Director duties PDF

Preview

Summary

Coporations law - directors duties...

Description

Directors)–)Definition,)Overview,)Types)of)Directors) ! Director))–s9)definition)(Corporations)Act)) • "Director)")of!a!company!or!other!body!means:) o (a)!!a!person!who:) § (i)!!is!appointed!to!the!position!of!a!director;!or) § (ii)!!is!appointed!to!the!position!of!an!alternate!director!and!is! acting!in!that!capacity;!regardless!of!the!name!that!is!given!to! their!position;!and) o (b)!!unless!the!contrary!intention!appears,!a!person!who!is!not!validly! appointed!as!a!director!if:! § (i)!!they!act!in!the!position!of!a!director;!or! § (ii)!!the!directors!of!the!company!or!body!are!accustomed!to! act!in!accordance!with!the!person's!instructions!or!wishes.! o Paragraph!(b)--Contrary!intention--Examples!of!provisions!for!which!a! person!referred!to!in!paragraph!(b)!would!not!be!included!in!the!term! "director"!are:! § Section!249C!(power!to!call!meetings!of!a!company's! members)! § Subsection!251A(3)!(signing!minutes!of!meetings)! § Section!205B!(notice!to!ASIC!of!change!of!address).Officer!–!s9! definition!! • Shadow/De-facto)Director)–)(b)!act!as!a!director!but!not!officially..! o CAC#v#Drysdale!(1978)!141!CLR!236!-!A!person!who!was!not!in!law!a! director,!but!who!acted!as!one,!was!caught!by!the!legislative! requirement!that!directors!act!honestly!and!with!reasonable!diligence! o Madgwick!J!in!Deputy#Commissioner#of#Taxation#v#Austin!(1998)!28! ACSR!565:!-!“it!seems!to!be!a!necessary!condition!of!acting!as!a! director,!whether!properly!appointed!or!not,!that!one!exercises!what! might!be!called!the!actual!(and!statutorily!extended)!top!level!of! management!functions….!Whether!a!person!does!so!act!will!often!be! a!question!of!degree,!and!requires!a!consideration!of!the!duties! performed!by!that!person!in!the!context!of!the!operations!and! circumstances!of!the!particular!company!concerned.”! § Director!whether!or!not!officially!defined!if!actions!meet! criteria!! o Standard#Chartered#Bank#of#Australia#Ltd#v#Antico!(1995)!18!ACSR!1!–! a!corporation!can!not!be!appointed!director!can!be!a!shadow!director!! o Harman!J!in!Re#Unisoft#Group#(no#3)#[1994]!1!BCLC!609!at!620:-!“…the! shadow!director!must!be,!in!effect,!the!puppet!master!controlling!the! actions!of!the!board.!The!directors!must!be!(to!use!a!different!phrase)! the!‘cat’s!paw’!of!the!shadow!director.!They!must!be!people!who!act! on!the!directions!or!instructions!of!the!shadow!director!as!a!matter!of! regular!practice.!That!last!requirement!follows!from!the!reference!in! the!subsection!to!the!directors!being!“accustomed!to!act”.!That!must! refer!to!acts!not!on!one!individual!occasion!but!over!a!period!of!time! and!as!a!regular!course!of!conduct.”!

) Officer)–)s9)definition)(Corporations)Act))) • "Officer)")of!a!corporation!means:! o (a)!!a!director!or!secretary!of!the!corporation;!or!! o (b)!!a!person:!! § (i)!!who!makes,!or!participates!in!making,!decisions!that!affect! the!whole,!or!a!substantial!part,!of!the!business!of!the! corporation;!or!! § (ii)!!who!has!the!capacity!to!affect!significantly!the! corporation's!financial!standing;!or!! § (iii)!!in!accordance!with!whose!instructions!or!wishes! the!directors!of!the!corporation!are!accustomed!to!act! (excluding!advice!given!by!the!person!in!the!proper! performance!of!functions!attaching!to!the!person's! professional!capacity!or!their!business!relationship!with! the!directors!or!the!corporation);!or!! o (c)!!a!receiver,!or!receiver!and!manager,!of!the!property!of!the! corporation;!or!! o (d)!!an!administrator!of!the!corporation;!or!! o (e)!!an!administrator!of!a!deed!of!company!arrangement!executed!by! the!corporation;!or!! o (f)!!a!liquidator!of!the!corporation;!or!! o (g)!!a!trustee!or!other!person!administering!a!compromise! or!arrangement!made!between!the!corporation!and!someone!else.!! ) Types)of)Directors) • Managing)Director)or!Chief!Executive!Officer!(CEO)! o Can!be!appointed!by!directors!(s201J!–!rep.!rule)! o May!be!conferred!with!any!powers!that!the!directors!can!exercise! (s198C!–!rep.!rule)! • Chairperson)of)the)board! o Can!be!appointed!by!directors!(s248E!–!rep.!rule)! o Responsible!for!board!meetings!and!to!ensure!appropriate!matters! and!materials!are!provided!to!board!members! • Executive)Directors! o Full-time!employees!of!the!company!–!generally!comprise!senior! manager!of!the!company!(under!leadership!of!CEO)! • Non-Executive)Directors! o Part-time!involvement!–!generally!only!board!meetings!and!board! committees! o Provide!independence!and!role!in!monitoring!activities!of! management! • Alternate)Directors) o May!be!appointed!under!s201K(1)!(rep.!rule)! o Allows!for!a!replacement!where!a!director!is!unable!to!attend! meetings! o Can!exercise!powers!of!director!(s201K(3)!rep.!rule)!

•

•

o Has!no!legal!status!where!director!is!present! Nominee)Directors) o Director!appointed!to!represent!interests!of!particular! shareholder/creditor! o Generally!expected!to!act!in!best!interest!of!their!appointer! Governing)director) o Constitution!of!proprietary!company!may!provide!for!a!governing! director!! o Usually!has!full!powers!of!management!and!control!(and!usually!owns! the!majority!of!the!shares)!

! Appointment)of)Directors)) • By!being!listed!(with!consent)!in!original!application!for!incorporation!(s117);! • By!resolution!passed!in!general!meeting!(s201G)rep.)rule);! • By!the!directors!of!company!(s201H)rep.)rule)! o For!public!companies!must!be!confirmed!by!resolution!at!next!AGM! • Who!can!be!appointed?! o Must!be!18!years!of!age!(s201B(1))! o Must!be!a!natural!person! o Person!disqualified!from!managing!corporations!may!only!be! appointed!if!leave!granted!by!ASIC!under!s206F!or!leave!granted!by! the!court!under!s206G)(s201B(2))! • Disqualified!from!managing!a!corporation!) o s206A-F!outlines!certain!disqualifications!from!managing!a! corporation! o s206G:!person!disqualified!may!apply!to!court!for!leave!to!manage!a! corporation! o Magna#Alloys#&#Research#Pty#Ltd!(1975)!CLC!40-227!per!Bowen!CJ:!-!! § The!section!is!not!punitive:!it!safeguards!the!company!from! being!used!contrary!to!proper!commercial!standards!and!such! as!to!cause!financial!detriment!to!persons!with!interests!in!the! company! § Person!applying!for!leave!bears!the!onus!of!showing!that!an! exception!should!be!made!to!the!legislative!policy!in!his/her! case! § Court!will!have!regard!to:!nature!of!the!offence;!applicant’s! involvement!in!the!offence;!applicant’s!character;!structure! and!nature!of!the!business!of!the!relevant!companies;!risks!to! shareholders,!creditors,!employers!or!public!from!making!the! orders!sought! o Re#Jarrett#(1999)#32#ACSR#23:!-#also!added!Attitude!of!ASIC!to!the! application! ) Termination)of)Directors)) • Resignation! o Giving!written!notice!of!resignation!to!a!company!at!its!registered! office!(s203A)!

•

•

Retirement! o If!constitution!provides!for!rotation!of!directors,!then!directors!retire! at!the!end!of!their!term! Removal! o Proprietary!company!may!remove!a!director!by!resolution!(s203C)rep.) rule)! o Public!company!may!by!resolution!remove!a!director!from!office! despite!anything!in!the!company’s!constitution!(s203D)! § Special!notice!of!intention!to!move!the!resolution!must!be! given! § Director!has!right!to!put!his/her!case!to!the!members! o NB:!Resolution!by!directors!to!remove!a!director!from!office!is!void) (s203E))

) Right)of)Access)to)Information)) • s290:) o Director!has!right!of!access!to!financial!records!at!all!reasonable!times! o On!application!by!director,!Court!may!authorise!a!person!to!inspect! the!financial!records!on!the!director’s!behalf! • Common!Law! o Director’s!unqualified!right!of!inspection!recognised!as!incidental!to! director’s!fiduciary!duty!to!the!company! § Berlei#Hestia#(NZ)#Ltd#v#Frenyhough![1980]!2!NZLR!150! § Molomby#v#Whitehead!(1985)!7!FCR!541! ) Directors)as)an)Employee) • Some!directors!of!the!company!will!also!be!employees!! o NB:!Non-Executive!directors!are!not!regarded!as!employees! • Will!normally!be!a!contract!between!MD!and!company!including!terms!! such!as:! o Terms!of!MD’s!office!&!duties;! o Remuneration;! o Protecting!confidential!information!of!the!company;! o Termination!of!the!contract!in!specific!circumstances;! o Restricting!MD’s!business!activities!during!and!after!termination!of! the!contract! • Some!evidence!that!a!director!can!be!an!employee!–!Lee#v#Lee’s#Air#Farming# Ltd![1961]!AC!12! ) ) Directors)Duty) 1.)Duty)of)Good)Faith) ) Statute)-)s181!Corporations)Act)(cth)! • Section)181(1):)Good)faith)-)directors)and)other)officers) o A!director!or!other!officer!of!a!corporation!must!exercise!their!powers! and!discharge!their!duties:!

a)!In!good)faith)and)in)the)best)interests!of!the!corporation;! and! § b)!For!a!proper)purpose! o This!is!a!civil)penalty!provisions!(s1317E),!however!will!amount!to!a! criminal!offence!under!s184)if!they!are!reckless!or!intentionally! dishonest!in!the!breach.! §

) •

•

•

The)Duty)to)act)in)Good)Faith)in)the)Best)Interests)of)the)Company) Fiduciary)and)statutory)duties!to!act!bona!fide!in!the!best!interests!of!the! company! o Court!acknowledges!that!decision!made!at!a!point!in!time!in!the! market,!in!the!situation,!it!might!be!reasonable!in!the!times..!(e.g.! may!be!bad!decision!but!business!decision!in!good!faith..)!! § Re#Smith#&#Fawcett#Ltd![1942]!Ch!304!at!306!per!Greene!MR! Subjective)and)Objective)Elements)! o The#Bell#Group#Ltd#v#Westpac#Banking#Corporation#(no#9)#[2008]! WASC!239!per!Owen!J!(affirmed!on!appeal!–!Westpac#Banking#Corp#v# Bell#Group#Ltd#(No#3)![2012]!WASCA!157)! § Directors!will!breach!their!duty!“if,!on!consideration!of!the! surrounding!circumstances!(objectively!viewed),!the!assertion! of!directors!that!their!conduct!was!bona!fide!in!the!best! interests!of!the!company!and!for!proper!purposes!should!be! doubted,!discounted!or!not!accepted.”!(Lipton,!Herzberg!&! Welsh,!p389)! Duty!breached!if!director!acts!in!a!way!that!no!rational!director!would!have! considered!to!be!in!the!best!interests!of!the!company:! o ASIC#v#Adler![2002]!NSWSC!171! o Hutton#v#West#Cork#Railway#Co!(1883)!23!Ch!D!654!

! General)Law)Principles) • Harlowe’s#Nominees#Pty#Ltd#v#Woodside#(Lakes#Entrance)#Oil#Co#NL!(1968)! 121!CLR!483! o Facts:! § Harlowe’s!held!170,000!(out!of!20,000,000)!of!Woodside’s! shares! § Woodside!allotted!and!issue!9,000,000!shares!to!Burmah!Oil! Australia!Ltd! § Harlowe!alleged!that!Woodside!did!not!need!additional!funds! and!the!issue!was!made!for!an!improper!purpose!not!in!the! best!interests!of!the!company!–!preventing!Harlowe!obtaining! voting!power! o Furwick!CJ,!McTiernan!&!Kitto!JJ!at!493:! § “The!principle!is!that!although!primarily!the!power!is!given!to! enable!capital!to!be!raised!when!required!for!the!purposes!of! the!company,!there!may!be!occasions!when!the!directors!may! fairly!and!properly!issue!shares!for!other!reasons,!so!long!as! those!reasons!relate!to!a!purpose!of!benefiting!the!company!

•

•

as!a!whole,!as!distinguished!from!a!purpose,!for!example,!of! maintaining!control!of!the!company!in!the!hands!of!the! directors!themselves!or!their!friends!…![the]!ultimate!question! must!always!be!whether!in!truth!the!issue!was!made!honestly! in!the!interests!of!the!company.”! § The!court!noted!directors!in!whom!are!vested!the!right!and! duty!of!deciding!where!the!interest!of!company!lies!and!how! they!are!to!be!served!with!a!wide!range!of!practical! considerations!and!their!judgment!if!exercised!in!good!faith! and!not!for!irrelevant!purposes!is!not!open!for!review!in!the! court!–!more!or!less!the!court!will!abide!by!their!judgment!and! is!very!hesitant!to!revisit!that!judgment!of!directors..!! Re#Smith#and#Fawcett#Ltd![1942]!Ch!304) o Facts:!) § When!Fawcett!died!his!executors!tried!to!get!shares!and!have! his!son!appointed!as!company!director!! § Gave!directors!discretion!to!refuse!transfer!of!shares!in! company!of!constitution!! § Considered!on!affidavit!evidence!! o No!evidence!to!show!he!was!acting!not!in!interest!of!the!company!–! onus!on!proving!bad!faith/no!good!faith!is!on!the!person!alleging!the! duty!–!if!not!proven!then!application!fails..!! Australian#Metropolitan#Life#Assurance#Co#Ltd#v#Ure!(1923)!33!CLR!199! o Facts:! § Mrs!Ure!acquired!parcel!of!shares!which!placed!her!in!voting! position!in!which!to!vote!in!husband!as!director!(had! previously!been!lawyer!struck!off!role!for!misconduct!–!goes!to! character!of!person!seeking!to!be!director)! § Meeting!to!consider!parcel!of!shares!to!other!employees!and! members…!! § Power!to!refuse!to!transfer!the!power!of!shares!has!to!be!in! the!best!interest!of!the!company!as!a!whole-!!the!shareholders! considered!in!this!matter! § Directors!acting!against!majority!of!shareholders!–!but!in!a! way!designed!to!stop!the!disruptive!influence!the! appointment!of!husband!! o Even!though!acting!in!self!interest!in!some!respect!–!trying!to! entrenched!position!in!company!–!it!was!reasonable!as!long!as!they! could!show!they!were!acting!in!the!best!interest!of!the!company! which!in!this!case!they!were!(disruptive!purpose,!not!fit!and!proper! person)!

) What)are)the)Company’s)Interests?)) • “The!phrase!“the!company!as!a!whole”,!does!not…mean!the!company!as!a! commercial!entity!distinct!from!the!corporators!it!means!the!corporators!as!a! general!body”!-!Per!Evershed!MR!in!Greenhalgh#v#Arderne#Cinemas#Ltd![1951]! Ch!286!

o Phrase!company!as!a!whole!–!isn’t!talking!about!the!commercial! entity!but!more!about!the!different!stake!holders!considered!to!be! within!the!companies!interests!! • Includes!creditors!when!the!company!is!an!insolvency!context:!Kinsela#v# Russell#Kinsela#Pty#Ltd!(1986)!4!NSWLR!722) • “In!my!view!it!is!proper!to!have!regard!to!the!interest!of!the!members!of!the! company,!as!well!as!having!regard!to!the!interests!of!the!company!as!a! commercial!entity.!Indeed!it!is!proper!also!to!have!regard!to!the!interests!of! the!creditors!of!the!company.!I!think!it!is!proper!to!have!regard!to!the! interests!of!present!and!future!members!of!the!company,!on!the!footing!that! it!would!be!continued!as!a!going!concern.”!-!Per!Hodgson!J!in!Darvall#v#North# Sydney#Brick#and#Tile#Co#Ltd!(1988)!6!ACLC!154! • The#Bell$Group#Ltd#v#Westpac#Banking#Corporation#(No#9)![2008]!WASC!239! o Facts:) § Corporate!group!with!a!range!of!subsidiaries!) § Directors!knew!going!insolvent!and!acted!in!the!best!interest! of!one!company!and!some!creditors!–!subordinating!other! creditors!to!the!bank!) § Transaction!in!best!interest!of!banks!and!parent!company!–! not!for!the!best!interest!of!all!the!companies!and!the!creditors) § Breached!acting!in!the!proper!purpose!if!it!fails!to!take!into! account!the!creditors!) ) Duty)to)Individual)Shareholders?)) • Court!rejected!argument!that!directors!had!breached!a!fiduciary!duty!owed! to!individual!shareholders#-!Percival#v#Wright![1902]!2!Ch!42!) • Coleman#v#Myers![1977]!2!NZLR!225! o The!NZ!Court!of!Appeal!concluded!that!whilst!Percival#v#Wright!had! been!correctly!decided,!it!did!not!apply!to!the!“special!circumstances”! in!that!case!involving!a!family!company.! o Woodhouse!J!said!that!whether!a!duty!is!owed!to!individual! shareholders!by!directors!will!depend!upon!such!factors!as:! § Shareholders’!dependence!upon!information!and!advice;! § The!existence!of!a!relationship!of!confidence!between! directors!and!shareholders;! § The!significance!of!some!particular!transaction!for!the!parties;! § The!extent!of!positive!action!taken!by!directors!to!promote! the!transaction.! • Consider!Australian!cases:! o Brunninghausen#v#Glavanics#(1999)#17#ACLC#1247;#and# o Hurley#v#BGH#Nominees#Pty#Ltd#(No#2)!(1984)!2!ACLC!497! !...