1. Issue: Part A- Whether Max has right to enforce the clause stated under constitution which makes him solicitor of the company?
Part B- whether Max can prevent the inclusion of the clause related to the expropriation of shares of those shareholders who holds less than 10% of shares?
Law: Section 232 of the Corporation Act 2001 states, Court has power to make order under section 233 of the Act, if:
Is either:
Section 233 of the corporation Act 2001 states, Court has power to make following orders under this section:
These section further states, Court can make following orders for altering the Constitution. If court make any order under this section for the purpose of repeals or modify the constitution of the company, then power of the company under section 136 is restricted if such changes are contrary with the provisions of the order made by the Court, unless:
However, it must be noted that if any person established that conduct in question stated under Section 232(a), (b) or (c), then also for getting relief under section 233, it is necessary that person must satisfy:
This can be understood through case law Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042. In this case, Court stated interpretation of the oppressive conduct was done narrowly, and it mainly consider the nature of the conduct and not on its effect. It was considered as conduct under which there was lack of degree of probity which was expected by the members while conducting operations of the company.
Application- Part A- In the present case, Max has been appointed as solicitor of the company by constitution, and later between relationship Max and Alana and David becomes strained. Alana and David call general meeting and pass special resolution for altering the constitution of the company for the purpose of removing the max as solicitor.
Part B- Alana and David also add clause in the constitution which provide power to the Board to expropriate the shareholdings of members owning less than 10% of the total shares issued.
In above stated issues, max can seek order from Court under section 233 of the Act, to restrict the power of the Board under section 136 of the Act to repeal or modify the constitution, because both the modification stated above satisfy the provisions of Section 232 of the Act. Section 232 states, if any resolution, proposed resolution passed by members or class of members which contravenes the interest of any member of the company, or oppressive or unfair against any member of the company.
Resolution passed by Alana and David contravenes the interest of Max and it is also unfair with the Max. Therefore, Max can seek order under section 233 to restrict the power of Board under section 136 of the Act.
Conclusion- in the present case, max can take legal action against the Alana and David under Section 232 of the Act for seeking order from Court under section 233 of the Act.
2. Issue: Whether directors of the company that is Clancy and Jack breach their statutory or general duties under Corporation Act 2001?
Law: Corporation Act 2001 imposed various statutory and general duties on directors of the company, and some of these duties are stated below:
Section 180 of the corporation Act states, any director or officer of the company is under responsibility to conduct their operations and use their power with reasonable care and diligence that would be exercised by any reasonable person if such person is appointed as the director or officer of the company or holds the office of director or officer of the company with similar obligations. It must be noted that this subsection is considered as civil penalty provision under section 1317E.
This section further state, any director or officer of the company is under responsibility to comply with the requirements which are stated above while making any decision or judgment related to the company. Above stated provisions are satisfied if following factors are present in the judgment:
Section 181 imposed duty on directors or other officers of the company that they must compile their actions and use their power in the good faith, and in the best interest of the company, and for proper purpose. It must be noted that this subsection is considered as civil penalty provision under section 1317E.
However, if any person contrives subsection 1 of this section then such person contravenes complete section.
Section 182 of the Act states, any director, secretary, or officer of the company must ensure that they are not using their position gain any kind of advantage for themselves or for any other person, and also ensure that they did not use their position to cause any detriment to the company. This subsection is considered as civil penalty provision under section 1317E.
Remedies- section 1317E states, if any person contravenes civil penalty provision, then Court has power to make declaration of contravention. It must be noted that once a declaration has been made, ASIC has can seek pecuniary order under section 1317G or disqualification order under section 206C.
Application- in the present case, Aussie Boats Ltd (“AB”) is a listed company, and from last few years this company facing financial difficulties. Other company named as Millionaires on Water Ltd (“MWB”) wants to take over the AB but executive directors of the company that is Jack and Clancy does not want that MWB takeover the AB. For this purpose, executive directors issue new lot of shares.
In this case, non-executive director Banjo stated that decision taken by the Clancy and Jack is not in the best interest of the company because directors believe that if MWB take over the AB then they lose their positions of executive director because after takeover MWB terminate the position of executive director. This can be understood through case law Asic v Adler and 4 Ors [2002] NSWSC 171. This case is considered as unique case and it is a good example to understand the duties of directors towards the corporation. This case involves various breaches of the director’s duties. Collapse of HIH was caused because of very bad corporate governance.
This case involves some of these breach of duties, such as section 9 related to duties of director, section 180 deal with duty to act with care and diligence, section 181 imposed duty to act in good faith and for a proper purpose, section 182 deals with improper use of position, section 182(2) related to business judgment rule, section 183 deals with duty not to improperly use information and section 260A deals with financial assistance.
In this case, directors of the company fail to take business judgment in good faith, in the best interest of the company, and for proper purpose. Santow stated that, Adler has material personal interest in the subject matter of the business judgment taken by director of the company. Santow further stated that other two directors that was William and Fodera. In case of William, he fails to establish that judgment taken by him was taken in good faith and in the best interest of the company. In case of Fodera, she fails to inform the other members of the board about the judgment.
For above stated contraventions all three directors that were William, Adler, and Fodera face civil consequences stated under Part 9.4B of the Act. These consequences were faced by directors for breaching sections 180, 181,182,183 209(2), 260 D (2), and consequences include:
In this case also, both Clancy and jack breach their statutory duties under section 180, 181, and 182 by not taking the business judgment in the best interest of the company and they also had material personal interest in the subject matter of the judgment.
Conclusion- therefore, both Clancy and Jack breach their statutory duties under Corporation act 2001, and they are liable under civil penalty provision 1317E. Following consequences can be faced Clancy and Jack:
References:
Asic v Adler and 4 Ors [2002] NSWSC 171.
Corporation Act 2001- Section 1317E.
Corporation Act 2001- Section 180.
Corporation Act 2001- Section 181.
Corporation Act 2001- Section 182.
Corporation Act 2001- Section 206.
Corporation Act 2001- Section 232.
Corporation Act 2001- Section 233.
Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042.
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