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2. Problem-Solving Questions Question 2.1 Derrick was managing director of Shamrock Ltd (a listed public company) and a director and sole shareholder of Like a Boss Pty Ltd (LAB). LAB, Derrick and Shamrock entered into a contract for services in which LAB provided Derrick's services as Managing Director to Shamrock and LAB would receive a monthly management fee plus a bonus payment if Shamrock's share price was $2.00 per share by the end of the financial year (30 July - 30 June). The share trading volume of Shamrock shares were low and the shares not particularly liquid. The Shamrock Share Trade Policy (which Derrick had read and accepted) stated that any share trading or share purchases by a director must be approved by ordinary resolution of the Board. Shortly before the close of trading on the ASX on the last day of the financial year, Derrick instructed his stockbroker to purchase shares in Shamrock in his mother's name at market price. The broker placed an order for the shares and trades were transacted to fulfil the order before the close of trading that day. The purchase was the only trade in Shamrock shares that day and caused the share price to increase and the short-term performance bonus to become payable to LAB. No disclosure of this activity was made by Derrick to the Board of Shamrock. LAB was paid a bonus of $1,000,000 as per the contract. The ASX discovered the trade and notified Shamrock and the ASIC. ASIC interviewed Derrick about the share trade and contacted his mother seeking further information. During its investigations ASIC found a \"FAQ\" document on Derrick's computer addressed to his mother with proposed answers to ASIC questions. Derrick argued that as his mother purchased the shares and as the bonus was paid to LAB, he had done nothing wrong. Advise Shamrock Ltd and ASIC as to whether Derrick has breached sections 182 and 183 and the remedies available. ANSWER Issue: Did Derrick improperly use his position in breach of section 182? Law: Section 182; Grove v Flavel (definition of improper); ASIC v Adler; ASIC v Vizard; Diakyne Pty Ltd v Ralph (payment of discretionary bonus to company controlled by the director); Application: Explain that Derrick is an officer of Shamrock Ltd and why. Explain what Derrick's conduct involved. Explain that Derrick's conduct was improper and why with reference to the contractual duty (share trading policy) and legal duty to act in good faith in the best interests of Shamrock Explain why other cases are similar to this scenario. Explain what the purpose of Derrick's conduct was. Issue: Did Derrick improperly use information in breach of section 183? Law: Section 183; McNamara v Flavel (Grove v Flavel and ASIC v Vizard already covered) Application: Explain what the relevant information was Explain whether Derrick obtained that information because he was an officer of Shamrock and why (you could argue the case either way). If students argued that the information was obtained by Derrick in his capacity as officer of Shamrock, then the relevant conduct, determination of improper and purpose are the same as the discussion in section 182. Issue: What are the remedies available to ASIC and Shamrock? Law: s1317E, 1317G, 1317H, ss206C and E, ASIC v Adler, ss184(2)&(3) Application: Identify what civil penalty provisions have been breached. Explain why the Court could order a pecuniary penalty Explain what the compensation order is likely to be. Explain the grounds on which Derrick could be disqualified from managing corporations and why disqualification would be justified. Explain why Derrick could face criminal penalties having regard to his dishonesty and/or reckless conduct. Conclusion Derrick breached his duties under ss 182 and (depending on your argument) section 183. This entitles ASIC to a pecuniary penalty and an order for disqualification and compensation for Shamrock