If found guilty they should be liable for imprisonment and repayment of funds dishonestly obtained

Question 1: 1. Directors acting dishonestly should be criminally investigated. If found guilty
they should be liable for imprisonment and repayment of funds dishonestly obtained. Discuss.
Use Agency theory to support your answer.
TZ Limited is a Sydney-based technology company. It is in the business of “internet of things”
(IOT) locking device technology. IOT objects are objects that have built-in intelligent with a
unique profile and with the ability to transfer data over a network without requiring human-tohuman or human-to-computer interaction.
On February 10th, 2017, The Sydney Morning Herald published an article titled “Former TZ boss
Andrew Sigalla jailed for up to 10 years for $9 million fraud” which was written by Michaela
Whitbourn, a Legal Affairs and Investigative Reporter at The Sydney Morning Herald. She
argued that company directors have been neglecting their legal duties and it resulted in the
Chairman defrauding the company. They failed to act with propriety. Directors only
acknowledged their legal duties when they saw “the prospect hefty penalties if they fail to meet
their legal duties”. The corporate watchdog started to warn the company directors when a case
already happened. It is then too late for a warning. It is evidence that the company directors think
lightly of their duties and their loose action follows. As a result, the Chairman had to go behind
the bar and the money taken could not be taken back.
An agency relationship is formed when one or more principals (e.g. an owner) engage another
person as their agent (or steward) to perform a service on their behalf (ICAEW, 2005). Agency
theory is defined as a point of view at the problem that can arise in a business relationship
between one person delegates decision-making authority to another (Hill & Jones, 2007). This
provides a way to understand why managers do not always act in the best interests of
stakeholders and why they might sometimes behave unethically and perhaps also illegally. They
are motivated by different self-interests.
In the case of Andrew Sigalla, the agency relationship arose when Andrew Sigalla, the principal,
delegated decision-making authority to his company directors, his agents. Andrew Sigalla
represents shareholders of the company. However, only he was found guilty of 24 counts of
defrauding the company. As he delegated his decision-authority to his agents, they had the rights
to make decisions on behalf of him. However, the company directors did not conduct their legal


duties substantially. Despite the fact that the Chairman took the company’s money, the former

Board of Directors shown no signs of notice on the taken money. Not until the former Board of
Directors was replaced in 2009, was Sigalla questioned for his certain payments he made to take
the company’s money. In other word, the former Board of Directors should have known what the
Chairman had been doing. Nevertheless, they did not act to prevent the Chairman from making
illegal payments. With the delegation of decision-making authority, the company directors
should have been able to stop the Chairman from defrauding the company. Therefore, they
should be held liable for Andrew Sigalla’s frauds too.