Background of the ASIC v Padbury Mining Limited Case

Research on ASIC v Padbury Mining Limited given an Australian case (ideally not more than 10 years old since thedecision by the Court) involving breach of company director’s/officer’s duties under the Corporations Act 2001 (Cth).

ASIC v Padbury Mining Limited [2016] is most significant cases of Australia, which has contravened the Corporation Act 2001 (Cth). The Australian Securities and Investments Commission (ASIC) is the plaintiff in this case. The Padbury Mining Limited, Gary Wayne Stokes and Terence Martin Quinn are the defendants in this case.

In this case, the First defendant has found to contravened the section 1041H(I) of the CA by publication of an announcement by the ASX where the representation has stated that the First Defendant has secured the funding in the amount of $6 billion to construct an associated rail network and deepwater port at Oakajee. However, ASIC has found that it has consisted of misleading or deceptive conducts. The first defendant also found to contravene the section 1317E of CA by not notifying the Australian Stock Exchange Limited about the duration of the release of the Oakajee Funding Announcement. Along with it, they also have contravened the section 674(2) of CA.

The second defendant has found contravened the sub-section 674(2A) of CA due to their involvement with the first defendant while contravention of subsection 674(2A). The second defendant has also found to breach the section 180(1) of CA Act of the failure of the director’s duty. According to this section, the directors of any organization are bound towards their duties with the degree of care and diligence (Coffee, Sale and Henderson 2015).

The third defendant was found to contravene the sub-section 674(2A) of CA Act for the involvement with the First defendant who has contravened the sections of sub-section 674(2A) and the penalty has been declared according to the section 1317E of CA Act. The third defendant is the director of the corporation who has breached to exercise their duties with the degree of care and diligence according to the section 180(1) of CA Act.

According to the fact of the case, ASIC has alleged that the company was misleading their facts regarding the funding agreement, which has failed to meet the actual criteria. As per the precedent agreement, the company was supposed to procure the sum of $1.3 billion in demand guarantees in three tranches. The directors of the Padbury have been found to breach the section 180(1) of CA, which is, defined the directors’ duty. However, the Federal Court of Australia has found several findings against the company where they have been included that:

• Padbury has made of misleading and deceptive representation while the announcements of the title ‘Oakajee Funding Secured’ where they have secured $6 billion for the construct of a deepwater port, which was associated with the rail network at Oakajee. Therefore, they have breached the section 1041H of the CA.
• The directors of the company Stokes and Quinn have found acted such misleading and deceptive conducts.
• The organization has found to breach their disclosure terms. According to the terms, the company was bound to receive the funding where the company was not in the position to satisfy the period of the announcement. They have failed to act according to their promise to provide the obligations of disclosure.

Contraventions of the Corporation Act 2001 (Cth) by Padbury Mining Limited and Its Directors

However, while such approving of the announcement the directors of the company have found to breach their duties of care towards the organization with the degree of care and diligence according to the section 180(1) of the CA (161 ALR).

According to the facts, the court has imposed penalties of $25,000 by each of the directors in the company and $200,000 to pay each of them towards ASIC’s costs in conducting the proceedings. The ASIC has alleged the company and directors have engaged in unlawful contravening conducts. 

As per the section 191 of the Evidence Act 1995 (Cth), the parties have executed the agreed statement. However, the court has alleged that it has contravened the Corporation Act 2001. The directors of the company have breached the sections of 180 (1) and 674 (2A) of CA moreover, paid a pecuniary penalty in the sum of $25,000.

Padbury has admitted that the publication of the ASX Oakajee announcement, the potential investor has secured the funding with the amount of $6 billion for construction of the Oakajee project. The representation has consisted of misleading and deceptive conducts. The agreement was represented mislead and deceptive because the company has not enough funds where they can able to pay or procure the issues from any bank or other financial institution. Therefore, the demand guaranty was obliged to procure under the shareholders’ agreement as a pre?condition for equity contribution. The organization was not secured with any commitment from any EPCs in South Korea or any other entity where they can able to obtain the issue by a bank or any other financial institution of any of the demand guarantees in the near future or at all (161 ALR).

The company has contravened the section 1041H of the CA. The directors of the company have admitted that the conducts are authorized the publication of the ASX Oakajee funding announcement. Therefore, the directors are found to engage with the conducts, which are misleading and deceptive conducts in relation to the financial products. 

The organization has found to contravene the section 674(2) of the Corporations Act. The Court has found that Padbury has accepted the existence of the conditions precedents in the shareholders agreement, which was occurred during the period of 9:40 am to about 2:15 pm on 11 April 2014 and the information has influenced those persons who are generally invested in the securities in deciding about to acquire shares in the organization. Therefore, the organization may have a direct material effect on the price or value of their own shares. Here, one question has arisen that whether the organization aware of their existence according to their conditions precedent in the shareholders’ agreement. The organization has accepted their contravention of section 674(2) of the CA and 3.1 of the ASX Listing Rules and notified to ASX immediately (161 ALR).

Penalties Imposed by the Court and the Pleading of Guilty

Padbury has conducted the same admissions, mutatis mutandis, in relation to the failure to disclose the identity of the party or parties responsible for providing the funding under the shareholders’ agreement. Therefore, automatically it has contravened the section of 674(2) of the CA. The directors of the company Mr. Stokes and Mr. Quinn have found with the relation of continuous disclosure contraventions. They have admitted about the continuous disclosure contraventions of the company. Therefore, they have contravened the section of 674(2) of CA (326 ALR 476).

The directors of the company Mr. Stokes and Mr. Quinn have found to breach the section 180(1) of CA. As being the directors of Padbury, they have owned to exercise their duties with the degree of care and diligence. Now according to the statement of the ASX Oakajee funding announcement, Mr. Stokes and Mr. Quinn have admitted about the relation of the company with the misleading and deceptive conducts in the Oakajee projects. Therefore, it was a harmful or potentially harmful to act with such misleading and deceptive conducts. Now the statement has contravened to the section 1041H of the Corporations Act. If the company has found in the relation with the misleading and deceptive conducts in the Oakajee projects, then it may the reputation of Padbury. It might be jeopardized market perceptions of the company, which will include their ability to obtain the urgent development in the Oakajee project and may expose the company for regulatory and litigation action (326 ALR 476).

Now according to the fact of the case, if the organization failed to disclose the information which falls within the ambit of section 674 of the Corporations Act, then it will increase the contravene or risk contravening of section 674 of the CA.  Therefore, it will also affect the reputation of the organization. Here, it needs to mention that the ASX Oakajee funding announcement conveyed or was capable of conveying the secured funding representation and the agreement by the shareholders should contain the demand guarantee conditions precedent.  Therefore, the ASX Oakajee funding announcement must not disclose any of the existence of the precedent conditions. It is the duty of the directors that they must exercises their duties with the degree of care and diligence towards the organization. They have failed to meet their responsibilities towards the organization. They have breached the section 180(1) of CA Act (326 ALR 476).

Director’s Breach of Duties and Their Impact on Padbury Mining Limited’s Reputation

The section 180 (1) of CA Act has legislated that a director is bound to act with their powers and discharge of their duties with the degree of care and diligence when he holds the position of director and must be occupied with their duties and responsibilities towards the organization.  Therefore according to the contravened with this section, the directors of the company Mr. Stokes and Mr. Quinn have found to breach the section 180(1) of CA. As being the directors of Padbury, they have owned to exercise their duties with the degree of care and diligence (Coffee, Sale and Henderson 2015). Now according to the statement of the ASX Oakajee funding announcement, Mr. Stokes and Mr. Quinn have admitted about the relation of the company with the misleading and deceptive conducts in the Oakajee projects. Therefore, it was a harmful or potentially harmful to act with such misleading and deceptive conducts (326 ALR 476). Now the statement has contravened the section 1041H of the Corporations Act. However, while such approving of the announcement, the directors of the company have found to breach their duties of care towards the organization with the degree of care and diligence according to the section 180(I) of the CA (161 ALR).

The section 674 of CA Act has legislated the continuous disclosure, which is listed for disclosing the entity is required by a disclosure requirement in market listing rules. The obligation to disclose in accordance to the listing rules where the disclosing entity is in relation with the entity of the market operator where they will mention about their specified events which may arise for the importance of the operator making that information available to participants in the market (161 ALR).

This section is applicable when it is included in the listed disclosing entity and that entity can able to provide information, which is required for the entity to notify the market operator. In most of the cases, the information is not generally available under the entity. When the information is found available, then a material effect may found in accordance with the price or value of ED securities of the entity. Therefore, the entity must notify the market operators, which are related to the provisions. Due to the failure of such contravention, the penalty may impose according to the section 1317E of the CA Act. Therefore, the organization may have a material effect on the price or value of their own shares. Here, one question has arisen that whether the organization aware of their existence according to their conditions precedent in the shareholders’ agreement. The organization has accepted their contravention of section 674(2) of the CA and 3.1 of the ASX Listing Rules and notified to ASX immediately. The directors of the company Mr. Stokes and Mr. Quinn have found with the relation of continuous disclosure contraventions. They have admitted about the continuous disclosure contraventions of the company. Therefore, they have contravened the section of 674(2) of CA (161 ALR). 

the First defendant has found to contravened with the section 1041H(I) of the CA by the publication of an announcement by the ASX where the representation has stated that the First Defendant has secured funding in the amount of $6 billion to construct an associated rail network and a deepwater port at Oakajee. The second and third defendant was penalized according to the section 1317E of the CA Act for the contravention of section 674(2A) of the Corporations Act (161 ALR).

According to the facts, the court has imposed penalties of $25,000 by each of the directors in the company and $200,000 to pay each of them towards ASIC’s costs in conducting the proceedings. The ASIC has alleged the company and directors engaged in unlawful contravening conducts.

Reference

ASIC v Padbury Mining Limited [2016] FCA 990

Asic.gov.au. 2018. 15-156MR ASIC takes civil action against Padbury Mining and two directors | ASIC – Australian Securities and Investments Commission. [online] Available at: https://asic.gov.au/about-asic/media-centre/find-a-media-release/2015-releases/15-156mr-asic-takes-civil-action-against-padbury-mining-and-two-directors/ [Accessed 15 Jan. 2018].

Asic.gov.au. 2018. 16-263MR Padbury Mining directors banned for three years due to ‘Oakajee Funding Secured’ announcement | ASIC – Australian Securities and Investments Commission. [online] Available at: https://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-263mr-padbury-mining-directors-banned-for-three-years-due-to-oakajee-funding-secured-announcement/ [Accessed 15 Jan. 2018].

Coffee Jr, J.C., Sale, H. and Henderson, M.T., 2015. Securities regulation: Cases and materials.

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Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476

Australian Competition and Consumer Commission v REIWA Inc (1999) 161 A