consequences of breach of duty
Statutory duties
Co enforces (normally BOD’s decision) OR M can bring action (derivative action) if Ds are involved.
Ifor breach of GL duties, 2 places to look : s 1317H and remedies below ASIC
enforcement
General law duties
Criminal breaches
•
Specific offences – Schedule 3,
includingu
s 184 – evil Ds
us 588G(3) – IT
us 209(3) –RPT
uS 260D(3) –
fin.assistance up to $340,000 fine and/or 5 years jail) and Actual penalty decided by court
•
Other ‘prescribed’
offences – s 1311,
$850 fine – penalty notice imposed by ASIC, minor breach
Company can also apply for
compensation even if no action by ASIC: s 1317H, bcs ASIC don’t have resources to bring lots of company cases
company compensati
on remedy
Relief
By the court: s 1317S (CPP (eg IT)) and s 1318 (civil liability eg general law duty breaches) Requirements :
• acted honestly,
• and Considering all circumstances, it is “fair” for the officer to be excused
•
Injunction to stop a future action
•
Damages
(puts the co back to the circumstance without the bad thing)•
Account of profits (See Regal (Hastings)) –give back the profit Ds made to the co.
•
Rescission (undo) of contract
•
Constructive trust (the lease will be
transferred from D to co)
Ratification/forgiveness
•
Ordinary resolution in
•
GM members must be given full information Result: D or O cannot be sued by the co.
Cannot ratify if:
• It is oppressive – unfair to minority
• co is virtually insolvent (Kinsella), therefore prejudice creditors
• breaches the equitable limitation – Gambotto
• Takes away a Ms personal right
• Where co property is being taken by Ds or majority Ms
• Where Ds are acting for an improper purpose Cannot be
ratified (Miller v
Miller)
Civil penalty provisions (CPP) Pt 9.4B s 1317E
•
Include directors’
duties in s 180–183, insolvent trading: s 588G, and breach of Chapter 2E
•
ASIC applies to court for a declaration of contravention
•
Civil standard of proof, rules of evidence and procedure
•
Court can make these orders on ASIC’s application:
q
Pecuniary penalty up to $200,000: s 1317G Money goes to govt,
qDisqualification
order: s 206C
qCompensation
order: s 1317H
members’ remedies statutory
GL 1|Oppression - Pt. 2F.1
S 232 – oppressive if the action is
•
contrary to the interest of the Ms as a whole,
•
or oppressive to, unfairly prejudicial to or discriminatory against M(s)
(test is a lot harder)S 234 - M (even the oppression relates to the M, or another M, and in capacity as non-M) & a person removed from register due to SCR or oppressive behavior can apply to court Tests:
q Wayde v NSW Rugby League: Was Ds’
decision one that no board of Ds acting reasonably would have made? No. Must be
“unfairly prejudicial”, not only “prejudicial”.
q Thomas v HW Thomas: low dividend is not oppressive
• Examples:
o Diversion of business opportunity o Improper exclusion from mgmt o Unfairly restricting dividends
o Oppressive conduct of board meetings o Share issue for improper purpose (See
Kokotovich)
o Breach of D’s duties (See Re Spargos Mining, Jenkins v Enterprise Gold Mines)
§ S 233 - Court can make any order “it thinks appropriate”, eg: winding up, regulating co’s affairs, purchase of oppressed M’s shares, appointment of a receiver, restrain/require someone to do sth.
2|Court-ordered winding up - s 461e,f,g,k
M (&others, eg a creditor, ASIC) can apply to court to have company wound up where (usually small co):• just and equitable, or
² Deadlock – co incapable to make any decision, Fraud or misconduct
² Failure of substratum (Re Tivoli Freeholds)
² Breakdown in mutual trust (Ebrahimi v Westbourne Galleries)
• directors acting in own interests, or
• oppressive, unfairly prejudicial or unfairly discriminatory conduct
3|Statutory injunction – s 1324,
Much wider than GL injunction, but only applies when conduct constitutes contravention of the Act, not RR.
Court order to stop someone breaching the Corporations Act. Who can apply?
• ASIC (or the company)
• someone whose interests have been affected –
(some courts disagree, but…)
² eg a creditor – Allen v Atalay (M cannot)
² eg a member – Airpeak v Jetstream(M can!) So, do not use this for M
4|Variation of class rights – s 246D
5|Procedural irregularity – s 1322, substantial injustice See thematic summary
*|Member’s personal action
A legal action to enforce a personal right, that might come through:
Contract
Express contract
•
Eg terms of issue of shares Statutory contract
•
s 140 - co’s const & RR have effect of a contract – can be changed.
private contract remedies apply
•
Can only be enforced in their capacity as a member eg s RR 254D(1) pre-emption rights of members of Pty Ltd companies
Statute, e.g.• right of a M holding at least 5% of votes to call GM: s 249
• Right to add resol to agenda: s 249N
• Appoint a proxy: s 249X
• Inspect minutes and registers: s 251B and s 173
General Law
•
right to info to be discussed at meetings: Kaye v Croydon
•
right to vote, unless constitution says otherwise: Pender v
Lushington
•
right to be protected against improper dilution of shareholding:
Residues Treatment and Trading Co
•
Brunninghausen – duty owed to individual Ms
NOT M’S REMEDY|Member’s derivative action An action to enforce a right of the co (not the Ms). Any remedies go to co.
Statutory Pt. 2F 1A - Deals with “standing” (or rights)
of the applicant - not the “merits” of the case.
S 236(1) - Who may apply?
• A M, former M, or person entitled to be registered as a M of the co or a related co
• an officer or former officer of the company Criteria:
S 237(2)- Court must grant leave (allow Ms to call a lawyer) if all of the criteria are met:
§ probable that co will not take legal action (bcs D is the baddies and not bring action against themselves)
§ applicant is acting in good faith, in the best interests of the
§ serious question to be tried (nothing trivial) See Swansson v RA Pratt Properties
