Australian Company Law: Opes Prime Group Limited - Case Study Example

Running Header: Australian Company Law Assignment Student’s Name: Name of Institution: Instructor’s Name: Course Code: Australian Company Law Assignment Case Study Opes Prime Group Limited (OPGL) was a very successful firm. It was concerned with stock brokerage which was the sole profit generating activity for the firm. It had a body that made up the management team. The firm’s collapse was a big blow to many investors, staff and the clients who took part in the firm’s activities. Over the years the firm had grown into a profitable firm that had a great reputation. This was in terms of the annual profits and the net worth that it recorded. It is at these times that the directors of this bank requested for a loan from a very reliable bank. The ANZ bank had funded many businesses and firms. This enabled them to expand and create mechanisms for more profits to be created. The only problem is that the said directors did not follow the proper channels to acquire the loan from the bank. The directors were also managing the finances and the activities of a couple of other firms as illustrated by Jason (2011). Armed with this knowledge, the directors went ahead to the bank and signed all the financial documents required for them to get the loan. The major problem was that they pledged the company’s assets as the major security for the loan that they were acquiring. The major problem was that the sighted net worth of the company was misrepresented in the quotation presented to ANZ bank of the true value of the company’s net worth. They knew that the OPGL had many financial issues. They therefore took in some financial assets from another company that they were managing. This was to ensure that the company’s financial representation was strong enough to ensure that they got the loan that they were seeking. The company also had a major financial falling with one of its investors. It therefore hoped that the money that they would collect from the loan would be enough to cover the financial holes that were created in all the activities that they were conducting in the firm as stated by Anand (2008, p. 98). The directors therefore represented a figure of their net worth which was in excess of roughly 50 million dollars. The chief financial auditors who were responsible for auditing the company’s finances noted that in relation to the loan from ANZ bank it was of no benefit. They had strongly stated that the loan was of no use to many of the firm’s clients, shareholders and employees. They also knew that the move by the directors was aimed at rectifying a situation that was dangerous for the firm’s future growth. This is because they were asking for a loan based on inflated figures that the firm could not pay as argued by Comino (2009, p. 240). It is on this note that the directors were charged with breaching of the Corporations Act. They did so by aiding the illegal and improper transfer of assets between companies that they managed and controlled. The transfers were dishonest and they were in no way beneficial to the current situation at OPGL. They were also noted to have bared false testimony. This is in relation to the fact that they went ahead to borrow a loan based on assets that do not represent the general capacity of the firm’s ability to repay. They had the knowledge that they had no financial ability to pay for the loan because of the company’s insolvency. They had this information and that is the sole reason as to why they had inflated the overall cost of their net worth. By stating the true picture, they knew that they would not receive funding for their activities as argued by Hargovan (2008, p. 240). Civil or Criminal Sanctions for Corporate Governance Criminal sanctions can be defined as any form of punishment that is meted upon an offender. Criminal sanctions ensure that an offender receives some form of punishment for the crime committed according to Cullinance & Dundon (2006, p. 114). The punishment could either be corporal or capital punishment. It could range from serving a specified jail term coupled with the payment of a specified amount of set fines. A civil sanction takes the form of any particular activity taken to remedy a situation or an instance. This is in relation to the actual issue that has caused liability as stated by Hailey (2008). After the violation of set laws, civil practises are incorporated to ensure that a penalty for the violation is issued. This could be in the form of financial fine. This is where an individual is asked to pay in relation to the damages incurred. They can also have their businesses closed. It is also civil sanctions that provide room for the retracting of businesses or firms’ licences or professional trading certificates as illustrated by Guest (2008, p. 650). Corporate governance can be described as the set process that enables an organization to perform the way it ought to. This are set norms and guides that are followed by every member of the organization with the sole aim of ensuring that they conduct themselves in the way that is expected of them in all instances. This will ensure that the company’s overall goals, aims and objectives are met. The corporate governance structure creates room to allow sanctions of any nature to be conducted as stated by Lowry & Dignam (2006, p. 67). Sanctions of these kinds ensure that the certain set protocols are observed at all times in the company, firm or organization. They are all of benefit especially in handling actual and potential liabilities and misrepresentation of the firm’s laws. Criminal sanctions are an appropriate mechanism for corporate governance as compared to civil sanctions. This is because of very many reasons. Criminal law ensures that the culprits who have been considered guilty are punished in the required way. This is unlike in civil sanctions where the victims are compensated for the crimes that the guilty part has committed according to Jason (2011, p. 60). In the above case it would mean that after the hearing of the case, the directors would avoid the general process of incarcerations. They would maybe pay for the damages that they have caused many of the people involved in the scandal. These would include the ANZ bank, stockbrokers, investors and their employees in all the firms that were involved. According to the judgement, they would have their licences for those particular firms taken back. In relation to corporate governance, this will not be enough as in many cases they would still open other firms; this is unless the judgement that they received prohibits them from doing so. This creates a clear cut room that actually paves the way for chances of another crime being committed. This is especially so if the guilty parties have the ability to pay and compensate the crimes that they have been charged with. Criminal sanctions are great because they carry jail terms. They can also be accompanied by other forms of penalties depending on the severity of the situation. This means that in instances like the breached contract above, corporate governance will essentially be restored when the directors in the mentioned company’s are required to pay for the liabilities that they caused as argued by Gray (2009, p. 255). This will be mandatory despite the fact that they have been declared bankrupt. This requirement would be accompanied with the jail terms that they received. This is not the case in the civil sanctions. This is because they do not carry any jail terms for the guilty persons. They are not also accompanied by other forms of penalties once a person has been declared guilty. The appropriateness of criminal sanctions is generally seen in the way that they operate. Corporate governance requires effective structures that can guarantee the success of firms and their general modes of operation as stated by Merrill & Smith (2001, p. 360). The process that allows criminal proceedings to be conducted in a certain way guarantee that all the wrong things that are done in relation to the set corporate structures are adequately dealt with. Corporate governance requires a strong element of retribution for it to succeed. This basically means that all the crimes that have been committed have to be paid for as illustrated by Lester & Kickul (2001, p. 12). A criminal is all the time seen as one with the intent to cause harm to others with the sole aim of benefiting from any presented scenario. The directors of the OPGL lied to the ANZ bank with the aim of generally defrauding it and many other investors. This therefore shows that they aimed to maliciously affect the lives of others. Criminal law provides a general picture that shows that they ought to pay for such kinds of acts in the organization as stated by Merrill & Smith (2001, p. 360). Criminal law is also a very strong element that encourages deterrence. The corporate arena requires certain measures that will ensure that such crimes are limited in the ratio at which they occur as illustrated by Epstein (2007, p. 2094). This means that the punishment that the directors received has the sole aim of ensuring that many others do not repeat such gross violations of the Corporation Act. This is because they will have seen the overall cost and penalties inflicted upon the directors. The period at which they will be serving their jail term, they will be away from the corporate arena and from many individuals who were hurt during the entire situation. This will give them time to understand the magnitude of their actions as well as help them understand the severity of their actions as stated by Kraakman (2004, p. 89). Persons charged with criminal offences are required to undergo strict rehabilitation before they are welcomed back into the society. The rehabilitation process ensures that once they are free from their jails terms, there are reduced or close to non existent chances that they will commit the mistakes that they were incarcerated for. Criminal sanctions have the general aim of repairing conditions that have been inflicted on the victims by the wrong doers as argued by Lowry & Dignam (2006, p.69). Restitution is a very strong indicator that in many arenas in corporate governance, all the victims that have suffered in one way or another are understood. The understanding that they receive from the law indicates that the law has set aside clauses that deal with elements of protecting them from harm as stated by Hargovan & Harris (2011, p. 296). This is a great thing especially for many who strongly invest in major corporations with the aim of benefiting from these corporations and their general growth. It is only fair for them to see that all those that hinder their goals are dealt with in the right way using the most appropriate mechanisms. Corporate governance therefore requires strong laws that allow and encourage a healthy environment. This should be the case in relation people who invest in the growth of a firm’s overall growth and that of its employees. These laws can be strengthened by an active law that should be followed by all the people that deal with the firm. This is to reduce chances of the firm’s failure and the loss of invested capital. The appropriate law in this case is the penal law. This is because it allows criminal sanctions to be carried out based on a predetermined agreed upon criteria as illustrated by Merrill & Smith (2011, p. 360). Reference List Anand, V & Rosen, C 2008, ‘The Ethics of Organizational Secrets’, Journal of Management Inquiry, Vol. 17, No. 2, pp. 97-99. Comino, V 2009, ‘The Challenge of Corporate Law Enforcement in Australia’, Australian Journal of Corporate Law, Vol. 23, No. 3, pp. 233-265. Cullinance, N & Dundon, T 2006, ‘The psychological contract: a critical review’, International Journal of Management Reviews, Vol. 8, No. 2, pp. 113–129. Epstein, R 2007, ‘A Clear View of the Cathedral: The Dominance of Property Rules’, Yale Law Journal, Vol. 106, No. 7, pp. 2091–2107. Gray, K 2009, ‘Property in Thin Air’, The Cambridge Law Journal, Vol. 50, No. 2, pp. 252- 260. Guest, D 2008, ‘Is the psychological contract worth taking seriously?’ Journal of Organizational Behaviour, Vol. 19, pp. 649–664. Hailley, S 2008, ‘Both sides of the story’, Monash Business Review, pp. 12–18.  Hargovan, A 2008, ‘Directors' Indemnities in Insolvency and Cost Orders’, Insolvency Law Journal, Vol. 16, pp. 240-246. Hargovan, A 2008, ‘The Cross-Border Insolvency Act 2008 (Cth) – Issues and Implications’, Australian Journal of Corporate Law 22, pp. 188-197. Hargovan, A & Harris, J 2011, ‘Corporate Group Structures and their Legal Status Revisited’, Australian Business Law Review, Vol. 85, No. 39, pp. 285-296. Jason, M 2011, ‘ANZ testifies at Opes Trial’, The Australian Financial Review 11 March 2011, pp. 56-63. Kraakman, R 2004, Anatomy of Corporate Law: A Comparative and Functional Approach, Oxford University Press, New York. Lester, S & Kickul, J 2001, ‘Psychological contracts in the 21st century: What employees value most and how well organizations are responding to these expectations’, Human Resource Planning, Vol. 24, No. 1, pp. 10-15. Lowry, J & Dignam, A 2006, Company Law, Oxford University Press, New York. Merrill, T & Smith, H 2001, ‘What Happened to Property in Law and Economics?’ Yale Law Journal, Vol. 111, No. 2, pp. 357–398. Read More