ASIC V Steve Vizard (2005) – Case Summary And Analysis

Case Details

Case introduction: The ASIC had started proceedings against Stephen William Vizard for civil penalties, and at the same time, it also wanted a disqualification order from the court. Mr. Vizard was the non-executive director of Telstra Corp Ltd. Similarly, he had also formed the company named Creative Technology Investments Pty Ltd. His accountant Mr. Lay was the sole director and shareholder of this corporation. At this time, Brigham Pty Ltd was working as the trustee company in 1999. Mr. Vizard beneficially owned the cheers of this company, along with his wife and children. A loan agreement was created by this company with Creative Technology. Through this agreement, loan was provided to Creative out of the funds that were supplied by Mr. Vizard or the companies related with him. These funds were used for the purpose of purchasing a share portfolio. But it was found by the court that in this case, Mr. Vizard had made three share transactions on the basis of the confidential information that has been received by them as a result of his position in Telstra has on account of such information, it could be assumed by Mr. Vizard that such transactions would be profitable for him.

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In the first instance, Telstra had a strategic stake in Sausage Software Ltd. as well as in Solution 6 Holding Ltd. However, the court discovered in this case that confidential discussions were held between Telstra and these two companies. These discussions are related with the possibility of merging these two entities and a significant stake will be acquired by Telstra in the newly created entity. In this regard, the CEO of Telstra sent e-mails to the members of the board of Telstra. These directors included Mr. Vizard. In these e-mails, never told regarding the proposed transaction. Under these circumstances, the court found that Mr. Vizard became aware of the fact that when the general public was going to know regarding the merger, there will be a significant increase in the price of these issues. As a result, Mr. Lay was instructed by Mr. Wizard to buy shares of Sausage. Accordingly, these shares were purchased and Telstra also announced the merger. Consequently, the share price of Sausage went up considerably and CTI made an instant profit of around $140,000. Later on, Mr. Lay was instructed by Mr. Vizard to sell these shares. Only a small parcel of these years can be sold at a profit and in the end, CTI suffered a loss of $150,000 in case of this investment. The court also discovered that a significant drop in place in the share price of Sausage after this loss due to the “tech wreck” of April 2000.

Duties Breached

The second transaction was elated with the purchase of shares by CTI in Computershare Ltd. Regarding this purchase also, Mr. Wizard had given instructions to Mr. Lay. Telstra had a holding of around 15% in Computershare Ltd. . During these proceedings, it was revealed that the Telstra CEO had told the other directors that it needed funds for the transaction concerning Solution 6. These funds were going to be raised by selling the stake held by Telstra in Computershare Ltd. In this regard, the fact needs to be noted that Mr. Vizard was particularly concerned as we knew that after selling so many shares of Computershare by Telstra, there will be a significant drop in the share prices of Computershare. Under these circumstances, Mr. Vizard gave instructions to Mr. Lay that he should immediately sell the shares belonging to CTI in Computershare. The sale of these shares resulted in a small profit for CTI. When Telstra made an announcement in connection with its disinvestment of shares in Computershare, the share prices of Computershare faced a steep decline but they picked up later on. 

In case of the third transaction, an interest was acquired by Telstra in Keycorp Ltd. In context of this transaction, the court came to know that an advisor is given by the CEO of Telstra to the directors of the company concerning the proposal that Telstra should require 51% interest in Keycorp Ltd. It was found by the court that chances were present that the share prices of Keycorp Ltd. will rise sharply after an announcement was made regarding the proposed transaction of these shares by Telstra. These were the circumstances when Mr. Vizard asked Mr. Lay to buy the shares of Keycorp Ltd. After Telstra made an announcement regarding the proposed acquisition of shares, indeed, the share prices of Keycorp Ltd. witnessed an inclined and Mr. Vizard also thought of making a profit. Therefore, he instructed Mr. Lay to sell these shares.

Duties breached: Section 232 mentioned at the relevant time and thereafter, s183, Corporations Act provided that the directors should not improperly use the information that is given to them due to their position. Such improper use may take place when the information is used by the directors for obtaining a personal benefit (Regal (Hastings) Limited v Gulliver, 1967). In this case, it was discovered by the court that there was a breach of these provisions. The facts, on the basis of which this decision was made was that as the director of Telstra, Mr. Vizard came across confidential information. However, he made an improper use of the information. The information was used improperly, in order to obtain a benefit for CTI and throw it, an advantage for Brigham, and ultimately for Mr. Vizard and his family.

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Imposing Penalties

When the court was considering the issue if the breach of duty by Mr. Vizard can be considered a ‘serious’ (that is required in case of imposing pecuniary penalty, unless it can be established that the conduct. Considerably prejudiced the interests of the corporation or its ability to pay the creditors), the court arrived at the conclusion that as a result of white collar crime. The society has to pay a high cost. Similarly, it also results in causing great suffering to a large number of people.

The law has prohibited the directors from using any confidential information received as a result of their position, for achieving a personal benefit (ASIC v Rich & Ors, 2005). In this regard, it does not matter if the director’s actions have not caused any harm to the cooperation or if the corporation was not divested of any opportunity that the company could have used for his own advantage. In this regard, the relevant provisions of the Corporations Act have been introduced for the purpose of avoiding the potential harmful consequences that may be caused due to particular conduct. Section 183 has been introduced with a view to establish a norm of behavior for the directors/officers of the corporation regarding the conduct that can be termed as proper in commercial like. Hence, in the present case, the ASIC and the Court had accepted the submissions of Mr. Vizard when he promised that such conduct will not be repeated by him. They submissions made by Mr. Vizard, and also the evidence that was submitted in the court regarding the good character of Mr. Vizard, including his philanthropic role and the services for the community, these submissions were accepted. However, the court mentioned ACCC v ABB Transmission and Distribution Ltd., (2002) where it has been discovered that instead of the character of the offender, the nature of offense should be the key consideration when the court is going to impose punishment.

Among the factors that were treated as relevant by the court while deciding this case, was the factor that as a result of the decline in share market, a profit could not be made by Mr. Vizard. But in this regard, the court stated that this site was not relevant that a profit has not been made by the defendant on account of his breach of duty. The court, however, stated that general deterrence of conduct should be a consideration when penalties are going to be imposed on the defendant. The court also held that even if shaming is a part of punishment, but it cannot be treated as a substitute for retribution (ASIC v Healey, 2011). However some discount can be permitted regarding the penalties imposed on the directory there has been an early acknowledgment of wrongdoing, and also in cases where the director cooperated with the regulator. The court stated that it should not depart from the penalty that has been rightly selected by the parties except in cases where the penalty can be said to be out of bounds. For this purpose, the court referred to the decision given in NW Frozen Foods Pty Limited v ACCC (1996). 

Relevance of Offense

The ASIC had claimed in this case that the appropriate penalty. In case of each contravention by Mr. Vizard would be $130,000. Therefore the court stated in its order that a total penalty of $190,000 should be imposed on Mr. Vizard. The court stated that it would have imposed a higher penalty on Mr. Vizard if the parties would not have given any restrictions regarding the amount of penalty. At the same time, the court also held that the maximum penalty that can be imposed on the directors and present was $200,000 for each contravention.

Critical analysis: After examining the decision given by the court in this case, it can be said that this decision is in favor of increased regulation related with the conduct of the directors in Australia. So far as the political implications of this case are concerned, a storm was created by the media after the decision was given by the court. Such events were likely to have significant impact on the approach that the regulators will be adopting in future regarding similar matters. It can also be said that in view of this decision, significant efforts will be made by ASIC and Director of Public Prosecution for ensuring that if any ‘deal’ is made with the defendants regarding civil penalty proceedings, should not face any criticism by the court or by the media. Similarly, the analysis of this decision also reveals that it is likely that as a result of the comments of Finkelstein J. made in this case may end up in increasing the maximum penalty that can be imposed on the directors are violating the civil penalty provisions, particularly if the Parliament considers these comments.

Moreover, as a result of this decision it is also likely that the parties to civil proceedings will have an obligation of being aware of the fact that more onerous penalties may be imposed by the court in appropriate cases if it is found that the penalty recommended by the regulator is not sufficient. It is also worth mentioning that demands being made to introduce amendments in the law so that the directors’ and officers’ duties could also be applied to the employees and other concerned persons in the corporation.

In this way, this case provides a number of lessons for the concerned parties. The ASIC had also learned some new responsibilities. There is no doubt that the reputation of the ASIC suffered damage as it had to face considerable criticism on account of its actions while conducting the case. However, the regulator could have avoided some of this criticism if the media releases of the ASIC would have been more transparent. The judge had to double the management of banning order as against the one recommended by the ASIC. On these grounds, several persons were of the opinion that perhaps ASIC had failed to appropriately judged the significance of the actions of Mr. Vizard. It is worth mentioning that it was mentioned by the court in this case that the actions of Mr. Vizard, when he improperly use the information received in Telstra can be described as dishonest. Under these circumstances, on account of the fact that the information was used dishonestly may result in a key difference in, civil or criminal proceedings. 

References

ASIC v Healey [No 2] (2011) 196 FCR 430

ASIC v Rich & Ors [2005] NSWCA 152

ASIC v Vizard (2005) 145 FCR 57

NW Frozen Foods Pty Limited v Australian Competition and Consumer Commission (1996) 71 FCR 285

Regal (Hastings) Limited v Gulliver [1967] 2 AC 134