The Federal Court in Perth today banned Gary Stokes and Terence Quinn from managing corporations for three years and ordered they each pay a $25,000 fine for breaching their duties as directors of Padbury Mining Ltd (Padbury) with respect to the company's disclosure obligations.
The decision comes as a result of civil penalty proceedings commenced by ASIC in June 2015 (refer: 15-156MR). The Court today made orders with the parties' consent. ruling that Padbury's announcement on 11 April 2014 that it had secured $6 billion in funding for the Oakajee port and rail project in Western Australia, was misleading and deceptive ('Announcement'). In the four hours between the Announcement and a trading halt, Padbury's share price (which was 2 cents before the Announcement) hit a high of 5.2 cents, with more than 200 million shares being traded.
The judgment was handed down after the parties submitted an agreed statement of facts to the Court, along with submissions as to appropriate penalties in the circumstances of the case.
The Court's findings included that:
- In breach of section 1041H of the Corporations Act 2001 (Cth) (the Act), Padbury made a misleading and deceptive representation in the Announcement titled 'Oakajee Funding Secured' that Padbury had secured $6 billion in funding to construct a deep water port and associated rail network at Oakajee.
- Padbury directors Stokes and Quinn caused or permitted the representation to be made.
- Padbury breached its continuous disclosure obligations by failing to disclose to the market the existence of conditions precedent which would determine whether Padbury was entitled to receive the funding, and which conditions Padbury was not in a position to satisfy at the time of the Announcement. It also breached its obligations by failing to disclose the identity of the party which had promised to provide the funding, (Superkite Pty Ltd, since placed into liquidation).
- By authorising or otherwise approving the release of the Announcement, Stokes and Quinn failed to carry out their duties as directors of the company with the degree of care and diligence reasonably expected of them, contravening section 180(1) of the Act.
The court also ordered Stokes and Quinn each to pay a penalty of $25,000 and that they together pay $200,000 towards ASIC's costs in conducting the proceedings.
In handing down his judgment, His Honour Siopis J said, 'the making of the declarations [of breach] serves to vindicate ASIC's claims that the defendants have engaged in contravening conduct and … serves to deter other corporations and directors from engaging in unlawful conduct.’
The Judge also said that the conduct of the two Directors 'was a serious departure from the standards expected of directors of a public company in a like situation', and that they had recognised this.
His Honour further held that a three-year period of disqualification was an appropriate period, taking into account personal mitigating circumstances such as the Directors' cooperation with ASIC at an early stage of the proceedings.
ASIC Commissioner John Price said, ‘It is crucial to the maintenance of confidence in the Australian market that company directors ensure announcements made by their companies are not misleading, and contain all material information relevant to investors' assessment of deals being announced.
'In this case the omission of significant conditions precedent and the identity of the funder were held to constitute breaches of the laws applying to listed companies,’ he said.