Discuss About The Properties Securities Investment Commission.
A director is a person who is in supreme control to manage the operation of an organisation for which they work. In the case of ASIC v Lindberg – [2012] VSC 332 it has been held by the court that the directors are in a fiduciary relationship with the company which is managed by them and therefore it is there obligation like any other fiduciary agent to ensure the best interest of the organisation. There are various duties which directors are imposed with in relation to the position which the hole in the organisation managed by them. These duties have been imposed on the directors through the provisions of Corporation Act 2001 (Cth) as well as rules laid down by common law. The first duty through the application of the Corporation Act on directors operating in Australia is the duty of observing reasonable care and diligence while managing the functions of the organisation. The exact wordings, through which the duty is made up of, are provided through Section 180 of the Act. The section is further divided into two sub parts. The first part of the section provides rules through which it is determined that in what circumstances would the duty of reasonable care and diligence will be held as contravened by a director. The second part of the section incorporates into the legislation the business judgement rule of common law. The rule is a form of defence on which the directors of the organisation may rely upon in order to effectively carry out business decisions which involve risk taking.
The exact wording of the section signifies that any officer or a director of an organisation who has been entrusted to manage the affairs of the organisation has to observe due diligence and care while managing the company. The powers must be exercise and duties must be discharged like any reasonable person would do if such person was an officer or the director of the same company in the same situation and he or she occupied the same office and the same responsibility within the company like the director. Therefore the implication of this section and relation to corporation law is that a director required to show exceptional skills while managing the operations of a company rather the director has to depict the same skills which any other reasonable director being in the same company and the same position you would have observed. According to dash director of a company is likely to have violated the provisions of the section in case it is identified that the director did not inform himself in relation to the subject matter of the business decision made by them, he or she did not take part in board meetings which is required for the purpose of carrying out business activities effectively and he or she failed to proactively manage and monitor the operations of a company.
In the case of ASIC v Forrest and Fortescue [2012] HCA 39 the director was held to have not complied with the duty provided under section 183 as they breached the provisions of section 1041H of the Act by making misleading and deceptive conduct in relation to Financial Services. It was held by the court in this case that where the directors of the company does not comply with legal requirements they cannot have acted diligently and carefully in relation to managing the affairs of a company as a reasonable director who have had the same office in the same circumstances would have not taken a decision which involves which of legal obligations.
Further in the case of AWA Ltd v Daniels t/a Deloitte Haskins & Sells & Ors (1992) 10 ACLC 933; (1992) 7 ACSR 759 it was stated by the Judges that where the directors of an organisation have not being able to comply with the provisions of section 189 of the CA which provides that director who wants to rely on and advise provided by any other person must have a reasonable belief that the advice is competent and correct. They should make personal investigations into the matter themselves to be satisfied about the quality of the advice. Where these requirements have not been followed by the directors of an organisation it is held that they did not act diligently and carefully towards managing the operation of the company and thus have contravened provisions of section 180 of the Act.
On the other hand the provisions of section 180(2) the CA provides a situation in which the directors of a company may get away with allegations regarding the breach of duty of care and diligence. Where the business judgement role is satisfied by the directors it is named by the court that requirements under section 180 (1) have been met. In order to satisfy the business judgement rule the decision which has been made with directors has to be in good faith and a proper purpose. Further the directors of the company should not have any kind of material interest with respect to the decision’s subject matter. The directors have to get themselves informed about the decision before making it in order to meet with the requirements under this rule. In addition there must be a rational belief and the director that the decision which has been taken by them is for the company’s best interest. The belief in context would be regarded as rational unless no director would indulge in such. The business judgment rule had been successfully used in the case of Australian Securities and Investments Commission v Rich (2009) 236 FLR 1.
Section 9 of the CA provides the definition of the directors. According to the section any person who actively participates in the decision making process of the company of influences the process is to be deemed as a director.
In order to analyze that whether the provisions under section 180(1) of the CA has been violated or not depends on the way in which the directors of the company have discharged their duties and used their powers. It has been provided that Rick and Patel are the directors of the company. In addition as Lana participates in the decision making process of the company of influences the process she is to be deemed as a director under section 9.
In the given situation it has been identified that the business of the company Fruit is not taking going well and thus Rick has decided to change the place of the business. In relation to the pursuit for a new place Rick has come across the premises owned by Watel Pty Ltd which he finds to be perfect. The rent of the place is quite high but there is no business to provide competition nearby. He has a business idea that along with the fruit shop they can even start serving coffee. However the lease is signed by him without doing consultation with any of the directors. In the given situation under section 180(1) Rick has to depict the same skills which any other reasonable director being in the same company and the same position as Rick would have observed. However it can be stated that a reasonable director may not indulge into an act of the company without consulting the board. Thus if the provisions of section 180(2) are not applicable Rick has violated section 180(1) of the CA. Further it has been provided that Rick has initiated a board meeting where he explains the other directors that how the deal is going to be beneficial for the company. Although Patel does not protest and Lana feels that he should have consulted the board before making a decision both of them agree to Rick. It has been provided through the court in the case of AWA Ltd v Daniels t/a Deloitte Haskins & Sells & Ors that it is important for the directors of the company to exercise personal and independent judgement in relation to the affairs of the company and have reasonable belief before relying on the advice of any other person that the advice is correct and informed. However in the given situation such independent exercise of judgment has not taken place the duty under section 180(1) may be breached by Lana and Patel as well.
The provision of section 180(2) needs to be applied to determine that the duty under section 180(1) has been complied with or not. It is also the duty of the director with respect to the test under section 180(2) to inform themselves about the subject matter of the decision while taking a decision for the company. Rick had informed himself as he analyzed that the business would be good as there was no competitor nearby. In addition there were unforeseen events which led to the fall in the business. Further Rick has no material interest in the subject matter of the transaction and thus have complied with the provisions under section 180(2). In addition the actions would not be incompliance only if any reasonable director would not take such decision with respect to the amount of risk involved. However in the given situation there is not much risk identified from the situation and thus Rick can be treated to have complied with the provisions of section 180(2) of the CA. In the same way as Patel did not had any material personal interest in the dealing and relied on the advice of Rick u reasonably in good faith under section 189 he has also complied with section 180(2) of the Act. However where Lana felt that Rick should have consulted the board before making a decision she should have conducted personal research as well before agreeing with his decision. Thus in this case she did not indulged into informed decision making and thus she may not satisfy the provisions of section 180(2) of the Act.
Thus from the above discussion it can be concluded that the directors of the company Rick and Patel although prima facie have contravened the provisions of section 180(2) of the CA, they are eligible to claim a defence under the business judgement rule. However as Lana did not indulged into informed decision making and thus she may not satisfy the provisions of section 180(2) of the Act.
It has been provided to the provisions of section 126 of the legislation that an individual may exercise the power of a company to rectify, vary, discharge or make a contract who is acting on implied or expressed authority provided through the company. This power can be exercised by such person without using the company’s common seal. Further it has been provided by the section that the section do not have an impact on any specific procedure which may be required in relation to a contract.
The legislation through the provisions of section 127(1) provides for the circumstances in which any document including a deed may be executed by the company without the use of its common seal. Documents can be executed without common seal of the company where the document has been duly signed by two directors of the company and company secretary and director of company. In addition according to the provisions of section 127(2) document would be deemed to be executed by the company where the common seal of the company has been attached to two document and documents and witnessed by the same as discussed in subsection 1. It is further made clear through the provisions of section 127(4) that the section does not put restrictions in relation to the ways in which the company may execute a document.
In one of the landmark cases in company law which is Royal British Bank v Turquand (1856) 6 E&B 327 it has been held by the product when a person enters into a contract with a company it has the right to assume that the Agent of the company who is entering into the contract on behalf of the company has acted in accordance with all internal rules and regulations of the organization.
In the case of In Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103 the court discussed in relation to the difference between document executed under section 127 and contract entered upon by an agent under section 126 of the Act. In this case a contract was signed by only one directors of the company and the court was able to analyze that the contract has not been executed under section 127 as there was no second signature. In addition where the contract has been entered into by the company through section 126 the other party is not entitled to rely on the assumption in section 129.
It has been provided through the facts of the scenario that Rick has entered into a deal with Watel Pty Ltd for the purpose of renting their property. The deal has been signed by Rick alone. It has been provided through the provisions of section 127(1) that documents can be executed without common seal of the company where the document has been duly signed by two directors of the company and company secretary and director of company. In addition according to the provisions of section 127(2) document would be deemed to be executed by the company where the common seal of the company has been attached to two document and documents and witnessed by the same as discussed in subsection 1. However this is not the case in the given situation. As per the case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd if a document is not executed under section 127 of the Act then the other party does not have the right to rely on assumptions under section 129. However there is no provision in the constitution of the company which prevents Rick from getting into the contract with Watel Pty Ltd. In addition the provision does not affect any other way by which a person gets onto a contract on behalf of the company.
It has been provided through section 126 of the legislation that an individual may exercise the power of a company to rectify, vary, discharge or make a contract who is acting on implied or expressed authority provided through the company. This power can be exercised by such person without using the company’s common seal. Thus under the section Rick has entered into a valid contract with Watel Pty Ltd under the provisions of section 126 as he is an agent of the company. Further it has been provideApplicationisions of section 126 of the CA with Fruut.
Conclusion
Thus the deal between Rick and the Watel Pty Ltd is legal and is binding on the company under section 126 even where it has not been executed under section 127 of the Act.
References
ASIC v Forrest and Fortescue [2012] HCA 39
ASIC v Lindberg – [2012] VSC 332
Australian Securities and Investments Commission v Rich (2009) 236 FLR 1
Corporation Act 2001 (Cth)
Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103
of AWA Ltd v Daniels t/a Deloitte Haskins & Sells & Ors (1992) 10 ACLC 933; (1992) 7 ACSR 759
Royal British Bank v Turquand (1856) 6 E&B 32
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