Compensation back to the company can be sought o

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Compensation back to the company can be sought o Directors’ can face criminal liability However on the other hand: o ASIC may not bring your claim because of a lack of resources o Shareholder gets no direct compensation B.2 Shareholder Litigation vs. ASIC {Ian Ramsay} (1) Shareholder Litigation The benefits of shareholders instituting proceedings include: o Monetary compensation o Deters wrongdoing by imposing threat of liability o Ensures directors and officers discharge their duties The downside of shareholders taking action include: o Cost of litigation is still substantial o Disruption of Co’s business activities and give rise to undesirable publicity, create uncertainty o Makes it difficult for Cos to attract qualified directors/officers Must be offered adequate liability insurance or increased salaries to incentivise them o Shareholders act in their own interests - may be detrimental to other shareholders i.e. where a small shareholder brings litigation they have very little incentive to consider the effect of the litigation upon other shareholders and the company as a whole, and may act in opposition of the majority’s interests o Small shareholders have little incentive to commence litigation, even where it is appropriate, due to cost to them outweighing the benefit they will personally receive Therefore there are not huge incentives for shareholder litigation, less so the more financial trouble the company is in. In theory it is useful, in practice the disincentives provided by the costs of the action are much larger than the possible benefits (2) ASIC Litigation The benefits of ASIC instituting proceedings include: o Litigation commenced by ASIC can provide similar benefits to those of shareholder litigation. o In a good position to ascertain whether litigation is wise or not (due to their investigative powers) o Does not suffer the ‘collective action’ problem suffered most acutely by small shareholders in large public companies (i.e. no incentive to apply individually) The downside of ASIC taking action include: o Disagreements may exist in relation to ASIC’s enforcement priorities 2
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Shareholder Remedies o Over-reliance on the enforcement of corporate rights and duties by ASIC is troubling if ASIC is under-resourced The more under-resourced the regulatory agency is, ‘the more its decisions must be reached with inadequate information, unless the agency relies on those it regulates for information, whereupon it is more susceptible to unacceptable influence’. i.e. either under-researched or independence is compromised Also means that not many cases can be heard, and smaller ones rather than big resource-draining ones are preferred.
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