Director Responsibilities of HIH Samples for Students †MyAssignmenthe

Question: Discuss about the Law Director Responsibilities of HIH. Answer: Introduction Directors in a company carry certain responsibilities towards the company, and they should do the same to the best of their talent and knowledge. In the given case study, Adler was one of the main directors of HIH who acted on behalf c and took important decisions with regard to the company, He made of his dominant position in the company ,for his own personal interest and there we san abuse of power involved in the total case. Adler was held guilty was his actions and was made to pay specific amount of liability, the details of the a case with regards to the provisions of the section of the corporations Act are discussed here under. Light is thrown on how the important sections are breached by the director and what steps can be taken by the management to stop the same. This case is unique in many ways, and it shows how bad corporate governance can cause effect to the company in more than many ways. (Viven-Wilksch, J., 2015) Case Study The directors are the pillar of success of any company; they are required to take important decisions for the benefit of the company. In the given case Adler does not perform his duties , he agrees to sanction a loan to the tune of amount of dollar ten billion and also used some part of the same to buy shares to secure his own shareholding In this ways he caused the breach of his duties with which he was entrusted by the management. It is stated that the members should not indulge into any activities that would be detrimental to the affairs of the company, and should keep their personal interests away, while entering into any transactions on behalf of the company. In the given case, the main culprit was Mr. Rodney Adler, who held a very important position in the company; he was the substantial shareholder and also the non- executive director of HHI and also an officer of HHIC. AS per the rulings of the court, Adler has caused a lot of his duties as the director the company, under the sections 180, 181,182 and 183 of the corporation law. (Middleton, T., 2008) As per thecorporation law, under the specific section 180,181,182, and 183, a director of any company is required to certain duties that mainly are- As per section 180(1) a director is required to act in good faith and discharge his duties by applying proper due diligence in his work. As per the relevant provisions of the corporation act , every person is required to act by applying the best of his judgement while taking important decisions with regard to the company, as they were the director of the company or any officer acting in the same capacity. In case of ASIC v Adler, if any director would have acted diligently, he wouldnt have allowed the loan of amount of rupees $10 million, in order to procure some of the shares of HIH. Also it was stated that Alder dint did enough care to make endurance that HIHC was properly safeguarded. In fact he indulged in fraudulent practices to support his personal intentions of securing his own shareholding in the company. More than dollar four million was used to acquire unlisted shares, mostly if we see these companies had a poor standing and there was no safety of the investment that was ma de in them. As per section 180(2), of the Corporation Act, a business made by the director, will only be considered to be protected , overlooking the points of care and due diligence, if the following points hold true mainly that he exercised that judgement in his good faith, that there was no personal interest involved and that the judgement was carried in the best interest of the company. The main reason that this section was implemented to make the directors less risk averse because they feel protected that this section will eventually protect them. Alder brought up this section to protect him, stating that he took the decision of the loan to the best of his judgement, but the court over ruled the same, because the same can be applied, when the company doesnt suffer any losses because of the decisions of the director. In the given case the company faces losses, and thus it can be sad that the director dint act in good faith by applying proper care and due diligence.( Farrar, J.H., 2003) As per Section 181(1) of the Corporation Act a director must be hones t in all the work done by him for the company, honesty is the most important criteria for any director. In the given case we see that Adler used some of the loan that was given to purchase shares to secure his own shareholding, he was not honest in his work, and there was personal interest involved in his actions. This was contravention of the section 181(1). Adler also contravened the provisions related to the related party transactions under the section 208 an d209 and financial assistance section 260A- 260D UNDER THE Corporations Act. Hence all these led to a conflict between the personal motive of interest of Adler and the overall gain of the company; hence the director acted against the provisions and was dishonest in his work. (Pearce, J., 2010.) As per Section 181(1)(b0, a director must act with a proper purpose will doing his duties, There should be a proper purpose also the intention to act in good faith , both synced together are the best for any company. Adler acted with improper purpose, because he wanted to make gain by using the sum of loan money to buy shares in the HIH Company. His intention was to benefit himself at the cost of the company; hence the purpose was not proper.( Adams, M.A., 2005) As per section 182(1), a director shouldnt make improper use of his position; he is entrusted with substantial duties with relation to the company, which doesnt mean he can make improper use of the position of the company, for his own good. In the given case, Adler made use of his dominant position, by sanctioning the loan and using a part of the same to buy certain shares in the company. (James, N., 2008) As per section260A, that is in regard with the financial assistance that is provided by any company to some other company. The act forbids any company to give financial assistance to any company in which the director is holding some shares. There are few conditions which when satisfied can approve such aid, which namely are that the assistance must be provided in good terms, the creditors must be paid their dues before providing such assistance, and the terms of such loan should not be detrimental to the health of the company . in the given case we see that Adler who had controlling rights in the shares of PEE, contravened the provisions of this section by providing assistance to PEE through HIHC, a subsidiary of HIH, which is also a company controlled by Adler. This loan which was given to PEE was used to buy the shares of HIH from the stock market. It gave a false impression to the investors about the credibility of the company and the overall position of the company i the stock ma rket. The main behind such action was to increase the overall holding of the HIH share price in benefit of Alder Corporation Limited as substantial shareholding in HIH, making easy profit was not the sole motive behind such transactions and the company agreed to the same later on. In this ways these were the various sections that were contravened by alder in his capacity as the director of the company. (Adams, M.A., 2003) As a result of the following conventions, Adler suffered a lot; he had to pay a lot of penalties. If any director breaches any section under the corporation act he will be liable to the following - criminal offences will be liable to an overall imprisonment of more than five years, fine up to dollar two lakh or both. Also if any director makes use of his dominant position, he may be expelled from his work and wont be allowed to act as a director any further. In case of Alder since he breached his position, he would be liable to some fines and would be removed from his work for a period of twenty years. The court ordered Alder to pay penalty of dollar $450,000, and his corporation was required to pay an overall fine of $7,986,402 to HIHC. (Hargrove, A., 2009) Through this case study we can learn that the management of accompany in Australia as per the provisions of the Corporation Act must be done by the directors in good faith and in the best of their ability. The directors should abstain from breaching any of the sections else they would have to pay the required amount of penalty. The act has stated down various provisions with regard to related party transactions, financial assistance and other factors and the directors must see that they take all the important decision based on the same. It indicates lesson that anyone who is managing any company, should not involve their personal interest that they enter in behalf of the company. The profit of the company should be the first and foremost criteria and every director should try to maximise the same. The moment there is involvement of personal interest it will lead to criminal charges on part of the director, because they are hampering the company for their own good. The director should also try to take decision based on a proper purpose, they should see that these decisions are detrimental neither to the shareholders nor to the investors; none of their actions should give nay false impression to the investors regarding the position of the company financially. If on any point they feel that they need to take certain decision which may not gee in right in the eye of lame but that will virtually be bifacial for the company and their intention behind the same is not wrong they should go with the same. The main crux is that to manage the company your own interest needs to be sacrificed so that the company can gain. The company matters more than what you want for your own self. And all the provisions of the corporation act must be followed by the company as and what is stated by all the law, none of the actions must be beyond that, else the directors will be held personally liable. That is the main crux of the corporate governance. Every director should try to abide by the same.( du Plisses, J.J., 2003) Conclusion From this case of Alder vs. A ISC we see that whenever there are selfish motives on part of a director in his actions that he does for the benefit of the company initially that company would always suffer because the director is the flag bearer of the company, if the director doesnt act in good faith then the company will never progress. For the overall growth it is important that the directors follow all the provisions of the sections of the corporation act and does not breach them. They should be good in their approach towards their work and the base should be honesty in all that they do. This is the main crux of this case. It is a classy example of how corporate governance gone wrong can affect the overall growth of the company and also the directors who may be penalised for life for indulging such activities. (Hill, J.G., 2005) References: Reverberations after the HIH and other recent Australian corporate collapses: the role of ASIC.Australian journal of corporate law,15, pp.225-245. Regulatory responses to global corporate scandals.Wis. Int'l LJ,23, p.367. Company Secretary: Directors' and Officers' Statutory Duty of Care Following James Hardier.Keeping good companies,61(10), p.586. Are all directors created equal?: reassessing the role of the chair in the light of ASIC v Rich.Keeping good companies,55(4), p.204. Distracting the masses: Corporate convictions and the legitimisation of neo-liberalism.Macquarie LJ,8, p.179. Officers' duties under the microscope.Keeping good companies,57(9), p.516. Directors' duties of care, skill and diligence in Vietnam Corporate governance and the judges.Bond L. Rev.,15, phi. ASIC Corporate Investigations and Hearings: update 39. Thomson Reuters. The adventures of good faith: can legal history and international developments provide guidelines for Australia?.Alternative Law Journal,40(2), pp.89-92.