ABC Ltd is a large facilities and property management company that manages manufacturing and industrial buildings throughout Australia. The company is involved in complex property development that includes all of the following elements:

(a) englobo land value in excess of $40,000,000;

(b) commercial development;

(c) industrial development;

(d) multiple englobo land ownership; and

(e) a combination of the majority of major service infrastructure, requiring specific catchment allocations and major service infrastructure including:

(i) highways and bridges;

(ii) sewer pump stations, pressure mains, and pre-fund gravity mains;

(iii) external water main extensions;

(iv) external gas main extensions;

(v) external high voltage electrical cable extensions;

(vi) external telecommunication cable extensions.

The company is owned predominantly by the Smith family 75% is held by different members of the family, 25% of the companys issued capital is owned by many different shareholders, including the directors. Future plans of the company included extending facilities management to include large retail centers in the heart of Sydney. In addition, ABC was planning to extend its business portfolio and engage in construction works with the possibility of building multi-level shopping centers and industrial parks across Australia. The company has three executive directors Ash, Ken, and Tony.

The following transactions took place between January 2020 and September 2020.

January 2020

Facilitas Group Ltd (Facilitas) was planning to launch a hostile takeover of ABC Ltd by offering the shareholders of ABC Ltd a price for their shares which is at a premium with the existing market price. Facilitas is a large company with an extensive facilities management profile that provides a vast range of services, including security and risk management, in many parts of the world. It acquired some small businesses in Australia and was rumoured to have a reputation for looting companies it acquires and stripping their assets. The director of Facilitas David, a close friend of Tony, approached and paid him $100,000 to persuade the board to accept the takeover. In the board meeting, Tony mentioned the takeover bid highlighting the offer would be beneficial for all shareholders and stakeholders because Facilitas is a comprehensive facilities management company that looks after all clients and puts their customers first as part of their identity and guiding ethos. However, Tonys connection with David and the commission remained undisclosed. Ash and Ken were concerned that, despite the reputation of Facilitas, the Smith family and others might still accept the offer because the founder of the company and majority shareholder Brandon Smith was nearing retirement and was planning to sell the company in the nearest future. Ash and Ken were convinced to stop the takeover on the basis that the interest of ABC Ltd were those of a commercial entity with valuable assets needing protection from a company that had a bad reputation, rather than the interest of the Smith family and others as members of the company. The takeover bid failed.

April 2020

The board of directors entered into an emergency discussion with a major facilities management and construction company Edifici Pty Ltd managed by Alexander Bugatti. Alexander was planning to build multi-storey buildings and large industrial parks on some of the land. At the board meeting in April, the directors of ABC Ltd proposed to accept the offer from Alexander. Tony told them that he intended to keep the land for building a business (office) park in the nearest future since ABC Ltd was looking for opportunities to expand its business portfolio. The businesses that occupy the offices in a business park are commercial enterprises, not industrial ones. Industrial companies have their offices there, but not their factories or industrial parks. There are no residential properties in a business park. Commercial rental yields received from industrial parks are high meaning a higher return or a greater property value.

Ken and Ash, without informing Tony, entered into the contract with Alexander, under which they would personally take a percentage of profits to be realised by the sale of completed commercial units in the buildings and industrial rents.

When Tony found out, a serious disagreement arose between the directors. Tony told the board of directors that he intended to make an offer to sell the land to Centrium Ltd without further delay. Ash and Ken rejected Tonys offer calling it absurd. Two weeks later, Centrium Ltd acquired the land from ABC Ltd for $5 million. It is estimated that the land sold to Centrium Ltd is worth a much greater sum than paid by Centrium Ltd. Tony transferred some of the amounts to his private bank account. It was later revealed that the directors of Centrium Ltd paid $200,000 to Tony to influence his decision-making in ABC Ltd to resolve the sale with the outcome preferential to Centrium Ltd. Tony was to retain the money regardless of the outcome.

Soon after, the surge of Covid-19 cases across Australia, restrictions on travel, and small business operations had caused disruptions to many businesses across Australia. The property management sector was also affected. Since the virus outbreak, the reality had changed, and commercial real estate players had been hit hard across the value chain. Service providers were struggling to mitigate health risks for their employees and customers. Many commercial developers could not obtain permits and they faced construction delays, stoppages, and potentially shrinking rates of return.

September 2020

ABC Ltd was engaged in security and risk management and had collaborated with other companies including Securitas Ltd. ABC directors Ash and Ken were concerned that Centrium Ltd was acquiring a substantial shareholding in the company through purchases on the stock exchange. Ken and Ash were fearful that Centrium intended to use this shareholding as a base for a future takeover bid. In these circumstances, ABC made an allotment of shares to Securitas and some to employees of ABC who were friendly to the management. Under the allotment agreement, Securitas was to pay for shares upon application and was entitled to full voting rights upon allotment and to appoint a nominee director to ABCs board. The directors did not want to allow Centrium to acquire a substantial shareholding as they did not have a good relationship with the management of the company, fearing that acquisition could result in diminishing their powers as Centrium would have likely requested to appoint its nominee director on the board of directors of ABC Ltd. The directors of ABC also viewed that having Securitas as a partner would be beneficial in long term than having Centrium. However, it was later revealed that the directors of Securitas offered expensive lavish gifts to Ash and Ken.

It was also revealed that the minutes of the board meeting set out the reasons for issuing shares to Securitas and some employees as follows:

• ABC Ltd required further capital for expansion;
• The share issue will provide an incentive to employees to increase productivity;
• It will prevent Centrium from taking over ABC.

These transactions occurred without Tonys knowledge as he was on stress leave due to his previous disagreements with Ash and Ken.

REQUIRED:

Advise ASIC and ABC Ltd if the directors breached their duties. Discuss all relevant legal issues. Refer to relevant Australian law.