Request a FREE quote now!Order Now
Task: Case Study: ASIC (Australian Securities and Investments Commission) Vs Adler.
The second-biggest insurance provider in Australia, HIH is regarded as the largest corporate failure in Australian history. The main defendants in the well-known case ASIC (Australian Securities and Investments Commission) vs. Adler (2002) were Dominic Fodera, the founder and CEO of HIH Ray Williams, and Rodney Adler, a significant shareholder and non-executive director of HIH (the director and Chief Financial Officer of HIH).
Without the knowledge of the other directors of HIH, HIHC, a subsidiary of HIH Company, loaned $10 million to Pacific Eagle Equity (PEE) in June 2000. The transfer was carried out by Dominic Fodera. Adler was in charge of PEE. PEE took over as the trustee of the Adler Corporation-controlled Australian Equities Unit Trust (AEUT) (Adler was the only director and he and his wife were the only shareholders).
Adler wanted to give the stock market the appearance that he was trying to save HIH from a declining share price by raising its share price or at the very least preventing the share price from falling by issuing units of worth ten million dollars to HIHC by AEUT. Later on, PEE sold shares of HIH for a loss of $2.1 million. Due to HIH's quick growth, unchecked authority delegation, underpricing, fraudulent reporting, fraud, avarice, self-dealing, reckless management, and other factors, the market was shocked to learn of its unexpected collapse. This abrupt collapse negatively impacted its shareholders, policyholders, professional groups, tax-payers, community groups, small company owners, home-owners, and injured people who were left with unpaid claims, having a significant negative impact on the entire community. The parliament was alerted to this significant loss and asked ASIC to conduct a thorough investigation. The ASIC later came to the conclusion following an examination that Adler bought the HIH shares for his own benefit. Adler bought unlisted interests in unlisted technology and internet companies with a $4 million loan from AEUT. On the investments, Adler Corporation sustained a complete loss. Later, Adler made numerous unsecured loans totaling more than $2 million to the organisations he was affiliated with through PEE. It allegedly hurt AEUT, according to the ASIC. The associated party transaction was violated by Adler, Williams, and Fodera, so the ASIC brought many legal actions against them. Additionally, they violated their financial obligations and director responsibilities (as per Corporation Act, Clarke et al, 2003).
First, the Act's Section 180 imposes a need to exercise due care and diligence. As required by Section 180(1) of the Corporation Act, directors and other officers of a business must exercise due care and attention in carrying out their responsibilities as a reasonable director. In particular, a director has a duty to oversee the operation of the firm and make sure it is in the best possible shape. The case serves to remind the directors of their obligations and liabilities while in office. A reasonably cautious and vigilant director in this situation would not have permitted HIHC to loan PEE the sum of ten million dollars. Adler also neglected to make sure that HIHC was protected by safeguards. No other board member requested clearance, and the HIH investment committee was also fully uninformed of the choice. There was no issuance of any paperwork or collateral for the loans. Adler has broken several Act provisions while serving as the director. Such critical and important obligations that ought to have been carried out with the highest care and diligence were broken.
Second, in accordance with Section 181 of the Act, the directors must act impartially and in the best interests of the firm when making decisions. Adler took choices that benefited his newly founded company while also serving his own interests (Bevans, 2007). Section 181 was broken by the directors. Adler failed to disclose the intended use of the money in a proper manner. On the one hand, Adler was only concerned with safeguarding his HIH shareholding, which was against the company's interests. However, he also broke his obligation to PEE by acquiring the three unlisted technological investments and the unsecured debts.
Thirdly, the purpose of Section 182 of the Act is to prevent incorrect positional use. According to Section 182(1) of the Corporation Act, no officer, director, or employee of any organisation may use their position in an improper manner to benefit themselves, others, or the business as a whole. It is an obligation to not use the position for personal gain. As Adler subsidised the cost of shares for his benefit, this Section was also broken. Williams also abused his power by approving the $10 million payment without first consulting the proper channels. (2003) (EI & Vault).
Finally, the purpose of Section 183 of the Act is to prevent improper information use. According to Section 183 of the Corporation Act, no member of an organisation may use information obtained inadvertently to harm the organisation or gain an unfair benefit for themselves or others. While Adler violated the Section by using the data for his and his business's gain. He made sure that the money was invested by HIH in a way that would give him a significant advantage and substantial returns. The directors broke the law by engaging in illegal behaviour. They were expected to conduct themselves in a manner that complies with the law and guarantees the organization's efficient operation.