Belle is the CEO and Executive Chair of Ace Ltd, an ASX listed mining services c

Question

Belle is the CEO and Executive Chair of Ace Ltd, an ASX listed mining services company. Belle has been involved in extensive negotiations with a large Chinese mining company (Metallicus Inc, which is registered to operate in Australia) that is developing a substantial mine in a remote part of WA. Belle has undertaken several trips to China to meet with senior executives and senior political figures. The executives of MetalRMB agreed over a handshake with Belle to enter into a substantial service contract that will involve Ace Ltd, taking a project management role in the development of the mine. This contract is potentially worth over $1 billion.

Belle is excited about this development and emails the board at 2am Perth time:

‘Dear colleagues, I have signed a major contract this evening that will significantly increase revenues for the next 5 years. I will announce the details of this deal (project management of new mine for Metallicus Inc in WA over next 5 years, expected revenue increase of 30%) to the market tomorrow morning. If you have any concerns or comments please email or text asap.’

Belle has always run Ace Ltd, ‘her way’ and the board has been reasonably relaxed and let her get on with business as he has been spectacularly successful during the mining boom. Belle receives no feedback from the board and so issues an ASX release announcing the contract, which sends a strong spike in the Ace Ltd share price. The board members (not including Belle) sell substantial portions of their shares in the company after the price increases. The ASX issues a query to Ace Ltd about the release after the Australian Financial Times website questions whether the contract is valid and legal. Two weeks later Ace Ltd, releases a further release to the ASX stating that its contract is still being negotiated and may be significantly delayed or otherwise not proceed. This comes after Metallicus Inc management inform Belle that they would prefer to use a more experienced global construction company for the lead project management role, although Ace Ltd, can still be involved in a minor role.

You have been asked by ASIC who has been asked to investigate this matter. Do you believe that Belle and/or the other board members could be in breach of CA s 180(1)? Follow the HIRAC method of legal problem solving.

Explanation / Answer

Hazard Identification: The Board members of ACE Ltd. can be held for violation of Section 180(1) of the Companies Act, 2013.

Risk Assessment: Under the Companies Act, 2013, certain restrictions have been imposed on the powers of the Board members. The Board members need to get consent from the overall members of the company before selling a substantial part or overall shares or stakes of the company. However in the given case, the Board members did not comply with any company considerations and sold off their stakes.

Control: The Board members can be held accountable for violating the Section 180(1) of the Companies Act, 2013 and can be liable to punitive measures.

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