Inappropriate Behavior of Adler-.com

Question: What was the inappropriate behaviour displayed by Adler as an officer of HIH and other Companies he managed and controlled? Answer: Introduction: In case, ASIC v Adler [2002] allegation related to contravention of Corporation Act 2001 was made against the four defendants that was Mr. Adler, Mr. Williams, Mr. Fodera and Adler Corporation Pty Ltd. This case was filed by Australian Securities and Investment Commission (ASIC), and ASIC stated that defendants conduct nine transactions which contravene the provisions of Corporation Act 2001. These transactions are conducted for the purpose of misleading the shareholders of HIH. This case mainly focuses on the duties of the directors and other officers of the company operating within Australia. Inappropriate behavior of Adler: Nine transactions was highlighted by ASIC which were conducted by defendants, and especially by Mr. Adler and Adler Corporation Pty Ltd. It must be noted that Adler Corporation Pty Ltd was owned by Mr. Adler. First transaction was related to the advance payment of $ 10 million which was requested by Mr. Adler, and made by HIHC (subsidiary of HIH) to the Pacific Eagle Equity Pty Ltd. (PEE). Mr. Williams and Mr. Fodera were accused for the purpose of making this payment on behalf of the HIH. PEE was established by Mr. Adler for the purpose of making investment for HIHC. Mr. Adler purchased shares of HIH through PEE for $ 3,991,856.21 for stabilizing the share price of HIH, so that he can maintain the value of his shares in HIH by making the impression that shares of the HIH get support from the market. Later, Mr. Adler sold the shares through AEUT at the loss of $2,121,261.11. AEUT was incorporated through trust deed in which PEE was the trustee. These transactions are performed from the payment of $10 million made by HIH to PEE. These transactions were considered as offense because in these transactions duty of director was breached by Adler, and ASIC can claim against Mr. Adler and Adler Corporation. Mr. Adler fails to compile with their duties as director in both the organization that was HIH and AEUT. There were some other transactions also which includes issues related to unsecured loans by AEUT that cost almost $2,084,345 to the organization. While conducting these transactions, Mr. Adler enables the AEUT to give unsecured loans to: Morehuman Pty Ltd - $160,000. Intagrowth Fund No 1 - $500,000. Pacific capital partners - $200,000. PCP Ensor No. 2 Pty Ltd - $1, 2754755. Therefore, above stated transactions were considered as breach of directors duty by Mr. Adler. Conflict with Australian law: Above stated transactions contravenes various laws such as: Section 208 of the Corporation Act 2001 was contravened which states that before assigning any financial benefit to any specific member of corporate, requires approval from other members also. No evidences were present which states that approval has been taken by the defendants from board of directors (Corporation Act, 2001). Mr. William contravenes section 182 of the Corporation Act 2001. As per this section directors of the company must not use their power for the purpose of generating profit for themselves or any other person (Corporation Act, 2001). Failure on part of Mr. Adler in ensuring the interest of HIH and AEUT, made him liable under section 181(2) and 182(2). As per these sections, directors or other officers of the company need to exercise their power for proper reason and in the interest of the corporation. This section further prevents the director for using their power in inappropriate way. However, section 183 of the Corporations Act 2001 was breached by Mr. Adler and Adler Corporation, because Mr. Adler uses the confidential information of the company for the purpose of generating profits (Corporation Act, 2001). Mr. Adler also contravenes his directors duties under section 108 of the corporation act 2001. As per this section it is the duty of directors and other officers of the company to exercise their power and discharge their duties with reasonable care and skills. Therefore, Court stated that Mr. Adler fails to consider the benefits of the corporation such as HIH and AEUT, which make him liable for the breach of this section under Corporation Act 2001 (Corporation Act, 2001). ASIC further stated that defendants also breach section 180 and 181 of Corporations Act 2001. As per Section 180, director and other officers of the company must perform their duties in such manner which any reasonable person would do so. Mr. Adler and other defendants clearly breach their duties in above stated transactions. Section 181 states that decision made by director must be in the best interest of the corporation, and Mr. Adler and other officers breach this section by failing to ensure the best interest of the organization while making financial decisions. Punishment suffered by Adler: Mr. Adler suffered three punishments which include disqualification of Mr. Adler for the 20 years from managing the responsibilities of corporation under section 206C and 206E. ASIC also seeks for compensation under section 1317H and pecuniary penalty order under section 1317G. According to Section 1317H, court can order against the individual to pay compensation to the company in case any action of the individual cause damage to that company. Therefore, Court considers Mr. Adler and other defendants liable to pay compensation under this section and also make order to pay pecuniary amount of $200,000 (Corporation Act, 2001). Lesson learned from this case: After evaluating the facts of this case, it is clear that duties of directors and actions conducted by them must be put under direct scrutiny of the corporate law, and organizations must incorporate proper procedure in their management for the purpose of avoiding such misconduct in future. Facts of this case also state the important of decisions taken by director, and state that directors must exercise their power and perform their duties on with due care and in good faith for the purpose of ensuring continuous growth and success of the organization (Law Teacher, n.d.). Observations related to this case: After determining the consequences faced by Adler because of his actions, and ratification of other three directors of the company, clearly state the difference between the prior approval of board and ratification. According to Section 208 of the Corporation act 2001, it is necessary to get approval of the directors before availing any kind of profit to the particular member of the board. Therefore, approval is necessary in this situation because it nullify the validity of rectification. Conclusion: After completing this report, numbers of provisions related to corporation Act 201 are clear in mind, and this report also provides the detailed understanding of various sections and duties of directors. However, it also states the importance of corporate law in Australia and duties of directors defined by this law. Actions of Mr. Adler not only highlight the contravention of directors duties but it also states the understanding of responsibility associated with directors of the organization which make them more liable towards the company and stakeholders. It is the duty of directors and other officers of the company to exercise their power and discharge their duties with reasonable care and skills. Because of the actions conducted by Mr. Adler, there are number of punishments which he suffered such as disqualification for the period of 20 years for managing the responsibility of directors, compensation of $450,000 for own-self and similar compensation for the Adler Corporation which states the severity related to the actions in the view of the court. References: ASIC v Adler [2002] NSWSC 171. Corporation Act 2001- Section 208. Corporation Act 2001- Section 182. Corporation Act 2001- Section 181. Corporation Act 2001- Section 108. Corporation Act 2001- Section 206. Corporation Act 2001- Section 1317G. Corporation Act 2001- Section 1317H. Law Teacher. Case Summary ASIC V Adler. Retrieved on 20th August 2017 from: https://www.lawteacher.net/free-law-essays/company-law/case-summary-asic-v-adler-law-essays.php.