Question

1. Explain why the director was liable for breach of duty in ASIC v Sino Australia Oil and Gas Ltd (in liq) [2016] FCA 934 and also explain why his defence failed?

Answer 1

ASIC alleged that Mr Shao, the former executive director and chairman of the company, was involved in the company’s failure to make continuous disclosure and that he breached his duties as director of the company. There were two Australian resident directors. Mr Shao admitted that he did not understand the English language, whether in oral or written form and did not obtain a full Chinese translation of each prospectus document before signing it or authorising its release.

ASIC alleged that Mr Shao breached his duties by:

• failing to ensure that he had any, or any sufficient knowledge of the disclosure requirements in the Corporations Act;
• failing to obtain translations of each prospectus document and ensuring that they reflected all matters required to be disclosed;
• failing to disclose to the Board, in the prospectus documents, and to the ASX, the changes in circumstances of the company and profit downgrade;
• attempting to transfer the initial public offering proceeds without giving a proper reason and without proper documentation; and
• causing or permitting the company to contravene certain provisions of the Act, thereby exposing it to the potential jeopardy of civil pecuniary penalties.

In his defence, Mr Shao alleged that he received and relied on the advice given to him by the two Australian directors (Messrs Faulkner and Johnson) and professional advisers in respect of the disclosure requirements of the Act. The fact that Mr Shao was not an English speaker or writer and did not understand Australian legal requirements did not mean that he could just leave it all to others and did not excuse him from performing his own duties with reasonable care and diligence.