Law for ASIC v Cassimatis of Storm Financial Ltd †Free Samples

Question: Discuss about the Law for ASIC v Cassimatis of Storm Financial Ltd. Answer: Case introduction: As a result of the collapse of Storm Financial Ltd. due to the global financial crisis of 2008, there were noteworthy media consideration and this resulted in an inquiry by the Joint Committee of the Parliament. This company was formed by Emmanual Cassimatis and Julie Cassimatis as a private corporation in the beginning. Other relevant time, both of them were the solitary executive directors of the company. They owned all the shares in the company. These were the circumstances when ASIC started proceedings against both of them in the Federal Court of Australia. It was alleged by the ASIC that we have committed a single breach of duty of care and diligence, mentioned in s180(1), Corporations Act. This section is civil penalty provision and it requires that directors or other officers have a legal obligation to use their powers and performed their duties by exercising the same care that can be expected from a reasonable person if such person is acting as a director of the corporation u nder similar conditions and held the same office. In this case, Edelman J, gave a judgment hostile to Mr. and Mrs. Cassimatis regarding their responsibility for the beach. This judgment acts as a significant reminder to the directors regarding their duty mentioned in 180(1). Duties/Responsibilities: According to the case of the ASIC against Mr. and Mrs. Cassimatis, it was alleged that they were responsible for a breach of s180(1) when they caused or allowed Storm to provide advice to the particularly investors on the basis of the Strom model in a way due to which Storm had actually, breached the sections of Corporations Act. The sections included s 295A(1). According to this provision, which has been repealed in 2012, it was required to financial services licensees like Storm should only provided advise to a client only if:- keeping in view the information given by the client regarding their relevant individual situation, the entity providing advise as considered and carried out inquiry of the subject matter of the advice as can be described as reasonable under the circumstances (s945A(1)(b)); and the advise can be considered as appropriate for the client, keeping in view that consideration and investigation (945A(1)(c)). In this context, it was held by the court a high bar has been set by the ASIC for itself to ascertain liability, to the extent that the court had grave doubts whether it is necessary that an actual breach is required by corporation for breaching the provisions of s180(1). However, the court proceeding on the grounds as the parties had conducted their case in this manner. Regarding the particularly investors, 45 persons or 27 persons or couples were there, on whom ASIC finally relied. In brief, they were retired persons or going to retire and as a result, they were particularly vulnerable to losses due to the reason that they had small income and little assets other than their family home and somewhat restricted superannuation. According to Storm model of investment, that was developed by Mr. and Mrs. Cassimatis. Briefly speaking the concept of borrowing was involved in it to invest the amount that the investors would otherwise be ready to do, for the term of five years of more. One witness has described his strategy as double gearing. Therefore in this case there was borrowing by the investors against the security of their homes, getting a margin loan and using the funds obtained by such loan to invest in index funds, creating a gas reserves and to pay the fee of the company. Moreover, it was argued by the ASIC that in causing or allowing employees to be given in a manner that resulted the contravention of the corporations act by Storm, Mr. and Mrs. Cassimatis had uncovered the company to a predictable risk of harm that was larger than the risk, which would be allowed by any other reasonable director, who was acting with the necessary care and diligence. In this case, it was observed by Edelman J that the major test that can be used in case of the duty imposed by s180(1) is the decision given by Ipp J in Vrisakis v ASIC (1993. The court had stated that "the mere fact that a director has been involved in conduct in which a predictable risk of harm was present to the interests of the corporation will not essentially mean that such a director had been unsuccessful in exercising reasonable care while discharging his duties. The question if the director had exercised reasonable care in a particular case can only be answered by balancing the probable benefits that could were rationally likely to be achieved by the corporation as a result of such conduct with the foreseeable risk of harm to the company". Another significant matter that needs to be considered while conducting this balancing exercise is the burden of alleviating action (Edmunds and Lowry, 2003). Further, it was stated by Edelman J that "the foreseeable risk of harm that may be created to the company, falling under s180(1) is not only limited to financial harm. Therefore such harm includes any harm that may be caused to all the interests of the company (Blackstone, 1765). The interests of the company which include its reputation also include the interests that are related to compliance with thelaw by the company as well as the risks of facing sanctions as a result of the breach of law (Cross and Harris, 1991). It is also be noted in the decision given in this case that even if the duty of care is the same, the standard of care that can be expected from a director or an officer to meet depends on the circumstances of the corporation as well as on the position and responsibilities of the officers which include his status as an executive or not (Edmunds and Lowry, 2002). In this regard, the court referred to the decision given in Shafron v ASIC (2012). In this case, it was stated by the High Court of Australia, in context of the elements mentioned above, that "the responsibilities that have been imposed by s180(1) are not only limited to the statutory responsibilities. Therefore, these responsibilities include all the responsibilities that have been given to the officer concerned in the company, irrespective of the way these responsibilities were imposed on such an officer. Due to this reason, it is said that in case of the nonexecutive directors of the company, the same (higher) standard is not applicable as is the case with the executive directors. On the other hand, in their defense, it was argued by Mr. and Mrs. Cassimatis that s180(1) was not applicable in a case where the director is the sole shareholder of a solvent company or in other words, the claim that there is nothing by itself illegal in the director of a solvent corporation to cause or allow the corporation to chase a venture, even if it is highly risky", if such an act is authorized by the shareholders (Heydon, 2006). However, the court rejected this submission due to various reasons, including the reason that the above-mentioned submission does not found support in s180(1). In this context, Edelman J stated that the interests of the shareholders are included in the interests of the company. Therefore, if the shareholders have acquiesced to a particular course of conduct, in such a case the acquiescence can have an impact on the practical content of the duty. However, the acquiescence does not do away with the duty, in case other relevant interests of the company, other than the shareholders interests exist (Getzler, 2002). Analysis: It was revealed by the evidence submitted in this case, the Mr. and Mrs. Cassamatis were centrally related with almost every aspect of the business of the company. Moreover, they had an extraordinary degree of control with the company, which included control over the advisors and the procedure of providing advice regarding the Storm model. One witness has described the board meetings of the company as information sessions that were conducted by Mr. and Mrs. Cassamatis and the independent, non-executive directors of the company remained passive. Therefore the court commented that. Even in there was evidence present regarding desired on part of Mr. and Mrs. Cassamatis to encourage suggestions, new ideas of communication, but in view of the control that they excised over the company, the possibility of dissent or contradiction was substantially stifled and they must be aware of it. Under the circumstances, keeping in view the actual responsibilities of Mr. and Mrs. Cassimatis in the company, Edelmam J arrived at the conclusion that civil contraventions of s945A(1)(b) and (c) have been made by the company in this case. The court discovered that the violation was not only rationally predictable but at the time of the contravention, any other reasonable director having similar responsibilities would have been aware of the clientele and demographic of the company and therefore should have considered these breaches as highly likely. Particularly any reasonable director under similar conditions and with the same responsibilities would have known that there is strong likelihood that inappropriate advice may be given that contravenes s945A, Corporations Act if such director does not use his or her powers to stop the company from applying the Storm model in such indiscriminate circumstances, for example, when it was applied to vulnerable clients. Regarding the consequences of the breach, it was found by the code that although a number of relevant investors had faced major losses after the global financial crisis, these were neither essential nor enough for the breach of s295A by the company. On the other hand, any reasonable director who has the responsibilities of Mr. and Mrs. Cassimatis and acting under the circumstances of Storm, should have known that, if not probable, at least there was a real prospect of the likely breaches at some point. The results of such a discovery included the suspension or the cancellation of AFSL of Storm. As a result that this was a very significant threat even to the existence of the company, the court stated that such a possibility would have been taken by any reasonable director very gravely. In context of the burden of alleviating action, it was discovered by the court that taking the precautionary measures would be simple for trying to avoid the obligation of Storm model to the greedy class of clients. In view of the responsibilities imposed by s180(1) Mr. and Mrs. Cassimatis were under an obligation to take alleviating precautions that would have been sufficient under the circumstances. But the court noted the fact that they failed to take any steps at all. As a result, the court arrived at the conclusion that there has been a breach of s180(1) by Mr. and Mrs. Cassimatis. On the basis of this decision, it can be said that in view of the duty of s180(1) the directors have a responsibility to balance the probable risk of harm being caused to the company as a result of certain course of action with the burden caused by taking the alleviating action. In this context, harm includes the harm that may be caused any interests of the corporation. It is not required by s180 that they should be proof of real or potential loss to the company. The standard of care that is needed to release the duty of the directors depends on the circumstances of the company, the position held by the director or the officer and whatever responsibilities have been given to them. 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