Following the provisions of the 2010 Corporations Act, directors and other officers have the following duties to play in regards to a company; Section 180 requires a director and any other officer in the company, to display a high level of care & diligence when discharging their duties & powers to the same extent a reasonable person would display if he/she were in such a position or if he were in charge of that office & had to perform same responsibilities as the director or that officer, (Armour & Ringe 2011).
Section 181 provides that; a director or such an officer in exercising their authority & discharging their duties should do so in good faith, by taking into consideration the corporations best interests and for a good reason. On the other hand, Section 182 requires them not to use their position to reap a benefit for themselves or for any other person or cause a loss to the corporation, (Armour & Ringe 2011).
Accordingly, section183 requires them not to improperly use the acquired information to: reap a benefit for themselves or for any other person or cause loss to the corporation while section 184 provides that a director or any other officer commits an offence if they are: careless; deliberately untruthful; and do not exercise their authority and deliver their duties: in good faith by considering the corporations best interests; or for a good reason.
In reference to the situation of the company, Dion while in Europe looking for more business opportunity for Food Works Company breached his duty as a director in the sense that; he particularly went on that trip acting on behalf of the company as the director and therefore he was required to take reasonable steps in the best interest of Food Works Company which he failed to do so by entering into contract with Organic Company on behalf of Health Food-Lifestyle Company which realized large profits unlike Food Works Company which was struggling to remain in competition yet he gone to Europe to find more opportunities for Food Works Company, (Caims et al 2011). Case illustration is in the case of Australian Securities & Investment Commission vs. Macdonald where it was held that: no evidence existed to prove that the defendant had relied on the advice provided which was that some information should have been disclosed.
On the other hand, regarding the resolution to set aside additional capital to promote advertising and marketing of company products, Dion, Larry and Vance cannot be held to be in breach of their duties since Vance believed by doing so the company would be able to make more profits due to popularity & therefore was acting in the best interest of the company while Dion and Larry supported the idea by relying on Vance due to his verse knowledge in the field which was still in the best interest of the company, (Christensen, Kent & Stewart, 2010). Further illustration was brought out in the case of Hutton vs. West Cork Railway which concerned a company that was winding up. The seller in a meeting he convened came to an agreement to compensate some workers for loss of employment. Being the director’s proposal, some shareholders rejected it and went to court. Upon determination, it was held that: the resolution was invalid since the company was winding up & therefore any capital was to be used only in the interest of the company like promoting it continue its business activities, (Caims et al 2011).
Although in this instance the company was not winding up, the holding is relevant since, the resolution passed was in regards to promoting the company’s future business through advertising & therefore neither Larry, Dion nor Vance breached their duties in this instance. Similarly, in the case of re lee, Behrens & co where payments were to be made in regards to a widow of an ex-director it was held that: such payments meant spending capital owned by the company which can just be used for company’s purpose in promoting its activities which was the reason in regards to setting aside additional capital for marketing Food Works Company products.
Contrary to this, due to the company running out of cash it’s likely that Peter and Rita can commence legal proceedings against Larry, Dion and Vance for failing to take in to consideration the advice and therefore passing a resolution to promote the companies advertisement.
In conclusion therefore, Dion can be held for breach of his duty in regards to failing to act in the best interest of Food Works Company as its director. Also, he is in breach of failing to display good faith where he entered into a contract with organic company on behalf of his company & failed to disclose the same to his counterparts. Further, he is in breach of using his position as a company director to profit his company which has reaped profits following the agreement he entered into on behalf of his company with organic company.
There exists different types of defenses such as: the ‘business judgment rule’ provided for under section 180(2) of the act which can be relied upon if one acted in good faith for a good reason; did not have an individual interest in the outcome of the judgment; they reasonable believed that the decision was suitable & that they believed it was in the corporations best interest, (Musacchio 2008).
Also, there is the honest & reasonable director defense which is broader as compared to the ‘business judgment rule’ but its applied in addition to other statutory defenses.
In addition section 189 provides for the ‘reasonable reliance’ defense accorded when one relies on information offered by any board member without having any reason to be suspicious about the incorrectness of the advice, (Williamson & Lynch-Wood, G. 2008).
Following the circumstance, Larry, Dion & Vance can rely on the business judgment rule since when they were making the resolution in regards to setting aside capital for marketing the company, they did so in good faith by reasonably believing that it will help increase the company’s profit.
In addition to that, Larry & Dion can also rely on the defense provide for under section 189 i.e. reasonable reliance since when passing the resolution they relied on advice given by Vance a board member in whom they did have doubt of the advice given since he had extensive knowledge in the field, (Wang 2008).
Further, the three directors can rely on the defense of ‘honest & reasonable director where Dion in regards to not informing his counterparts about the business opportunity in Europe can convince the court that he honestly believed that his counter parts could not agree to the Europe deal as it was expensive & therefore he secured the opportunity, (Sealy & Worthington, 2013).
All the mentioned person can afford defense thou the burden of prove is on them to prove otherwise.
As per the act, penalties include civil ones under section 1317E which apply upon breach of all general directors duties. Also some sanctions are imposed upon those who have contrived the Acts provisions, (Kershaw 2012).
Following the civil penalties in section 1371E, in this instance Dion can be held liable & therefore required to comply, which after such a declaration is made, the ASIC can seek for a pecuniary penalty which in this instance can be disqualifying Dion as a director, (Hicks &Goo, 2008).
Further, illustration under the common law was evident in the case of ASIC vs. Healey where some sanctions are imposed on the director’s i.e. some were disqualified & while others paid a pecuniary penalty of AUD 100,000 & AUD 30,000.
Following the provisions of the Act, a directors meeting can be called by any lecturer who must give a reasonable not to each individual director of the company as provided for under section 248C of the 2010 Corporations Act (cth). Also, such a meeting should be held using a form of technology agreed upon by all directors, (De Rose et al 2008).
Further, section 248E in regards to quorum during the directors meeting, it provides that: the quorum is always 2 unless decided otherwise while in regards to special resolutions all directors have a right to vote. Also directors are required to declare any personal interest they have in regards to the company, (Deakin 2009).
On the other hand, the Act under section 232 outlines grounds upon which a court might make an order which include: when the conduct of the entities affairs, its actual or proposed resolution or if the resolution of members is against the interest of members as a whole, or if they are oppressive, discriminatory or unfair against any member or individual
Following the circumstance of the situation, Sarah & Caitlin had a right to be informed about the board meeting taking place which was not the case in this situation. Also in regards to Ben and David salary being increased without Sarah’s and Caitlin’s knowledge the other two directors were in breach of the provision of the act, (McQueen 2016).
Further following the provisions of section 232, Sarah and Caitlin can commerce a legal proceeding in court as the circumstance certify grounds for court to make an order as a form of remedy. Accordingly, following the provisions of section 233 the following remedies are available, i.e.: court might order that the company begins the process of winding up which can be commenced by any of the member; that changes be made in regards to the provisions of the constitution; the court can take an initiative to control the companies affairs; the company to institute, prosecute or stop some specified things, which in this instance can be stop the increase in payment of salary to Ben & David & prosecuting the decision to sell the companies property at a lower price than the usual market price, (Mortensen, Garnett & Keyes, 2011).
In addition, the court can call upon David to either pay an additional capital in regards to the property he has purchased from the company or order otherwise.
Conclusion
In conclusion therefore, the legislation affords Sarah & Caitlin some remedies which can be achieved through them moving to court whereby the court by taking into consideration the circumstance of their situation may order the company to perform any of the orders outlined under section 233 which it will consider appropriate under their circumstance.
References.
Armour, J. and Ringe, W.G., 2011. European company law 1999–2010: renaissance and crisis. Common Market Law Review, 48(1), pp.125-174.
Cairns, D., Massoudi, D., Taplin, R. and Tarca, A., 2011. IFRS fair value measurement and accounting policy choice in the United Kingdom and Australia. The British Accounting Review, 43(1), pp.1-21.
Christensen, J., Kent, P. and Stewart, J., 2010. Corporate governance and company performance in Australia. Australian Accounting Review, 20(4), pp.372-386.
Deakin, S., 2009. Reflexive governance and European company law. European Law Journal, 15(2), pp.224-245.
De Rose, R., Fernandez, C.S., Smith, M.Z., Batten, C.J., Alcântara, S., Peut, V., Rollman, E., Loh, L., Mason, R.D., Wilson, K. and Law, M.G., 2008. Control of viremia and prevention of AIDS following immunotherapy of SIV-infected macaques with peptide-pulsed blood. PLoS pathogens, 4(5), p.e1000055.
Hicks, A. and Goo, S.H., 2008. Cases and materials on company law. Oxford University Press.
Kershaw, D., 2012. Company law in context: text and materials. Oxford University Press.
McQueen, R., 2016. A Social History of Company Law: Great Britain and the Australian Colonies 1854–1920. Routledge.
Mortensen, R., Garnett, R. and Keyes, M., 2011. Private international law in Australia. LexisNexis Butterworths.
Musacchio, A., 2008. Can civil law countries get good institutions? Lessons from the history of creditor rights and bond markets in Brazil. The Journal of Economic History, 68(1), pp.80-108.
Sealy, L. and Worthington, S., 2013. Sealy & Worthington’s Cases and Materials in Company Law. Oxford University Press.
Wang, B., 2008. China’s new company law and securities law: An overview and assessment.
Williamson, D. and Lynch-Wood, G., 2008. Social and environmental reporting in UK company law and the issue of legitimacy. Corporate Governance: The international journal of business in society, 8(2), pp.128-140.
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