The corporation is a separate legal entity and it is governed by the Corporation Act. There are several cases registered in Australian Courts regarding the issues of the breach of the Corporations Act. Thus, there are several duties played by every member of the company that includes officers, directors, managers, executives and also the chairman of the company. In WHITLAM v ASIC [2002] NSWSC 591 case, there were several laws of the Corporations Act had been breached. In this, it will be discussed in detail about the case facts, issues, duties that has breached. The court decision will be analysed and the impact of that decision on the companies of Australia and on the management of the company. This case aims on the importance of the laws of the Corporations Act and the effect on the Australian companies because of these breaches.
The Court of Appeal in the case WHITLAM v ASIC reversed the order of the lower court findings that the Whitlam has breached various provisions of the Corporation Law. There is allegation that has made in relation to the Mr Whitlam that he has breached the laws of the Corporations Act. Mr Whitlam had failed to properly vote in the resolution 6 as the instructions given by the shareholders who had been appointed by the proxy. The amendments that has been proposed in the Articles of Association that if passed will increase the fixed amount of annual remuneration that has to be distributed among the directors from $617,000 to $665,000 and it has been supported by Mr Whitlam. Few key questions have been considered by the court of appeal in this case. The question is that the director has to vote in accordance as the instructions given by the shareholders for appointing him as a proxy. The failure of Mr Whitlam to sign the poll papers of the 3973 members constituted votes. Those votes were consequently rendered invalid under the NRMA’s Article of Association. The votes are not counted initially but the later the votes have been counted despite the failure to sign the poll papers by Mr Whitlam. Resolution was defeated as the votes were counted. The court of Appeal said yes but only in the capacity as an agent and not as a director. It is also stated by the Court that the proxy votes that has been voted at law as even the poll papers are not signed by the director. The issues in the case that has risen due to the breach of the director duties that is required to be obeyed by the directors of the Corporations Act. The actual decision provided in this case in context of the director duties whether the Whitman liable or not (Smith, 2012).
The employees of the Corporation who holds the office have some duties towards it under the Corporations Act. The duties that have given under the Corporations Act required to be understood by the employees of the Corporation. The officer under section 9 of the Corporations Act who holds the position equivalent to the director their duties has been defined under the section of the Corporations Act. The duties under section 181 that in relation to the duties in section 232(5), 232(6), 250A(c) had been majorly breached in this case under the Corporations Act (Havenga, 2005). These sections states that the work should been done in good faith or in an honest way towards the corporation. The person works in the best interest of the company and must follow the duties that have been breached. The Corporations Act that has been discussed that it requires the company directors and the other officers to exercise their duties in a honest way and must for the companies interest that a person in his place would exercise as if he is a director or the officer in the corporation’s circumstances. The breach of the Chairman duties has been defined in this section. According to some academics if the company’s breaches the laws of the Corporation Act, it cannot lead to the liability of the directors for the breach of their statutory duties. In some cases the court said that the breach of the director duties of care to authorise or to permit to contravene the law. Mr Whitlam has breached the duty under section 181, as he has not worked accordingly to these duties. Mr Whitlam had failed to vote properly as per the resolution 6 and the instructions given by the shareholders who had been appointed by the prox. If Mr Whitman has work with accordance with these sections and as if it was passed will increase the fixed amount of annual remuneration that has to be distributed among the directors from $617,000 to $665,000 and it has been supported by Mr Whitlam. Thus due to poor care and not worked with diligence it has created the big financial loss for the company. Mr Whitlam failed to sign the poll papers of the 3973 members constituted votes. Hence it is proved from the evidences that he has not he has not done his duties in accordance with the laws of the Corporations Act (Foster, 2010).
The decision that has been given at the first instance found to be in the favour of the ASIC. It has been given that Mr Whitlam regarding the resolution 6 had omitted to sign the poll papers deliberately and having the intention to deprive the right to vote who has appointed him as proxy. It has been found by the court that he has deliberately has override the intent of the members of NRMA that is known by him that it is against the passing of Resolution 6 as a special resolution. On this basis, the Court has found that Mr Whitlam has breached the sections of the Corporations Act. Therefore, the Court has concluded that the Mr Whitlam has breached the series of laws of the Corporation Act. Mr Whitlam has been prohibited from managing the Corporation for the five years and civil penalty has been imposed for $20,000 (Comino, 2007). The court also stated that Mr Whitlam is an agent and the shareholders are the principal and Whitlam has to work in accordance and in the interest of the shareholders. Mr Whitlam appealed his case in the Court of Appeal and it has given the judgement in favour Mr Whitlam (Comino, 2009).
The Court of Appeal has reversed the number of facts findings by the lower Court judge Gjell J. However, the Court has stated and left some possibility that Mr Whitlam has deliberately not signed the poll papers but from the evidence, it has been found that it was not a dishonest act. The Court of Appeal has also reversed the breach of Section 250 of the Corporations Act that has breached by failing (Harris, 2008). He as a chairperson has been appointed proxy, he has been instructed to vote accordingly to the appointing shareholders has instructed. The Court of Appeal found that he has not voted as a director but he has voted as an agent and therefore it cannot be said that he has breached any director duties. It is not the duty of Mr Whitlam to vote accordingly as instructed by the shareholders and he was not exercising the powers of the director. It is the fact that he had become proxy through the position he holds as director and it has held that he has made his dealing with the poll papers and the shareholders votes is the actual discharge of his director duties (Farrar, 2003).
Some more elements are involved regarding the duty in relation to the proxy votes was related to the proxy givers was not a directors duty because it was not for the company. Therefore, it is a fiduciary duty under a relationship of the agency as for when the director-proxy was obliged to vote according to on their instructions. However, the Court has put the possibility at law the director has been appointed by the shareholders and he is duty bound to the directors as to vote according to the instructions of the shareholders. Thus, this has raised many questions that were not raised at the first instance. The decision of the Court of Appeal as it was technically sound but not adhere to the current society expectations of corporate governance. The decision focuses on the one who holds the proxy has no protection by law, as proxy holder is not more than as an agent (Wolters Kluwer, 2018).
The decision of the court in the first instance and the court of the appeal has majorly affected the companies of Australia. The companies of Australia have majorly affected the governance of the Australian companies. The whole scenario of the case states that there are several sections as in accordance with the first decision of the court has been violated and that has affected the company in a major manner. Thus the companies of Australia has taken an example from this case has implemented many policies in the company to improve the ethical and good governance culture in the companies. The duties that have been mentioned in the Corporations Act must be followed by the directors of the companies or the officer who is in the equivalent position. Mr Whitman has failed to comply with many of the duties that have been breached. The management of the companies must comply with the sections the section 181, 232(5), 232(6), 250A(c) as it states that the person should work honestly for the company and will think and work in the best interest of the company and not for himself. After this case, the companies of Australia become more attentive in relation to these breaches and it effects that cases of breaches of the laws of the Corporations Act in a major numbers has been decreased. The Companies must ensure that their management should learn disciplines, ethics and the follow the laws of the Corporations Act. The managers, members, officers and the director of the companies has also realised their duties towards the corporation and the shareholders. Shareholders are the principal who hire agents such as managers, members, officers and the director and they have the duty to work in the interest of the shareholders (Da Silva Rosa, Filippetto and Tarca, 2008).
Conclusion
It has been analysed from the case that the laws of the Corporations Act has its own importance and there is required for companies to provide good governance so that these laws cannot be breached. It can be concluded from the first instance decision that the laws of the Corporations Act have been breached by Mr Whitlam. However, the Court of Appeal reversed the order but still the court left some possibility that Mr Whitlam has deliberately has not signed the poll papers and therefore it can be said some of the laws had been breached of the Corporations Act. This case has guided the Australian companies the importance of the Corporations Act. The companies after the decision of the case have made many policies and it gives results that the number of cases had been decreased in Australia. Hence, from the whole examination, Mr Whitlam has not worked honestly for the company and he has the duty to work in the best interest of the company. However, there are some relief has also been provided to Mr Whitlam in this case that concludes that every act of an agent of the company done in his duty not liable for the breach.
References
Comino, V., (2007). At the crossroads-civil or criminal sanctions for corporate misconduct?. Keeping Good Companies, 59(7), p.435.
Comino, V., (2009). Civil or Criminal Penalties for Corporate Misconduct-Which Way Ahead?.
Corporations Act, s 250A(c)
Corporations Act, s 181
Corporations Act, s 232(5)
Corporations Act, s 232(6)
Da Silva Rosa, R., Filippetto, J. and Tarca, A., (2008). ASIC actions: canaries for poor corporate governance?. Accounting Research Journal, 21(1), pp.67-86.
Farrar, J.H., (2003). Corporate governance and the judges. Bond L. Rev., 15, p.i.
Foster, N.J., (2010). Directors Insuring Against Criminal OHS Wrongdoing–the Common Law position.
Harris, J., (2008). Relief from Liability for Company Directors: Recent Developments and Their Implications. UW Sydney L. Rev., 12, p.152.
Havenga, M. (2005). Duties of the company chairman. S. Afr. Mercantile LJ, 17, 137.
Segal, J., (2002). Corporate governance: substance over form. UNSWLJ, 25, p.320.
Smith, D.K., (2012). Governing the Corporation: the Role of Soft Regulation. UNSWLJ, 35, p.378.
Wolters Kluwer (2018). WHITLAM v ASIC, Supreme Court of New South Wales, Court of Appeal, 10 July 2003. [Online] Available from: https://iknow.cch.com.au/document/atagUio378602sl10441517/whitlam-v-asic
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