CORPS EXAM NOTES 2021
Table of Contents
Who is a Director? ... 2
How to become a director ... 4
Corporate Contracting ... 4
Actual Authority ... 4
Apparent or Ostensible Authority ... 5 Indoor Management Rule ... Error! Bookmark not defined.
Common Law Exception to Assumptions ... Error! Bookmark not defined.
Statutory Assumptions ... Error! Bookmark not defined.
Civil Liability – Torts ...
Error! Bookmark not defined.Primary Liability ... Error! Bookmark not defined.
Secondary (Vicarious) Liability ... Error! Bookmark not defined.
Directors’ Duties – General Table ...
Error! Bookmark not defined.Directors’ Duties – Statutory Duty ...
Error! Bookmark not defined.Care, Skill and Diligence ... Error! Bookmark not defined.
Bona Fide (Good Faith) for the interests of the company ... Error! Bookmark not defined.
Proper Purpose ... Error! Bookmark not defined.
Conflict of Interest ... Error! Bookmark not defined.
Remedies ... Error! Bookmark not defined.
Members’ Remedies ...
Error! Bookmark not defined.Derivative Actions ... Error! Bookmark not defined.
Effect of Ratification ... Error! Bookmark not defined.
Powers of the Court ... Error! Bookmark not defined.
Personal Actions ... Error! Bookmark not defined.
Winding Up ... Error! Bookmark not defined.
“Oppression” Remedy – ss 232-235 ... Error! Bookmark not defined.
Who is a Director?
• Director
o Appointed as director or alternate director or
o Not appointed but act as director or directors follow your instructions
• Officer
o Director or secretary or
o Participate in decisions affecting substantial part of business or o Can affect corporation's financial standing or
o Directors follow your instructions or
o Receiver, administrator, liquidator or trustee
• A person was found not to be an officer because although he had authority to commit Citigroup to trades for up to a limit of $10 million/day, he was not an “officer” because he did not participate in making decisions that affected the whole or substantial part of business nor did he have capacity to affect financial standing of Citigroup
o ASIC v Citigroup Pty Ltd (No 4) [2007]
• Another person was found to be an officer because of role at board meetings, and he could not argue that his duties as secretary and general counsel were separate
o ASIC v MacDonald (No 11) [2009]; Shafron v ASIC [2012]
Types of Directors
• Managing director/CEO
o Day-to-day management
o May be conferred with any of the powers that the directors can exercise; RR s 198C
o Sign contracts on behalf of company
• Executive directors are also employed as managers in the company
• Non-executive directors are not
o Provides an independent view in monitoring the actions of the management team headed by CEO
o Now, the board needs to have a majority of non-executive directors in listed companies
• This deals with sensitive issues where interests of management and company may clash
• Nominee directors - represent a shareholder or creditor
o They have potential conflict issues between the interests of who they represent, and the company
o HCA held that nominee directors (just like other directors) owe their paramount duty to the company as a whole rather than to any other stakeholder; Walker v Wimborne (1976)
• Alternate directors (for another director)
o Normally to assist or empower to exercise some or all of the directors' powers for a specified period; s 201K(1) RR
• De facto directors - defective appointment
o Members who act as directors, and because of their conduct or influence on the board, are treated as directors
o Someone "who acts in the position [of director], with or without lawful authority"
• Corporate Affairs Commission v Drysdale (1978)
• Shadow directors - person whose instructions directors customarily follow (i.e. they exercise control but were never appointed as directors
o Excludes professional advisers o Companies can be shadow directors
Section 9 director of a company or other body means:
(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
(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.
Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person’s professional capacity, or the person’s business relationship with the directors or the company or body.
Note: 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).
Section 9 officer of a corporation means:
(a) a director or secretary of the corporation; or (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
(c) a receiver, or receiver and manager, of the property of the corporation; or (d) an administrator of the corporation; or
(e) an administrator of a deed of company arrangement executed by the corporation; or (f) a liquidator of the corporation; or
(g) a trustee or other person administering a compromise or arrangement made between the corporation and someone else.
Note: Section 201B contains rules about who is a director of a corporation.
officer of an entity that is neither an individual nor a corporation means:
(a) a partner in the partnership if the entity is a partnership; or
(b) an office holder of the unincorporated association if the entity is an unincorporated association; or
(c) a person:
(i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the entity; or
(ii) who has the capacity to affect significantly the entity’s financial standing.
How to become a director
Official Appointment – “A company may appoint a person as a director by resolution passed in a general meeting.” Replaceable rule, s 201G
• S 250R(1) RR = A GM must be held and can include an official election of a director
• Section 9(b) allows for a “de facto” director of sorts, unless contrary intention appears
Corporate Contracting
QUESTION 2A - 5 MARKS
There are two contracts
Can Fred enforce the contract against Barney?
• Normally people do something naughty o Negligent
o Criminal
• REMEMBER:
o Actual and ostensible authority o S 127
o Indoor management rule
• Where an agent enters into a contract on behalf of a principal, the principal becomes party to the contract and is benefited and burdened by it
• Elements of a contract: Agreement (offer and acceptance), certainty, consideration (existing legal duty = no consideration), intention to be bound, capacity, legality, privity of contract
• Vitiating factors: mistake, misrep, s 18 ACL, duress, undue influence, unconscionability
• S 127 valid execution of contracts:
o 1. Signatures of two directors, or director and secretary o 2. Seal plus signatures of 2 directors or director and secretary
Actual Authority
• S 126 – company can contract via agent acting with company’s actual authority which can be express or implied
o Implied = can arise by simply employing someone in a particular role which carries the requisite authority
• It is necessary to be able to identify some form of agreement between principal and agent which authorises the agent to contract on the principal’s behalf
o Hely-Hutchinson v Brayhead [1968]
• For effective ratification, principal must:
o Ratify within a reasonable time of entering into the agreement o Have contractual capacity at time of entrance and ratification
o Ratify the whole contract, as opposed to selected terms
Apparent or Ostensible Authority
• S 125 – an act of the company is not invalid on the mere basis of being outside any restriction in the company’s constitution or the objects of the constitution
• Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] (affirmed by HCA in Crabtree-Vickers Pty Ltd v Australia Direct Mail (1975))
o No valid or formal appointment of managing director (MD)
o In practice, the board left the running of the company to Kapoor, did not object, allowed him to act as MD
o HELD: by doing so, the board made the representation that he was MD o Three requirements to bind a company:
1. Representation that the agent had authority to enter on behalf of the company into the contract was made to the third party
2. The representation was made by a person or persons who had “actual authority” either generally or with respect to the contract; (have they held the agent out?)
3. The third party was induced by such representation to enter into the contract, that is, he relied on it
4. Fourth principle is ultra vires = s 125
o The people with actual authority must hold out the agent as having the requisite authority; Crabtree-Vickers
