a person from the activities of managing any corporation for a specific period of declared time. This case noted that disqualification order can be imposed in order to protect the interest of the shareholders against any further abuse by several imposed punishments and for general deterrence. 

As per the decision of the court a five year disqualification order was appropriate for the subsequent breaches that occurred and Mr. Vizard acknowledged that there needs to be some period of disqualification (Barthle, 2012). 

The present case punishment was not accounted to personal deterrence or rehabilitation as the defendant himself admitted his wrongdoing that was prior to the institution of the proceeding. He also made an open statement that expressed his unreserved contrition for his wrongdoing.

Impact of the decision on the operations of companies in Australia

According to Pearce, Dowling & Sim (2012), a spate related to corporate collapses based on high profile along with those of One. Tel and HIH have resulted in the ASIC (Australian Securities & Investments Commission) pursuing a large number of directors along with the officers with respect to the management of their corporations. Moreover, there is a recent decision served by the Federal Court working in Australia, which is a timely reminder of all the powers, which have further been given to the ASIC for pursuing suspected contravention associated with the CA via a way related to the proceedings of civil penalty. Furthermore, those proceedings can be brought against the directors of high profile and substantial companies. 

McLachlan (2013) has included few more influences of decisions on the Australian Company’s operations; they maintain, promote and facilitate the performance of their financial system including the entities involving with the Australian high profile companies. In addition, under the ASIC act, the company’s regulator administers the law effectively along with minimal procedures related requirements. They make information about the companies along with other bodies that are available to all the public as quick as practicable, at the same time; they take whatever action they can along with which one is necessary for enforcing and giving effect to the law. 

Conclusion

It can be commented regarding the nuances and the verdicts of the relevant court that the outbreak of these sorts of white-collar crimes is gradually increasing. As an optimistic aftermath of the current court proceedings and the penal wraths, new moves have been emerged to oblige the officers and directors to the employees and the corporations while preventing the individuals to commit that. These intend to ensure the commitment of the directors and the officers towards the relevant legislative obligations of the current lawsuit. In the context of the current lawsuit, apart from emphasizing on the customers duty and liability of the officers, the relevant court can be requested to impart a humanitarian perspective towards the criminal.