James Hardie Industries Ltd The Breach Of Trust Case Detailed Study

Question: Give detailed descriptionabout James Hardie Industries Ltd. Answer: Introduction A lot of has been published previously about the James Hardie case. This case today we will study is related to the infamous James Hardie Industries Ltd is a company which deals in building industrial materials. The company is situated in Ireland region in Australia. Back in May 2012 the director of the company, James Hardie was detected by the court to be breaching his duties. The director allegedly confirmed and notified a false ASX announcement which related to the foundation of a set up for compensating individuals suffering from asbestos related ailments. He declared there was funding adequacy in this set up which was an entirely false confirmation made from the end of the director.(Robertson 2012) James Hardie was amongst one of the many companies which were dealing in the mining of asbestos. It was in the mid 20th century when the industry witnessed the company to become the largest manufacturer of building materials,products,pipes,brake linings and insulations. The Asbestos plants are located in varied places in Australia in NSW,Victoria,Southern Australia, Queensland and western Australia. Gradually workers working in the Asbestos plant started showing pleural asbestos from the material used called Fibro. Such pleural abnormalities witnessed were known as Asbestosis and Malignant Mesothelioma. (Wiki) The firms in this group majorly participated in making products based on asbestos during the years 1920s. In Australia asbestos based products were used extensively as building materials. The company was responsible to contribute to around 70% of asbestos consumption in the country. Asbestos however is injurious to the health. It contains fibres that results in diseases like lung cancer even. These fatal diseases do not manifest instantly. Decades past for them to develop in the human body and one fine day comes out big. (Hargovan 2012). Duties and Responsibilities of the Director Breached James Hardie, the director of the James Hardie Industries Ltd started restructuring of the company. This involved the moving of its base offshore. The liabilities faced by the firm regarding asbestos related illness was high. Two companies under the James Hardie ownership which was liable for such growing ailments was expelled in the midst of this restructuring. This was to protect Hardies image in the entire matter.The company also funded a Medical Research and Compensation firm to research more about the illness. The director was supposed to announce and inform the market about such restructuring or ASX. Any kind of company restructuring or reforming affects its price, value and shares. In the year 2011, the company announced that it was fully funded and is having sufficient funds for fulfilling all the claims of legitimate nature. However, the reality was something else. The foundation soon was exposed to be short of funding thus proving director James Hardie to be breaching his d uties to be truth full about the companys plans and facts. (Robertson 2012) The New South Wales Supreme Court initially found that 3 senior executives and 7 non executive level Directors have breached their obligations of statutory nature under section 180(1) of the Corporations Act 2001. The jury of the NSW Supreme Court was backed by 7 more reverend judges.(Govrik 2012). Decisions of the court on the James Hardie case It was in the year 2003 month of Dec when the Foundation gave out a warning message that it is facing a serious shortfall of fundings. In a few year it will not be able to pay any claims arising in relation to the asbestos compensation fund. In 2004 the NSW Bob Carr hired David Jackson the QC to undergo an investigation. The main point of investigation was to find out the relation in between the Hardie group company restructuring and the shortfall of funding. It also included the provision to check whether corporate law was needed for ensuring the claims in the future and how will they be met. The investors of the hardie group denied any such wrong doings. The inquiry suggested the following: The MD or managing director of the James Hardie Industry in the year 2001 was prosecuted to make inquiry regarding whether the Foundations can meet all claims in future The advisory of Hardie Group, Allens Arthur Robinson breached duty in relation to the company restructure. It also lead to the cancellation of part payment of paid shares. Inquiry for the adviser Trowbridge who acted in a negligent manner while estimating the future funding needed by the Foundation. High court has ruled in its sessions that the executive and non executive directors breached corporate law by making statements which were misleading in nature regarding the asbestos compensation fund of the company. In the various court proceedings made by the ASIC, J Gzell it was found that while making the announcement James Hardie has got himself and the other directors involved in deceptive conducts. It was also found that the successor JHINV was also involved in deceptions and misleading conducts for some investor road shows. The court declared non executive directors, chief executive, chief financial officer and the secretary or general counsel of the Joint company all breaching their official duties. Non executive directors of James Hardie Industries Ltd Mr Shafron, JHINV and Mr Morley made appeals to the New South Wales Supreme Court as individual appellants to their judgement passed on the 17th of December 2010. (Austin 2012) The High Court passes the decision that these members including chair woman Meredith Hellicar was involved in this breach of making misleading falsified statement to the Share market in year 2001. The company said it had a fully functional plan to provide compensation. But in reality the underfunded amount of the company was over $5.1 billion. The company faced total bankruptcy. ASIC or the Australian Securities and Investments won their initial round in the NSW Court. Directors were fined. They were also banned to be serving as Board members for 5 years. In 2010 this ruling was overturned by their appeal. The court later returned this appeal as it wanted to decide on the matters which lay outstanding and penalties. The director James Hardie informed he was unsure how much the ruling will be costing to the company. The decision of the High Court which definitely will have a cost implication and it will be known only when the outstanding issues are judged by the court. The ASIC body of judges warns any director who is misleading investors. (Anonymous, NSW News 2012 The ASIC has made appeals to the High Court. It was for the Court of Appeals final decision given to the NEDs. These cross appeals and appeals about Mr Shafron, Mr Morley and others were withdraw. JHINV made no appeals. High Court made allowance on an unanimous basis for the ASICs appeal towards the NEDs. The following joint decision was made by CJ Gunmoq, Crennan, Bell JJ and Kiefel:- The minutes of the board meeting held in February was powerful proofs favouring the case of ASIC. The directors were stated to be approving market announcements made although it was not recorder or in document within a month's time as per s251A. It is assumed that a civil prosecutor usually has a fair judgement. ASIC never contravened any duties present in relation to the case. Mr Robb is most unlikely to give any evidence that will work in favour of the NEDs. ASIC was also discharged any burden of finding evidence about the Feb board meeting where directors approved market notifications. (Robin 2012) Due to the shortfall of funds faced by the organization a crucial issue arises that to what extent is the liabilities of the prosecution be traceable based on the overseas assets of the Hardie Group. This also includes the Netherland based parent firm JHINV. Despite the solid feature of the restructure of the company and the counsel assisting such inquiries it has been suggested that the JHINV was actually a shadow director for the Australian company ABN 60. The claims of ABN 60 were enforceable for JHINV. Chairman of ASIC Greg Medcraft stated that in this case for the regulator it has become a very important case as it has hit markets right in their heart. The information Australians received can be relied on as per what he said in the Melbourne Media conference. Decisions that raised for the directors considering their duties to be completely onerous was denied. As per them it was a timely reminder about the duty. Overall the companies in Australia have high levels of governance in the corporate level. Medraft said to the court that there will be a deterrent effect which makes sense to all Australians where they needs to take care about the accuracy of various statements made by company director for the market. The law firms representing the asbestos victims also positively welcome such decisions. As per Maurice Blackburn and Theodora Ahilas who were primary in the asbestos case, they stated that the misleading statements made by James Hardie cause false assumptions by the community about what amount of money or fund is kept aside for compensation of asbestos. This led to high stress and confusions in many of the clients of asbestos. The company finally is held accountable for the poor nature of its governance which is a good thing. Still the highest number of people suffering from asbestos is yet to be calculated in Australia. The last model used for such calculations basing itself from the deaths occurring due to mesothelioma somewhere ranges in between 2014 and 2021. The worst part is that this disease does not show itself instantly. The actual count of people who will die is yet to be traced as the disease takes decades to showcase its symptoms. The Hardies as stated by the lawyers was a story of a misleading community. AT first they misleaded the community about the dangerous products and its side effects. And then the entire world about its ability to fulfill claims from compensations of asbestosis victims. References Robertson. McCullough 2012, High Court confirms breach of duties by James Hardie directors, Australia. Govrik.Tony De 2012, The James Hardie case: risk, reputation and business ethics. Hargovan. Anil 2012, CORPORATE GOVERNANCE LESSONSFROM JAMES HARDIE, Case Note. Anonymous, NSW News 2012, James Hardie directors breached duties: court. Austin. Robin 2012, The High Court decides the James Hardie case.