Company Negligence Case Study

A tort is a civil wrong committed by a person or entity against another entity or person. The aim of torts is to impose liability on the person (natural or corporate) responsible for the act. In contrast, corporate crime occurs when a corporate activity causes injuries, death, and other wrongs. This essay explores the implications of committing company negligence, and ways in which liability is imposed when company crime occurs.This essay first analyses the implications of negligence committed by a company employee who is also a director. Likewise, the consequences of negligence committed by a company employee who is also a shareholder, is discussed. Subsequently, it examines whether a company can be liable to its own shareholders under

Although vicarious liability can be applied on the basis that a shareholder is an employee, its shareholder status renders there to be no agent-principal relationship. Thus, the organic theory is more relevant to employee shareholders, because shareholders are also seen as the organ of the company. For example, in R v Roffel (1984) 9 ACLR 433, the sole shareholder and director’s act of negligently stealing corporate funds were deemed to be the company’s act. Alternatively, courts can lift the corporate veil, which sets aside shareholder’s limited liability and imposes liability on a shareholder for the actions of the corporation. To illustrate is Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39 where the sole director and shareholder defrauded banks without auditors noticing, resulting in the court to pierce the veil between the sole beneficial shareholder and its company and impute the shareholder’s fraudulent intentions to the company. Because of the organic theory, a shareholder’s negligent behaviour can render a company liable, nonetheless, personal liability can be imposed if the corporate veil is

According to section 729 of the Corporations Act, a person has the right to compensation after suffering damage or loss due to an “offer of securities under a disclosure document contravening section 728(1)”. Section 728(1) prohibits individuals from offering securities containing a misleading or deceptive statement. Indeed, a company can only be liable if shareholders launch class action. This means shareholders litigating against a company and its officers for misrepresenting profitability and causing shareholders to purchase shares at inflated prices. For instance, in Dorajay Pty Ltd v Aristocrat Leisure Limited [2009] FCA 19, shareholders launched class action against Aristocrat after acquiring interest in shares and suffering a loss because Aristocrat exaggerated profits and failed to reveal that earnings forecasts will not be met. A more recent example is Dick Smith shareholders filing class action against Dick Smith after being deceived about the financial state and subsequently losing a considerable amount of money. Companies will be liable if shareholders successfully launch class action against companies for suffering loss or