Major Assignment: Directors’ Duties Case
Part A: Whether the directors are in breach of their duties of care, skill and diligence
Issue1: who owes the duty?
According to S 9, the person who is appointed to be a director or the person who is appointed to be an alternate director and is acting in that capacity, is a director of the company. (S9)
As we can see from the case, Peter Pansy, Fred Fuchsia and Marie Gold are directors of the company, and Alison Astor who is appointed to fill a casual vacancy on the Board is also a director; therefore, they all owe duties. As the executive directors appointed a skilled person to manage the Australian wide floral delivery service on the internet, the pointed person is also a director. In a
…show more content…
(ASIC v Rich (No 2) (2003) 21 ACLC 672)
Alison Astor was appointed to fill a casual vacancy on the Board, but he did not attend board meetings. As one of the minimum standards of care, skill, diligence proposed by the NSW court of Appeal stated, the directors need to contribute a certain time and effort to the company and attend board meetings regularly. As we can see from this case, Alison Astor did not exercise the required degree of diligence by failing to attend board meetings, so he had breached his duty of care.
Part 2: Whether the directors are in breach of their duty to avoid insolvent trading.
ISSUE #1 Who owns the duties?
Directors including de facto directors and shadow directors are the only persons who have the duty to prevent insolvent trading. (textbook219) According to Section 588G, the director of the company that incurs a debt and is insolvent or becomes insolvent by the debt should have reasonable grounds for suspecting that the company is insolvent or becomes insolvent.( 588G)
As mentioned in the Part A, all of the directors mentioned above own the duties.
ISSUE #2 To whom
In this case, the directors are owed duties to the company as a whole and also creditors.
ISSUE #3 What are the duties? * When does a company incur a debt? Beside the deemed debts, there are other types of debt that are related to S588G. (text) A specific amount and incurring voluntarily by the company are two of principles
In order to prove the breach of section 184, the following rules and duties must have been violated. A director commits an offence if they are reckless or intentionally dishonest, and fail to exercise their powers and discharge their duties in good faith in the best interests of the corporation or for a proper purpose .As mentioned earlier Mr Palmer was reckless in decision making by waving loans and using the company assets for private benefits and the company suffered had to go in voluntary administration. The second offence that needs to the violation of section 184 is that when a director commits an offence if they use their position with intentional dishonesty or recklessly in order to directly or indirectly gain an advantage for themselves, or someone else, or cause detriment to the corporation. Mr Palmer acted as a shadow director and his nephew agreed with all the decisions the corporation made such as political donations and transferring funds to another firms owned by Mr Palmer that caused detriment to Queensland Nickel. The third offence is a person who obtains information because they are, or have been, a director of a corporation commits an offence if they use the information with intentional dishonesty or recklessly. As
Issue: Have the directors of the company breached their duties mainly related to the company’s insolvent trading.
They are interested in the company’s ability to pay obligations when they become due, especially during the operating cycle.
In many misfeasance cases against directors, those breaches maybe relatively uncontroversial. This draws into focus the question of whether the director has any common law or statutory defence, including the Duomatic principle and ratification by shareholders (CA 2006 S.239), available to a claim against him for restitution to the company. S.239(6)(a) preserves the Duomatic rule that if an informal unanimous consent is reached among voting shareholders, it is unnecessary to pass such ratification resolution through general meeting or written resolution. The first part will examine the scope and requirements of this rule to illustrate the validity of such assent. S.239(7) leaves the door open for rules of law, which refers to common law principles, to continue guiding ratification. It will be assessed how these rules impose limitations on the general ratification power conferred by s.239.
According to the pro and contra Section 203D and 203E of the Corporations Act as above, most judges and scholars agree that the procedure of removal directors as stipulated in the Corporations Act provides fairness treatment for the directors who may be removed. However, they still strongly argue whether the Section 203D is mandatory or not. Moreover, they questioned the existence of Section 203E since it eliminates flexibility for companies to make decision particularly in the emergency situation as explained above. Therefore, in order to provide broader perspectives about the relevancy of Section 203D and Section 203E, it is necessary to compare the procedure of removal directors in the Australian legislation with the
This research report documents the findings of an empirical study of judicial findings (of superior courts) relating to the duty to prevent insolvent trading. The duty to prevent insolvent trading is the most controversial of the duties imposed upon company directors.
c. The organization had inadequate segregation of duties. The treasurer did both the investing and the recording. These activities should have been segregated.
According to UK Law, the directors should act in good faith in the interest of the company, and exercise care and skill in carrying out their duties. The Company Law Reform Bill (2005) defines, in section 154-161, the directors’ duties as follows:
To the extent of prevention of corporate failure, I argue that three ASX principles and recommendations could halt the demise of Dick Smith. Firstly, the 2nd principle which is “Structure the board to add value” by structuring the board with a majority of independent directors would prevent CEO dominance because some suggest that independent outside directors can reduce the influence of dominant individuals (ASX, 2014, p. 17). In accordance with Gallagher and Bennie (2015, p. 20), the independent directors are likely to focus on the company’s objectives and not to make decision relying on others. Furthermore, an addressing of independent directors would reduce the reliance on management, and create the effectiveness on monitoring (Dechow et al. 1996 cited in Christensen, Kent, and Stewart (2010)), as well as capability to lessen the conflict of interest between managers and shareholders (Hardjo & Alireza, 2012, p. 4). Thus, DSE’s board would be more active to monitor the CEO’s performances because independent directors pay attentions to the interest of company (Gallagher & Bennie, 2015, p. 20) and shareholders (Hardjo & Alireza, 2012, p. 4)
Smith should have disclosed his share information with the board of directors and voted in favor of Johnsons Skyhooks Limited. Being a board of director of a competing company, he failed to execute his duty in good faith with best interest of the corporation. According to the act, he should be fined up to 5000$ and can go to jail for at least six months.
It is the board's responsibility to consider and authorize a suitable remuneration package for the company's chief executive officer (CEO), make recommendations with respect to the attractiveness of dividends and dividends pay out, approve stock splits, form the audit committees, approve the company's financial statements, oversee management’s involvement in the shareholders and other stakeholders long-term interests and recommend or discourage major decisions such as acquisitions and mergers.
As a shadow director, under common law, statute law and fiduciary duties, Peter and Jan should be liable to IPO Insurance Ltd. These responsibilities include duties to act in good faith, to act for a proper purpose to meet best interests of the company, and to avoid conflicts of interest.
of the finance and audit committee. He has filed a notice of motion seeking to
The current case demonstrates two profound problems closely related to the directors’ duties, which Dynamic Development plc has to deal with, i.e. (i) directors (Charles and Beatrice) entering into competing business and (ii) failure to supervise and produce an inaccurate financial account and statement (Charles).
a. Are Mr. de Guzman and the two other directors justified in buying the shares of Green Med without consulting the other members of the Board and shareholders?