Duties to act in Good faith in the best interest of the coy - Corporations Law PDF

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Duties to act in Good faith in the best interest of the coy...

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Good faith in the best interest of the coy 1. Statutory Duties – s 181 (1)(a) – Director or officer of corporation must exercise powers & discharge duties in good faith in the best interests of corporation

S9- (directors) owe a duty to the company De facto Director – Person acting in the position of a director -

Large coy – exercise top level management function Small coy – decide on important matters After expiration of term of director, still can participate in management o Corporation Affairs Commission v Drysdale

Shadow Director – Director in a coy are acting in accordance with a person’s wishes – Ho v Akai Pty Ltd -

Body corporate can be shadow director (holding coy) – Standard Chartered Bank of Australia Ltd v Antico Control can be broad strategy nature or significant transaction – ASIC v AS Nominees Ltd Creditors are not directors – Buzzle Operation Pty Ltd v Apple Computer Australia Pty Ltd

2. Fiduciary Duties – Directors or officers of corporation owe a duty to act in good faith for the best interest of the coy (and to exercise powers for a proper purpose). OVERLAPS IN s181 (1) (a) & (b) -

ASIC v Adler – Duty is breached if a director acts in a way that NO RATIONAL DIRECTOR would have considered to be in the best interests of coy Hutton v West Cork Railway Co - (bona fides – coy’s best interest)

WHEN SOLVENT: Directors act in the best interest of SHAREHOLDERS as a collective group. No direct fiduciary duty between directors and individual shareholders Greenhalgh v Arderne Cinemas Ltd- Best interest of the coy is the best interest of shareholders in a collective group Darvall v North Sydney Brick & Tile Co Ltd- Best interest of the coy is the best interest of both present and future shareholders and the coy as a commercial entity. Short term and long term prospect of the coy should be taken into consideration (to ensure going concern of the coy, even though it may not be in shortterm interests of shareholders) No duty to Individual Shareholders: Percival v Wright (no duty )- D buy shares from shareholders at a lower price (didnt disclose a higher offer). Sued by shareholder. Court rejected because there is no direct fiduciary r/s between D and individual shareholders. Glavanics v Brunninghausen (might have some duty) - Same issues as Percival v Wright but court held that although D doesnt have a fiduciary duty to shareholder, there are special circumstances eg during takeovers, Ds must obtain the best price for shareholders Peskin v Anderson (reconsilation of these two cases) - Court said that for such fiduciary duty to arise, there must be direct and close contact with individual shareholder. D cause shareholder to act in a certain way which resulted in harm to the shareholder *Under statute, might have some duty, under common law, no duty. Different classes of shareholders Mills v Mills – Directors should consider the fairness of interests between different classes of shareholders, and their own interests as shareholders as well (must not act in interest of a class of shareholder that might affect the class of another shareholder). Also, must not disregard their interests as shareholders just because they are directors. -

Members of a class can obtain remedy under s232 if their interests are sacrificed for benefits of other classes of members.

Company Groups: Walker v Wimborne – Directors in subsidiary must act in the best interest of subsidiary, not the group as a whole (or holding company) Equiticorp Finance Ltd v BNZ – Helping holding coy is fine if the main purpose is to protect the subsidiary. Need to look at the company as a whole in some special circumstances. S187 allows constitution of a subsidiary to authorize directors to act in the best interest of a holding coy but it is limited to situation where the subsidiary is solvent at the time. Employees: Parke v Daily News Ltd - Directors should not do something that benefits employees at the expense of coy’s shareholders However, employee entitlements provisions contained in Pt 5.8A of the CA require directors to consider the interests of employees in certain situation. This is to protect employees by preventing directors of employer companies stripping the coy’s assets and making the companies insolvent so as to prevent employees enforcing their entitlements.

WHEN INSOLVENT: Directors act in the best interest of CREDITORS Nicholson v Permakraft (NZ) Ltd – Directors must take creditor’s interests into account if the coy is insolvent or of doubtful solvency Walker v Wimborne, Ring v Sutton: Directors prejudice creditors’ interests if they cause the coy to enter into arrangement that reduces the pool of coy’s assets that otherwise be available to be shared among creditors Spies v The Queen - Even though D owes duty of interest to creditors, creditors still cant sue the Ds directly because it is up to the coy to sue (liquidator should sue on behalf on creditors) **Power to ratify - Shareholders have the power to ratify breach of Ds in certain circumstances but that doesn’t apply when the coy is approaching insolvency because shareholders ratification does not take into account the interest of creditors (n Phoenix Company: cr - Directors of insolvent coy breach their duties when they transfer assets of d

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current insolvent coy to a new coy, or associated coy TO AVOID OBLIGATION TO PAY CURRENT CREDITORS – Jeffree v NCSC, Grove v Flavel To lift corporate veil – formation of new coy to which assets are transferred to – Creasey v Breachwood Motors Ltd...