The facts and decision in Macdonald underscore the failure of the JHIL board to discharge its dual role as adviser and supervisor.
JHIL (now 'ABN 60 Pry Ltd') manufactured asbestos products until 1937, whereupon this activity was taken over by its subsidiary, James Hardie & Coy Pty Ltd (now 'Amaca Pry Ltd'), which became a substantial producer until it ceased this business activity in the 1980s.
An aborted attempt to issue 15 per cent of the shares of a related Dutch company, James Hardie Industries NV ('JHINV'), on the New York Stock Exchange added to the impetus for a corporate restructure to 'fully realise the value of JHIL, and for its growth prospects to be realised', by adopting the United States as the group's base.
From the year 2000 until 15 February 2001, the management of JHIL worked on a plan (known as 'Project Green') to divest the group of its asbestos liabilities through the use of a trust structure in the following way.
Furthermore, as part of the concerted effort to quarantine JHIL from its asbestos liabilities, the following arrangements were put in place.
The Australian Securities and Investments Commission ('ASIC') alleged that JHIL breached its obligation to disclose the DOCI information to the Australian Securities Exchange ('ASX') as required under ASX Listing Rules (at I July 2000) r 3.1 ('Listing Rules') and the Corporations Law.
(36) Furthermore, ASIC alleged that through Mr Macdonald's conduct in making such statements JHIL engaged in misleading and deceptive conduct in breach of the Corporations Law and the Corporations Act.
After the establishment of the Foundation in February 2001, steps were implemented in October 2001 pursuant to a scheme of arrangement (38) to substitute a new Dutch company (JHINV) for JHIL as the holding company of the group--with JHIL becoming a wholly-owned subsidiary of JHINV.
One of the main features of the scheme involved JHINV subscribing for partly paid shares in JHIL. Consequently, JHIL could call on its holding company to pay any or all of the remainder of the issue price of those shares at any time in the future.
The cancellation of the partly paid shares and the formation of a new foundation in March 2003 to acquire the shares in JHIL ensured the complete removal of JHIL from the James Hardie group.
ASIC alleged that, in approving the information memorandum ('IM') sent to members of JHIL, which failed to include the plan to cancel the partly paid shares, five of the non-executive directors present at the board meeting on 23 July 2001 breached s 180(1).