The perform the obligations of the bids they

TheCorporations Act, 2001 (CA) is the legislation, which through its section198(1) provides that the business of the company is undertaken based on thedirections given by the director and this is done for the shareholders of thecompany. As the directors run the business and operations of the company, theyhave to fulfil the different duties which are covered in the CA (CCH Australia,2011). This duty is also imposed on the key officers and employees of thecompany, where they have a significant role to play in the company. In such caseswhere the duties as have been put on the directors or the officers of thecompany are not upheld, or are not fulfilled as they were meant to, thepertinent individual has to bear the liabilities covered under this act.

Onesuch example of the case is ASIC (Australian Securities and Investment Commission)vs. Mariner Co. Ltd. 2015FCA 589. This case shows the negligence and contraventionof duties by the directors of Marnier to perform the obligations of the bidsthey made forward to ASIC (Jacobson, 2015. Though, when the matter reached thecourt, the defence available to the directors through this act was used, toacquit the director of the charge of breaching the directors’ duties. Factsof the caseIn this case, Mariner was thedefendant, which was basically a corporate investment company. The defendantwanted to purchase either all the shares of Austock Group Ltd (AGL) or asubstantial number of shares in this company.

In this company, the ChiefExecutive Officer was Olney-Fraser (OF) who had been unsolicited approached byJames Goodwin (JG) on 08 June 2012. James was basically the joint managingdirector of Arena Investment Management Limited (AIML). Arena was a companywhich formed a part of the international estate arm of Morgan Stanley Inc (MSI).During the initial communication, JG had expressed his interest in purchasingthe business unit of AGL pursuant to the completion of takeover.

After thepassage of some of the days from the initial approach being made, morediscussions were undertaken between OF and JG in context of the potentialpurchase and of the potential of the funds being made available in order tofacilitate the takeover from AIML. There had been quite detailed discussionwhich was undertaken between OF and JG, and yet a binding agreement was notattained amidst the two. According to User Levi (2015) other directors of theMariner were not notified of the communication, also they were not aware thatOF had presented the proposal to two non executive directors of Mariner. On June, 2015 Marnier made the firstbid for the purpose of acquisition to the ASX, which was termed as confidentialoffer by the company acquire large number of shares of AGL. This offer was tobe done at 10.

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5 %.  This particular offerwas described as an off market offer. Mariner’s board had the impression thatthe value of AGL was approximately $20 million, which was the sum required forthe purpose of funding this takeover. Mariner got a letter from AGL in which ithad been provided that this offer had been invalid due to the price per sharewhich was being offer.

As a result of this, the bid of Mariner was increased by11% for each share. For meeting the minimum bid price rule, the amount had tobe raised. In the mean while another company named Folkstone offered muchattractive bid than Mariner as compare to Mariner, and they defeated the bid ofthe Mariner. As a result of this, the Australian Securities and InvestmentsCommission (ASIC) initiated a claim in court against the company, along withagainst its director, owing to the contravention of duties covered in Part 2D.1of the CA (Australasian Legal Information Institute, 2015). Duties/Responsibilities breachedCA puts different duties andresponsibilities on the directors of the companies (Paolini, 2014). A key provisioncovered under this act is section 180(1) of this act. As per this section, thedirectors have a civil obligation of carrying on their work in a careful anddiligent manner, when the duties are discharged by them and when the powers areexercised by them, as would be done by an individual holding the same office asthe director, having the same responsibilities and powers, and facing the samesituation (ICNL, 2018).

Such a scenario in which the provisions covered in thissection are not upheld, civil obligation covered under section 1317E becomeapplicable on the breaching director/ officer. Under this section, upon findingthe breach of duty by the director or officer, the court makes a declaration ofcontravention. The ASIC can only make an application to the court when once thedeclaration has only been done. ASIC can make the declaration regarding to thedisqualification of directors for certain period of time from being on the samerole in the company. This can be done under section 206C only if their claimswere proven in the court against the Mariner`s directors. The ASIC also has theoption of applying for pecuniary penalties to be paid by the director as persection 1317G of CA (Federal Register of Legislation, 2018).

Under subsection 2 of section 180 ofCA, the defence from the liabilities mentioned above is stated. This sectioncovers the defence to the directors in such cases where they make a businessjudgement. When this is done, they are not held liable for the civil penalties(WIPO, 2015). Based on this section, the director has to show that the judgmentundertaken by them, held a proper purpose and was in good faith; this isfollowed by the individual lacking a major personal interest in the matter ofjudgement; next comes the director being informed on the matter of thejudgement reasonably and also has reasons to believe that the judgment wasproper; lastly, this belief had reasonable backing and was in the company’s (Jade,2018).This case saw the ASIC initiatingclaims against the directors of Mariner for contravention of section 180(1) ofCA owing to the announcement by the company of the takeover bid in AGL, whichshowed failure of care and diligence, as a result of which the company had beenin breach of section 631(2)(b).

As a result of this, the company made theannouncement to the authorities which then resulted in section 1041H beingviolated. This was in addition to the directors providing that Mariner would bebidding at 10.5% for each share and this was not possible legally owing to theapplicability of section 621(3). This was coupled with the failure of all ofthe directors of Mariner, in taking into consideration, the regulatoryrestrictions in context of Mariner’s ability in acquisition of a higherpercentage of shares in AGL (Australasian Legal Information Institute, 2015). Basically,the ASIC contentions were that the directors of Mariner were in breach of theprovisions of CA owing to the announcement of off market takeover bid. This wasdue to the shortfall in the required funding for acting upon this bid, alongwith in the making of offer for a price which was lower than the one requiredby the statute (Addisons Lawyers, 2015).

Decisionof Court The facts of this were quitecomplicated and therefore were carefully analysed by the court. In order forthe court to decide upon the takeover bid related director duty breaches, abusiness friendly approach was undertaken where the business decisions undertakenby the directors were analysed from business perspectives. In doing so, the warningsin the background, for questioning the second guessing of the decisions werealso undertaken. It was held by the court that there were three majorobservations in the case brought before it by the ASIC against the directors ofMariner. v Firstly, the directors in this case had theproper background and also were experts in mergers, finance and acquisitions. Asa result of this background, the directors were able to make proper judgmentcalls, and could create strategies on the basis of assessment of risks foradopting the transactions, which were the central part of this case. The court alsostated that the directors of the Mariner should be provided the benefit ofhindsights in order for the second guessing of the judgments. Because suchjudgments requires more observations and analysis on the paper for the purposeto know what actually had happened at the time and there was a need toacknowledge the speed at which such events take place in reality (Prickett andTeo, 2015).

v The court went on to state that the transactionsin question had to be carefully looked upon, and an ex ante approach had to beadopted. This approach provides that an individual is not only required to lookat the risks, but also has to weigh the benefits of such risks. The directorsof Mariner had undertaken this very approach and the same was not required tobe evaluated in context of the quoted section. This is the reason why thejudges adopted a retrospective analysis of the transactions which took placeand stated that this approach could not be overlooked. v This led to the court stating that there was anabsence of credibility in the evidence put forth by the ASIC for attachingMariner’s directors.  (Jade, 2015).  Justice Beach also made additionalobservations in this case in context of the breach of quoted duties and quashedthese claims based on business judgement rule. He stated that for showing thatthe director had not discharged his duties properly, the reasonable foreseeableharm had to be shown on the company’s interest.

There was a need of balancingthis risk of harm which was foreseeable owing to the contraventions, with thepotential advantages which the company could get due to going forward with therisky venture or idea. This is the reason why the court not only looked at theforeseeable risk of harm’s nature and magnitude, but also did look at thedegree of the possibility of this taking place with the expenses, difficultyand inconvenience in taking steps to alleviate such action. This was inaddition to the balancing of the possible risk of harm against the expectedprofits which could result from the undertaken risk, which was a matter ofdispute here.

According to Justin beach point of view, the company`s managementneeded to take more calculated risk that involved such uncertainties, and whichwere of commercial and business nature. The present of risk does not result insection 180(1) being breached. And just because such a risky venture resultedin losses for the company, the duty of directors is not taken to be contravened.In giving this judgement, reference was made to the case of ASIC vRich (2009) 75 ACSR 1 and the difference between the two cases werehighlighted, and a varied decision was given in comparison to the quoted cases,for the directors of Mariner (Jade, 2015).

Conclusionand ImplicationsThus, this case acts as a proof thatthe provisions covered under CA are not discriminatory or harsh for thedirectors and that they give proper chances to the directors to defend theactions undertaken by them. Due to these reasons, in this case, the directorsof Mariner were acquitted for the risky venture undertaken by them, and theclaims of ASIC were quashed. This case reaffirms the strength of businessjudgment rule and aids the directors in continuing with the risky ventures,when the decision is undertaken in a careful manner. Where such decisions resultin a loss for the company, the directors, by fulfilled the provisions andrequirements covered under section 180(2) of CA, can safeguard themselves fromthe civil penalties covered under section 1317E of CA. Though, it is crucialthat all the elements covered under section 180(2) are followed (Heading andWood, 2015). A key lesson here is that the directors would have to show thatthe requirements covered under this section were fulfilled, in order tosafeguard themselves against these liabilities. Nevertheless, it provides thedirectors would enough safety, to work in the best interest of the company, incase of risky ventures.

 References Addisons Lawyers. (2015) Mariner Decision Will Not Affect TakeoverBid Funding Strategy. Online Addisons Lawyers. Available from:http://www.addisonslawyers.com.au/knowledge/Mariner_Decision_Will_Not_Affect_Takeover_Bid_Funding_Strategy837.aspxAccessed on: 09/01/18Australasian Legal InformationInstitute.

(2015) Australian Securitiesand Investments Commission v Mariner Corporation Limited 2015 FCA 589 (19June 2015). Online Australasian Legal Information Institute. Availablefrom: http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/2015/589.htmlAccessed on: 09/01/18CCH Australia.

(2011) Australian Corporations & SecuritiesLegislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations.Sydney, NSW: CCH Australia. Federal Register of Legislation.(2018) Corporations Act 2001.Online Federal Register of Legislation. Available from:https://www.

legislation.gov.au/Details/C2013C00605 Accessed on: 09/01/18Heading, B.

, and Wood, B. (2015) ASIC v Mariner Corporation Limited.Online Lexology. Available from:https://www.

lexology.com/library/detail.aspx?g=870f24b4-10d9-4d90-b7c4-95ef5011ebd5Accessed on: 09/01/18ICNL. (2018) Corporations Act 2001.

Online ICNL. Available from:http://www.icnl.org/research/library/files/Australia/Corps2001Vol4WD02.pdfAccessed on: 09/01/18Jacobson, D. (2015) Case Note: Directors Successfully Rely OnBusiness Judgment Rule. Online Bright Law. Available from:https://www.

brightlaw.com.au/case-note-directors-successfully-rely-on-business-judgment-rule/Accessed on: 09/01/18Jade. (2015) Australian Securities and Investments Commission v Mariner CorporationLimited 2015 FCA 589.

Online Jade. Available from:https://jade.io/article/398014 Accessed on: 09/01/18Jade. (2018) Corporations Act 2001 (Cth). Online Jade. Available from:https://jade.io/article/216652/section/2204 Accessed on: 09/01/18Paolini, A.

(2014) Research Handbook on Directors Duties.Northampton, Massachusetts, United States: Edward Elgar.Prickett, F., and Teo, X.

(2015) Mariner decision gives directors of biddersgreater latitude when announcing takeover bids. Online Clayton UTZ.Available from:https://www.claytonutz.com/knowledge/2015/june/mariner-decision-gives-directors-of-bidders-greater-latitude-when-announcing-takeover-bidsAccessed on: 09/01/18Usher Levi. (2015) Corporate Directors & the MarinerDecision. Online Usher Levi. (Available from:http://www.

usherlevi.com.au/corporate-directors-the-mariner-decision/ Accessedon: 09/01/18WIPO. (2015) Corporations Act 2001. Online WIPO. Available from:http://www.wipo.int/wipolex/en/text.jsp?file_id=370817 Accessed on: 09/01/18