ASIC v Adler Corporate law assignment sample solution

Table of Contents


It is an evident fact that the directors of a company are the officer in charge for the wrongdoings if any takes place in the name of the company. The management team directly depends on the Board of directors to answer against the issues that ascends. In context to this case ASIC v Adler, the defendant court imparted that directors had breached 180(1). Section 180(1) subjects the standard of conduct in context to the director adherence to the general law. In this case, what happened was that it dealt in context to four transaction types.

The three defendants in context were Raymond Williams, Rodney Alder and Dominic Fodera. HIH was one of the largest companies in Australia that subjected to become insolvent. In the year 2000, month June, the HIHC which was the subsidiary company of HIH, imparted an undocumented and unsecured loan to PEE. This essay reflects on the case study and the issues pertaining to it along with the primary legal issues, penalties imposed, actions of the directors, involvement of ASIC as well as observation from the case.

Happenings of the Case

To determine whether any director has exercised diligence as well as reasonable care it will be necessary to ask an ordinary person, having the knowledge along with the experience of the defendant, would have done in the circumstances, while acting on their own behalf; Similarly, the Court would consider the circumstances of the organization as well as the position of the directors and their responsibilities towards the company;

In the present case, the company was controlled by Adler. The transfer of the huge amount $10 million in this regard was done by Fodera. The arrangement of the loan was initiated without the information of the directors of HIH. PEE was conferred as the trustee of AEUT. Adler is here along with his wife was the shareholders and the directors. The AEUT then issued shares to HIHC for $ 10 million. However, the trust managed by PEE was worth less than $ 10 million.

In this context, we find that there is a breach in context to Section 180 (1) by Adler. This is because it is obvious that no one will grant a loan of huge amount to PEE without appropriate safeguarding. Under the Corporations Act each of the directors confers the same right whether they are executive directors or they are non- executive directors. There was a breach in context to the Corporations Act as the reasonable steps were not initiated by the three directors. The directors seem not to act with reasonable care and due diligence in the best interest of the company. If the directors would have taken an initiate to act in good faith, then this situation would not have ascended. The company would not be in charge of the falsification. Also, the directors would not have breached the law in the context of Section 180 of the Corporation Act 2001.

Primary Legal Issues

The illegal financing that is made by companies, must be overseen by the directors and it is a financial transaction which might affect the bank balance as well as the balance sheet of the company. In addition to this, any financial transaction might deter the financial position and the liquidity position of the firm. In the present case, the subsidiary company HIHC has illegally financed 10 million PEEs to acquire shares of the holding company HIH. No other director or investment committee has disclosed the matter.

As a result, the confidence value of 10 million units was lower than the initial membership written by HIHC. As a result, the move was purposefully detrimental to the interests of HIH, HIHC, and shareholders. Adler violated the duties of several directors. Companies are covered by Sections 180, 181, 182 and 183 of this Act. As a director, it was the responsibility of Alder to act in the best interest of the company and not in negligence. In this context, the directors violated the Sections 180, 181, 182 and 183 as well. The context of each of these sections are given below:

  • They did not act following diligence and care (Section 180)
  • They did not act in context to the best interest of the company (Section 181)
  • They did not action context to a proper purpose (Section 181)
  • They used their position in improper terms (Section 182)
  • They misused information (Section 183)

Misuse of information was one of the major reasons that such transactions had taken place. The confidence among the shareholders and the board of directors were shattered due to the misuse of information which was breach of section 183.

In this case, it was found that Mr Williams contravened his duties concerning a director in context to Section 180 of Corporations Law. As a director he did was not able to ensure proper safeguarding before the loan of $10 million was sent to PEE. In this case, we also find that Fodera contravened the rights as a director in context to Section 180(1) as he did not submit a proposal to the investment committee for the approval of the loan. Non-submission of the proposal is a violation of Corporation Law and every director is aware of the facts and facets under the Section 180 (1).

Penalties Imposed

The penalties that were imposed by the judge Santos J was that Alder was disqualified in context to managing the company for 20 years. Williams was debarred from running the company for 10 years. They were also ordered by the judge to pay compensation plus interest of $ 7158112 leaving the interest rate. Other penalties were subjected in context to the defendants. Alder was subjected to dollar 450000. Alder Corp was subjected to dollar 450000. Williams was subjected to $ 250000 and Fodera was subjected to dollar 5000.

Actions of the directors

As a general rule, a director has a responsibility to oversee the management of the corporation and to ensure that it is in the best position. In addition to this, the director must also ensure that the management of the firm abides by the laws and the regulations that governs the organization and always think in the best interest of the company rather than their own benefits. The violation of the directors of the various bodies of governmental or non-governmental entities can be detrimental not only to these companies and their shareholders but also to the civil and criminal liability of their respective directors. Sections 180 to 183 were avoided by Adler. This case was quite similar to the case of ASIC v Rich where the directors were the shareholders and breached their duties as the directors under the Corporations Act.

To deal with care and diligence, firstly, Section 180 and Section 180 (1) of the Corporations Act subject to state that the directors or other officers of a corporation, with due care, should be appointed if they are reasonable persons. The actions of the directors should be subject to the best interest of the company and its shareholders. The amount involved in this case was huge to cause financial disparity.

In ASIC v Adler, if the directors were a little careful and diligent they would not have allowed the subsidiary to loan the sum of $10 million to PEE. In addition to this, Adler failed to take into consideration that the safeguards were made or undertaken so as to protect HIHC. However, from the case it is evident that the directors’ intention was to gain benefit from the substantial shareholding of the company and this is why he supported HIH’s share price. Besides this, the director nearly used a total amount of $4 million for the purpose of acquiring the unlisted shares. Thus, it is clear that the actions of the directors were not in line with the code and regulations of the Corporations Act as the transaction were not carried out “at arm’s length”.

Why was ASIC involved?

The Australian Securities and Investments Commission (ASIC) is an independent Australian government body. ASIC acts as Australia's corporate regulator so as to ensure that the financial services law is not violated. In the present case, the ASIC was involved because of it the body that regulates the as in context to the financial services to protect the Australian investors, creditors and the consumers. This body is responsible for the admiration of legislations like the Corporations Act. There are several Sections under this act and any company or director who violates is subjected to ASIC. As a regulatory body, the ASIC has done its part of duty to oversee the transactions involved.

Interesting Observations or Comments

In the context of the case, ASIC v Adler, to avoid liability under subsection 180(1), Adler filed a business judgment defense. The court concluded that the defense, 180 (2), was not valid for Adler's protection.  This was unique in the sense that three loans were made which were not secure.  This rule can only be applied when a decision is made and a corporation cannot be offended, because managers lack good faith and good intentions.

Lessons from the Case

Directors are held responsible and they are also accountable to take in charge of the activities that are taking place in the organization at which they are appointed (Hill and Conaglen, 2017). In addition to this, acting in the best interest of the company is the prime responsibility of any director which must not be forgotten. The security measures must be taken on a proactive basis or as a precautionary step by the directors so as to avoid legal consequences.

The financial transaction that was involved in the present case had led to imprisonment and fines on the part of the director. In ASIC vs. Adler, the director did not allow HIHC to use any money to recover part of HICH and would not pay PEE $ 10 million. Adler could not confirm whether HIHC had any security measures in place. From this case, it could be stated that the duties of the director are very important to adhere to. The breach in director's duties has led to fines and imprisonment for a period of 20 years. The law makes it clear that a director must be honest and act in the best interests of the company or its shareholders.

Acting in the best interest of the company not only leads to sustainability but also improve the image of the company as well. On the contrary, both the goodwill and the brand image of the organization and the directors are at stake due to dishonesty on the part of the directors and their negligence as well.


An organization acts through 2 bodies of people namely, the board and the shareholders. It is the responsibility of the board of directors to ensure appropriate management of the organization’s business. In addition to this, they are the ones who make the strategic as well as operational decisions and are also responsible for certifying that the corporation meets its statutory obligation. The director must act as per the company’s constitution, and exercise powers for the purposes which they are accountable.

As per the above discussion, it can be comprehended that the duties of the directors are very important. The breach and the penalties driven by the Judge was significant in this case. A breach in context to the director's duties in this context has led to fines as well as imprisonment for 20 years. The directors must have been more careful while performing their duties.


  • 2019. Directors duties. [online] Available at: tools/pdf/05446-6-2-duties-directors_general-duties-directors_a4-web.ashx [Accessed 13th September 2019]
  •, 2019, Austili [online] Available at::  [Accessed 13th September 2019]
  • 2019. Corporations Law. [online] Available at: [Accessed 13th September 2019]
  • Hill, J.G. and Conaglen, M., 2017. Directors’ Duties and Legal Safe Harbours: A Comparative Analysis. Research Handbook on Fiduciary Law, DG Smith, AS Gold, eds, Edward Elgar, UK. ASIC V Alder (2002) 41 ACSR 72
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