This Victoria University Corporate Law Assignment answers questions about Members Remedies, Company entering contracts & Directors Duties under the business law.
Question 1 – Members Remedies
In this case, Simon is a shareholder of Titan Ltd and he discover that one of the board paying a one of the suppliers huge amount of money and some of the directors have a personal interest in that supplier . Simon informs The CEO about his discovering but the CEO fail to do anything to fix this issue.
The corporation act keeps the right for members against the company directors, some directors using their power in unfaith way to get much benefit to them self. The corporation acts protect members from director’s domination power of company decisions and force the director to act in the interests of the company. Otherwise, under Corporation act allowed for members some remedies which may apply to limit the director’s domination power. The court only can imposed available legal remedies for members (corporations law, 2013). There some circumstances that allowed members to use remedies for example, under s232 provide remedy for company conduct oppressive, unfairly discriminatory or unfairly prejudicial. However, ss236 – s242 applied when the company fails to bringing proceedings on behalf and allowed the officers and members to do it. In another hand, there are some sections and sub sections may be applied on when a directors acting on their own interests rather than in the interests of the member as whole s461. To apply this remedies there are some elements s232 sets out when the court can make an order under s233, s233
Simon is member on Company under section 236 related body corporate accountability. Therefore under this circumstance of this case Simon can take action on behalf of the company but before that under s236(1)(b) he must obtain leave from the court before commencing a proceeding on behalf of a company or intervening in proceedings to which the company is a party. The court must grant an application for leave and to make sure met all following requirements under section 237 (2). Firstly, the company cannot bring the proceedings by it is self under s237(2) (a). Secondly, Simon which he is an applicant he must acting in good faith under s237 (2)(b)and it is in the best interest of the company that Simon be granted leave s 237 (2) (c). There is a serious question to be tried s 237 (2) (d) to show that there is at least a probability that legal proceedings in the name of company will succeed.
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In addition under s237(2) (e) Simon must gave notice to the company at least 14 days before making application to apply for leave or it is appropriate without Notice. Therefore Simon can apply for this remedy statutory derivation.
Question 2 – Company entering contracts
In this case, is it possible that the third party should raise the argument against the company’s director when he refuses to honour the contract? According to the third party, the contract is valid and enforceable.
Rules and Application/Analysis
There are many companies entering contract with outside party to get a lot of benefit. However company can rise there profit from singe contract with marketing company to promoting their product with great marketing ideas as example or company could enter contract agreement to borrowing money from the bank to get liquidity to investing the money in different opportunities which there directors believe is profitable chance to invest. However, there are some rules and laws principle to enter the contracts to protect the contract parties.
Under section 128 (1) person dealing with a company is entitled to make certain assumptions.The company is not able to assert that any of the assumptions are incorrect. The assumptions are set out in s 129. Each of the s129 assumptions is separate and discrete Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd. Moreover, these assumptions can overlap and outsider can rely upon more than one of them BNZ v Fiberi Pty Ltd. The right to make this assumption is suspected when person knew that the assumptions were incorrect s128 (4).
There are numbers of assumptions can raised against the company from the outside party under section s129. First one s129 (1) Constitution and replaceable rules complied with a person dealing with a company can assume that the company applicable replaceable rules have been complied Bank of NZ v Fiberi. Secondly, s129 (2) director or company secretary if Company documents lodged with ASIC name persons as directors or secretary, outsider can assume that the director or secretary has been duly appointed and have customary powers and authority of such an director or secretary of a similar company.
Next, s129 (3) officer or agent a person dealing with a coy can assume that anyone who is held out by the coy to be an officer or an agent of the company has been duly appointed and has customary powers authority of such an officer or agent of a similar company
In order to apply s129(3), the outsider must prove two facts first one a holding out by the company that a person is an officer or agent. Second fact, the power exercised by the person is within the scope of the power customarily exercised or performed by an officer or agent of a similar company. The third party must approve that the only person who can hold somebody out should have actual authority to manage the company’s business (board of directors) or to make the contract in question.
- a) A dominant director acts with the acquiescence of the board. The mind and will of the director is attributed to the company.
- b) The representation about holding out is made by the Board who has the authority to manage the whole business, although the board made no formal decision Freeman & Lockyer’s v Buckhurst Park Properties
- c) A representation may not be sufficient if it is made by the apparent director who has no actual authority Crabtree-Vickers’s Pty Ltd v Australian case. An agent who merely has apparent authority is not capable to make representation for the company.
For the second fact, the third party could assume that power exercised by the person is within the scope of the power customarily exercised or performed by an officer or agent of a similar company. The managing director has the customary authority to do all those things relating to the management of the ordinary business of the coy that the board can do. Normally, managing director can enter into large contract on behalf of company British Thomson-Houston v European Bank. The secretary has customary power to make contract related to administrative law affairs, such as employ staff, hire cars Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd. Otherwise, s129 (4) Proper Performance of duties, the third party can dealing with a company can assume thatofficers and agents of the company properly perform their duties to the company for example, fiduciary and statutory duties, other tasks delegated by the board. The next section could the third party raised is s 129 (5) which is signed without common seal. The outsider may assume that a document has been duly executed by the company if it appears to have been signed in accordance with s 127(1).Also can assume that anyone who signs the document and states next to their signature that they are the sole director and secretary of the company occupies both offices. s127(1) a company may execute a document without using a common seal if the doc is signed by two Directors of the company or a Director and a Secretary, proprietary a sole Director who is also Secretary If a company executes a document in this way, outsider can rely on s129(5) even if it is not true.However signed with common seal under s 129(6), the outsider can assume that a document has been duly executed where the company’s common seal appears to have been fixed to the document and it appears to have been witnessed in accordance with s 127(2)
s127(2)a company may execute a document with using a common seal if the seal is fixed to the document and the fixing of the seal is witnessed by two directors of company or a Director a Secretary proprietary a sole Director who is also Secretary. States that a company If a company executes a document in this way, outsider can rely on s129 (6) even if it is not true.
Question 3 – Directors Duties
In this case the board of directors are acting to issue more shares and sell them to the entities to stop Predator Ltd to acquire the company and Control it. Under section s180 The Directors must exercise their powers and discharge their duties with the degree of care, and they must be aware of any breach of their duty.
Under section 9 a director is a person who is appointed to the position of director or alternate director regard less of the name given to their position (corporate law, 2012 ). S9 include de facto director, shadow director officer includes director, secretary and various persons involved in management (corporate law, 2012). There are some duties directors may breach for example, under s 181 Fiduciary duties of good faith, best interests for corporation and proper purposes , Strict fiduciary duty to avoid conflict of interest Directors must act in good faith in the best interests of the company or for a proper purpose s181. Directors must not make improper use of position s182. Directors must not make improper use of information s183. However back to the case, the directors of Stoneleigh ltd they are exercise their power under s 182 A director/ secretary/ officer / employee must not improperly use their position to gain an advantage for themselves or someone else, or cause detriment to the corporation s182(1). Contravention of this carries a civil penalty. Grove v Flavel, R v Byrnes, Jeffree v NCSC. Director or officer where they use their position dishonestly, with the intention of directly or indirectly gaining an advantage for themselves or causing detriment to the corporation, recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation in Stoneleigh ltd case the directors use their power dishonestly to keep position and they breach duty by use the power to personal interest to keep their position Ngurli Ltd v McCann, in this cause the director use the power under Cloak of such a purpose to benefiting some people in expense of best interest of company.
The directors of Stoneleigh ltd acting improper purpose that clear to see on they are fight off a hostile takeover Howard smith Ltd v Ampol Petroleum Ltd (Australia corporate law, 2013). However, if share issue is made for both proper and improper purposes example if directors are themselves shareholders in the company adopt ‘but for’test but what if the directors were not going to receive a benefit would they will acting in same way? There are to straightforward answer yes then the motivations is not improper because the directors will acting on same way even not receive any benefit. However if the answer is no there is acting in improper purpose as result breach of the duty. For the improper purpose’s presence, no invalid allotment would have been made (Whitehouse v Carlton Hotel Pty Ltd).
The conclusion, director’s duty is breached in this case from my point of view. The directors using their power to pass the decision in best personal interest to keep their position as directors for Stoneleigh ltd and not acting on good faith and improper purpose s181 : s184 (1). In another hand directors have chance before they pass that decision to inform the shareholder about this decision and take the approval first then start issue that shear to avoid the hostile takeover from Predator Ltd by that director could been consider that move is a working for best interest for company and keep the position for them .
BNZ v Fiberi Pty Ltd. (1994), [online], Available: http://heinonline.org/HOL/LandingPage?handle=hein.journals/mulr20&div=26&id=&page= [Accessed 18 January 2014]
Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd. The Cambridge Law Journal (1993), Vol. 52, Issue 02, pp. 245-271, [Journal], [Accessed 20 January 2014]
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd, Corporate authority and dealings with officers and agents, [Online], Available: www.law.unimelb.edu.au/DBEB6620-7643-11E2-84E10050568D0140 [Accessed 17 January 2014]
Grove v Flavel, R v Byrnes, Jeffree v NCSC, Sydney Education, Topic 5: The law of Corporate Governance, [Online], Available: http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=rja&ved=0CEYQFjAE&url=http%3A%2F%2Fsydney.edu.au%2Flec%2Fsubjects%2Fassociations%2Fnotes%2FSummer%25202010-11%2FTopic%25205%2520-%2520The%2520Law%2520of%2520Corporate%2520Governance.doc&ei=vgjeUoehN8uprAe6moHYDA&usg=AFQjCNEa2qwKcF3R5R4C5rx2US8OtjnyCg&sig2=rT4PN3ZivaYj_JQ-dOFrPg&bvm=bv.59568121,d.bmk [Accessed 20 January 2014]
Howard smith Ltd v Ampol Petroleum Ltd (1974), [online], Available: http://swarb.co.uk/howard-smith-limited-v-ampol-petroleum-limited-pc-1974/ [Accessed 19 January 2014]
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