Australian Company Law Issues - Research Paper Example

AUSTRALIAN COMPANY LAW Australian Company Law Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 08, 09, 2011 Australian Company Law In this case, on 27Th July 2011 involving Anthony Charles Blumberg and Lirim Emini at Melbourne we find that both proved guilty. Lirim Emini was the director of Leveraged capital Pty Ltd and dishonestly transferred securities owned by Leveraged capital to Riqueza. The intention was to gain benefits for Riqueza and himself as well. He faced charges of intention to benefit Opes Prime Stock broking Ltd and himself by allowing relocation of securities owned by leveraged capital to Riqueza. The third charge was recklessly and failure to utilize his authority in carrying duties without favour in order to save OPSL. He faced charges of his agreement to signing monetary documents on behalf of OPSL in conjunction with the Australia & New Zealand Banking Group Ltd (ANZ). This led OPSL tampering monetary arrangements with ANZ where OPSL guaranteed its belongings as security measures of its commitment to fulfil requirements of leveraged capital. Similar to Emini, Mr Blumberg faced almost the same charges. Mr Blumberg in his capacity signed monetary documents on behalf of OPSL and ANZ. Opes prime group limited and OPSL got loan from ANZ where OPSL guaranteed its belongings to show their commitments to fulfil requirements of leveraged capital. This was ill motivated since by 20th march 2008; in OPGL’s main shareholders were Emini who through Family trust owned 27.332% of the shares. Blumberg owned 27.242% of the shares personally. A situation parallel to this, both were directors of OPGL & OPSL respectively. In leveraged capital, Emini owned 50% of the shares when he was the director. This malpractice allowed compliance of Australian Master Securities Lending Agreement (AMSLA), which is standard contract, required for industries. The implications were the negative impacts on clients who transacted with OPSL. There is no doubt that these two infringed law and hence penalties required to be imposed on them. To some extent, criminal sanctions are appropriate mechanism for corporate governance as compared to civil sanctions. Not in all situations are criminal sanctions are effective because sometimes they fail to address some important factors. Justification of criminal sanctions over civil sanctions in corporate government Corporate government plays an important role of distinguishing the possession and control that comes because of a company become public. In Australia, Australian Securities and Investments Commission (ASIC) this entitled its regulation in administration and application of responsibility regarding corporation law making process. It oversees laws concerned with protecting consumers and parameters in monetary markets. Sanctions application on companies’ officers had undergone reformation for better services and in 1993; there was introduction of civil sanctions. This targeted reduction of function of criminal sanctions applied specifically to most law flouters. Many cases caught the attention of civil sanctions. However, ASIC met hostility when implementing there criminal laws. There is a tendency of owners inability to control the company immediately and instead prefers employing professionals to manage the company. These professionals are accountable for any actions carried out by the company and the expectations are that they stick to objectives of the company. Emini and Blumberg finds themselves must have found themselves entangled to a responsibility that led them tried in court. There is no doubt that they should have prevented the occurrences that transpires collapse of Opes prime. Corporation act 2001 184 (1) that states that, “a director or the other officer of a corporation commits an offence if they are recklessly or are intentionally dishonest and fail to exercise their powers and discharge their duties in good faith in the best interests of the corporation or for proper purpose.” This found them guilty of lack of good faith and misuse of their positions to commit crime. Law is one of the bodies that expected to oversee proper governance especially by providing stakeholders’ safety and minimizing exploitation that can be because of departure of ownership and control. Similarly, criminal law is important contribution in enforcing positive corporate governance have led to many opinions. For instance, the success of criminal sanctions have led to discouragement of corporate governance violations traditionally, undesirable behaviours were discouraged through criminal laws that used sanctions which included imprisonment, fines and stigma of criminality. The success of the sanctions raised mix reactions since they discouraged corporate crime. The argument is that corporation targets profit maximization that means they can bend law any case there was an opportunity to make profits. Decision making of these corporate depends on profit maximisation. At some point, they can violate law in a situation where the possibility of prosecution and punishment will be lower as compared to benefits reaped from that action in terms of cost. Cost sufficiency when it is higher than penalties on illegal corporate action leads to undertaking of such decisions. Emini decision to order reconstruction in 2006 implied as a way to grab an opportunity between Leveraged Capital and Hawks wood Investments Pty Ltd on vehicle investment. Additional funds could have saved Leveraged capital to fulfil this. There was infringement of law since ANZ lowered credit limit in favour of Leveraged Capital. Wrong corporate behaviours can be discouraged through application of criminal sanctions to corporation as a whole or the officials and employees. Criminalisation of these corporations will lead to stigmatisation that affects corporate conduct leading to profit minimization. Fining these corporations can only be effective if they are enormous enough to overtake the benefits to discourage them involvement in illegal behaviours. Criminal sanctions can as well discourage corporate misbehaviour when applied to individuals in the organisation. Popular businesspeople dislike crime stigmatisation of both personal and economically and hence, these criminal sanctions are fruitful in discouraging them. In contrast, corporate civil sanctions and personal civil fines are fall short of adequacy since individuals are motivated in law violation in many reasons that may not necessarily bring advantage to corporate. For example, such individual may search means to strengthen his position in corporation and to misuse this position to break law though unjust. Strategies to avoid it are required to substitute the process by which civil fines administered by enhancing criminal sanctions to individuals’ negligence conducts. Criminal law gives power to people who follow the laws. This restricts senior people including the board of directors among other professionals from carrying out mischievous decisions in fear of the law consequences. It is worth noting that, time when corporations’ endurance and long-term prosperity have seized being private concern at primary stage. It involves the investors as well as welfare of stakeholders with public interest since they create job opportunities and pensions. It is the government responsibility therefore to safeguard employees and stakeholders interests from malpractices of managers in company. It is a mandated of State regulation to safeguard the public interest that eventually leads to corporation’s achievement. According to much research carried out, criminal sanctions remain the main method to defend investors from many occurrences of deception and stealing. It is distinctive that many countries have adopted application of unsympathetic criminal penalty to solve cases such as Enron and Parmalat. Undoubtedly, this implies criminal punishment is widely welcomed as a way to defend shareholders from exploitation and risky occurrences in corporate governance. Emini acquisition of extra monetary assistance from OPSL and specifically the transfer of stocks from leveraged capital infringed law. This is because Altinova Nominees Pty Ltd and Bolnisi Gold had deposited the stock. The transfer was done without owners consent by OPSL to Riqueza which he had possession and power in it. In return, Riqueza transferred them to leveraged Capital. However, some people have different insight on this matter because they question usefulness of criminal sanctions in infringement of excellent corporate governance. They argue that criminal sanctions to corporation and in person cannot improve corporate governance standards. To some, criminal sanctions are translation of overreaction that can put off managers from exploring risky decisions essential for a business. This will in turn decelerate economic growth leading to low profits realization. According to AMSLA terms, it was right for transfer of stock from Leveraged Capital to Riqueza. Emini's accusation was directing transfer of stock to maintain loan obtained from OPSL to Riqueza. The only allegation is that there was no evidence that he could facilitate recovery of these shares back to Altinova in case of right of recall. As observed, around July 2007, the leveraged capital collateral pool had deposited back the stock. If therefore Emini imposition of criminal sanction denies other directors motivation for risking in their corporate in fear of such kind of sanctions. Criminal sanctions are hard method of regulation since it requires much evidence to prove culprit’s guiltiness, which gives shareholders tough time to demonstrate director’s charges on exploitation remedies. In this case, of Emini allegations on transfer of fund to increase the loan was unsubstantial. It is hard to determine if the company in question could meet the repayment of stocks owned by Altinova. Blumberg case on chances assumption since the judgement assumed chances that at a certain point OPSL&OPGL would become insolvent and fail to repay the $95 million. In addition, they cannot create an avenue for compensation of shareholders and workers who becomes unemployed due to crime committed. Blumberg charges were signing of documents in facilitation of monetary arrangements when he was holding a position of director in the Opes Prime Company, which collapsed. Among other workers and Blumberg lost their jobs that led him to seek the fork lifting driver job. Reduced probability in pointing the actual person who contributed to crime in the corporation is advantageous to executives. Criminal sanctions structured for personage may fail to discourage crime in corporate. Although the persons charged in this case are Emini and Blumberg, it is hard to point out as the main characters that facilitated downfall of Opes prime company. Other executives had a saying that in one way they never exercised. There is chain of companies in question that need questioning since they did not take action early. However, the role played by these two is beyond reasonable doubt that it played the larger portion of this downfall. The manner in which criminal law used to regulate character does not allow questioning which can lead to imposition of sanction where there is no fault. It uses total regulatory aim that deviate traditional purposes of criminal laws persecution. Activities that result from criminal liability in corporate differ from criminal activity since main concern affects directors and managers instead of direct victim. This is demoralising to officials whose accusation of negligence, recklessness and illegality charges that they did not commit. Criminal sanctions direction to corporation as a whole that is an entity does not hold state of mind when a theory lacks evidence to show fault committed by it. The affected party is the officials, executives and workers, which is a challenging situation in criminal laws. Emini and Blumberg suffered some medical problems because of issues related to their accusations. Medical report showed that Emini expressed symptoms of depression, post trauma stress disorder and issues to do with cognation. Blumberg had undergone heart surgery in 2006 and Opes prime collapsing distressed him. To make matter worse, at that time of sentencing he was suffering from a dysthymic disorder. Conclusion In conclusion, existence of policies from corporate governance and firms makes decision makers in government to evaluate the effectiveness of regulatory measures. Criminal sanctions have both advantages and its shortcomings as well. Some laws have fixed criminal liability of the perpetrators in cases of deception and mischievous. Sanjay mathur in his article, corporate law adviser journal suggests a cohesive code to direct harsh penal and civil liabilities on perpetrators to avoid repetition of occurrences later. (Top-criminallawyers.com 2011) Australia might have failed to realise the danger beyond introduction of civil penalty sanctions. The initial purpose was to reduce overreliance on criminal process and with hopes that ASIC could combat corporate misconduct as well as enforcement. Asics however failed to offer a strong base of main control attempts. ASIC’s cases on penalty posed many challenges in procedures and implementing process to the High Court of Australia’s decision in Rich v Australian Securities and Investments Commission (Rich) . More developments on this matter led to parliament amendments where penalty privileges upon proceedings disqualified scrapped. It is also recommendable for parliament to endorse individual reforms to the concerned regulatory bodies dealing with civil sanctions debate that commenced by other Australian regulators. Middleton suggests uniform adoption to curb this situation since it can bring directions and cohesion in case of complications that will promote immediate and less expensive regulatory results that are advantageous for Australian economy. This is not an easy task though since ASIC would be required to enforce objectives laid by parliament as well as improve its regulation strategy. Parliament on the other hand will be required to make laws to improvise ways to impose penalties urgently to avoid costs incurred by long-running cases such as the one that involved Rich and Silbermann (Bryson 2003) According to Sharlyn, civil sanctions to curb criminal immoral social characters have been in existence for long time the main problem was the integration of criminal and civil sanctions. He argues that, civil sanctions create a room for indemnity and apology used in criminal justice to replace imprisonment and other penalties. Matters of justice are assigned to tribunals among other institutions such as youth court, which allows mediation and negotiation. This process has led to reduced charges or penalties to perpetrators and culprits discounted on the sentences (Sharlyn 1998). Given the hardship and opposition that civil sanctions have failed in Australia, it is recommendable for corporate government to should stick to criminal sanctions. To enable this to happen, their court system needs revalidation in terms of employing more judges and strengthening court institution. Reference List AustLII - Australasian Legal Information Institute 2011, supreme court of Victoria available from: Australian Securities & Investments Commission (ASIC) 2009, Melbourne University Law Review available from: < http: //www.asic.gov.au/.> Braithwaite, J 2000, the New Regulatory State and the Transformation of Criminology, British Journal of Criminology no.40 Bryson J, 2003, Re One.Tel Ltd (in liq); Australian Securities and Investments Commission v Rich Comino, the Challenge of Corporate Law Enforcement in Australia, Commonwealth Consolidated Acts, 2001, Corporations act 2001 - Section 184 Commonwealth Consolidated Acts, 1914, Crimes Act 1914 - Section 16A Corporate Law Adviser, 2011, Justification of Criminal Sanctions for Violations of Corporate Governance available from: (September 5 2011) ANZ available from: (September 5 2011) Fiona. H. & David, G 2004 ,Regulatory Conflict and Regulatory Compliance: The Problems and Possibilities in Generic Models of Regulation’ in Richard Johnstone and Rick Sarre (eds), ‘Regulation: Enforcement and Compliance ,Research and Public Policy Series No 57, Australian Institute of Criminology. Issachar, R. & Talia, F 2008, Overcoming Procedural Boundaries 94 Virginia Law Review 79 Kenneth, M 1992, Punitive Civil Sanctions: The Middleground between Criminal and Civil Law 101 Yale Law Journal 1795. Marsha. J., & Grigg, A 2009ASIC Slated in One.Tel Court Defeat, the Australian Financial Review ,Sydney, 19 November 2009 Middleton, T 2008 The Privilege against Self-Incrimination, the Penalty Privilege and Legal Professional Privilege under the Laws Governing ASIC, APRA, the ACCC and the ATO — Suggested Reforms, 30 Australian Bar Reviews 282. Resnik, J 1989, the Domain of Courts, University of Pennsylvania Law Review no. 137 Sharyn L. & Roach, A1998, crime prevention studies, the role of civil sanctions in Social control, flinders university volume 9. Spender, P 2008, Negotiating the Third Way: Developing Effective Process in Civil Penalty Litigation, Company and Securities Law Journal no. 26 Vicky, C 2007, the Enforcement Record of ASIC since the Introduction of the Civil Penalty Regime, Australian Journal of Corporate Law no. 20 Victorian Consolidated Legislation, 1991, Sentencing Act 1991 - Section 6AAA Read More