Directors’ Duties in the On-line Environment
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Transcript of Directors’ Duties in the On-line Environment
Directors’ Duties in the On-line Environment
Simon RubensteinSolicitor
ASIC
The Internet
• Changing the way we communicate, transact and conduct business
• Provides for immediate and low cost access to and dissemination of information
• However, not immune from acts of misrepresentation and fraud
• This creates challenges for regulation and enforcement
Overview
• Application of directors’ duties • Remedies for breach of directors’ duties • Regulating and enforcing corporate activity
in the online environment– Rentech– LibertyOne and Samson
Application of directors’ duties
• Starting point - existing directors’ duties apply to conduct occurring online
• Application of the existing director’s duties to the online environment only limited by imagination and yet to be fully appreciated
Application of directors’ duties
• Consider some examples:– Blair and the misuse of company information– Sara-Marie and the posting of false and
misleading information on the company website
– Christina ‘chats’ about proxy voting at an up and coming annual general meeting
Remedies for breach
• Civil remedies– Final injunctions to prevent threatened or
continuing breaches– Interlocutory injunctions available to freeze
assets or restrain conduct pending final determination
Remedies for breach
• Civil Penalty Orders– Civil penalty regime applies to breach of
directors’ duties– Civil rules of evidence and procedure apply– Declaration of contravention– Pecuniary penalty order (up to $200,000)– Disqualification order– Compensation order
Remedies for breach
• Criminal– No longer criminal liability for breach of duty
to act with reasonable care and diligence– Liability may arise for breach of the remaining
three duties but only where the director acts recklessly or with intentional dishonesty
– Possible jail sentence, fine and automatic disqualification
Regulation and Enforcement
• The Internet presents new challenges for ASIC including:– Understanding the technology– Understanding the interaction with the
provisions of the Corporations Act– Applying the technology
• So how does ASIC regulate in the online environment?
Regulation and Enforcement
• Policy initiatives• Consumer protection initiatives• Enforcement of the provisions of the
Corporations Act
Enforcement
• Development of new enforcement tools including:– Electronic Enforcement Unit– Automated Internet surveillance tool– Enforce-net training– Electronic evidence tool kit
Enforcement
• Internet element to many ASIC’s investigations• IOSCO surf day results include:
– Illegal offerings– False or misleading statements– Market manipulation– Unlicensed investment advice
• Issue of directors’ duties underlies much of this conduct
Rentech
• Background– NASDAQ listed, technology company– Bulletin board postings and unsolicited (spam)
e-mail– Statement that price to go up on back of
imminent news– Price doubled, volume up by almost 1000%– Company denied truth of statement
Rentech
• Investigation– Identifying person who posted bulletin board
messages– Identifying person who sent spam messages– Understanding the technology– How to gather and present electronic evidence
Rentech
• Offences– Making statements and disseminating
information that was false and misleading and likely to induce the purchase of securities (s.999 of Corporations Act)
– Unauthorized and unlawful interference with a computer network (s.76E of Crimes Act)
Rentech
• Issues– Difficult to remain anonymous on the Internet– What if ‘promoters’ had been engaged by
directors to increase online exposure of company?
– In what circumstances would directors be liable?
LibertyOne & Samson
• Background– Fundraising offer published on IDS– Directed at shareholders of LibertyOne– Titled ‘Samson Deposit Plan’– Seeking to raise $5M– No offer document
LibertyOne & Samson
• Breach of the Corporations Act– Disclosure requirements– Advertising requirements– Misleading or deceptive– Breach of directors’ duties to act in good faith
and for a proper purpose and with care and diligence
– [director vigorously denies breaches occurred - ed ]
LibertyOne & Samson
• Enforcement action– Offer withdrawn– Corrective statement published on IDS– All money collected ($100,000) returned to
investors
LibertyOne & Samson
• Issues– Rules relating to disclosure and fundraising
apply to offers on the Internet– Offers published on Internet are unlikely to be
‘personal’ ones and thus unlikely to be exempt– Real risk of breach of directors’ duties for
conduct of this kind
Conclusion
• Existing laws (including directors’ duties) apply in the online environment
• ASIC is rising to the challenge of regulating and enforcing laws in the online environment
• ASIC adept at tracking electronic footprints and using the latest cyber technology