Australian Securities and Investments Commission (ASIC) v Adler (No 3) (2002) 168 FLR 253
Company law; duties of directors; requirements of Corporations Act 2001 (Cth) sections 180 - 183.
Facts: Adler was a director of HIH, an insurance company. Adler was also the director of various other companies in which he had the controlling interest. One of these companies (A Co) owned a substantial number of shares in HIH. In April 2000, the price of HIH shares was threatened by a collapse in the value of technology shares. Adler was concerned to protect A Co's investment in HIH shares. Adler used his position in HIH to arrange payment of $10 million from HIH to one of his companies, in exchange for which HIH received a single share in that company. Adler then used this money to buy HIH shares in an attempt to prop up the value of these shares on the market. He also used the money to minimise the losses suffered by his other companies. In short, Adler used HIH money to protect his own interests, at the expense of HIH's interests. ASIC sought a declaration that Adler, as a director of HIH, was in breach of his duties to HIH.
Issue: In doing these things, had Adler breached his duties as a director of HIH, in contravention of s 180 - 183 of the Corporations Act 2001 (Cth)?
Decision: Adler had acted in breach of these sections.
Reason: The court made the following findings:
(1) Adler had not exercised the required degree of care and diligence as a director of HIH. Also, because Adler had a material personal interest in the transactions, he could not rely on any defence based on the rule that he was exercising a proper business judgment when entering into the transaction in question.
(2) Adler had breached his obligation under section 181 to act in good faith for a proper purpose.
(3) Adler had breached his obligation under section 182 not to improperly use his position as a director to gain an advantage for himself or to cause detriment to HIH.
(4) Adler had breached his obligation under section 183 not to improperly use information obtained by him as a director (in particular in relation to HIH's committee procedures, investment guidelines and its investment portfolio) to gain an advantage for himself or his companies.