LAW 3112 – CORPORATIONS LAW EXAM NOTES 2015
CONTENT:
§ TOPIC 1: INTRODUCTION
§ TOPIC 2: REGISTRATION AND ITS EFFECTS
§ TOPIC 3: CORPORATE CONSTITUTION
§ TOPIC 4: DIRECTORS (BOARD) AND MEMBERS (AGM)
§ TOPIC 5: CORPORATE FINANCE
§ TOPIC 6: CORPORATE CONTRACTING
§ TOPIC 7: CORPORATE GOVERNANCE AND DIRECTORS’ DUTIES
§ TOPIC 8: CONSEQUENCES OF CONTRAVENTION / RELIEF FROM LIABILITY
§ TOPIC 9: MEMBERS’ REMEDIES
§ TOPIC 10: CORPORATE MORTALITY
TOPIC 7: CORPORATE GOVERNANCE AND DIRECTORS’ DUTIES
• Primary duty to SH’s (creditors when nearing insolvency)
• Who is a director? (see ‘4’ under topic 5)
• To ask about each duty:
o What is the source of each of these duties?
o To who are they owed?
o By whom?
o What is the nature of each duty?
o What are the consequences of breaching a duty?
• Note: statutory duties are in addition to and in no way derogate from the general law: s185. We must learn both (overlap)
o Note: ASIC can only enforce the statutory duties in its own name (and for CL/equitable duties under C’s own name)
• EXAM: go through each duty and have D’s decisions under each (pick out relevant DD’s)
• Exam Structure:
o Note: if breach of directors duties, TOPIC LINK to Oppressive Conduct (s232) o 1. Identify who is subject to the duties on the facts
§ Under statute (s9) both directors (including defacto/shadow) and officers can be liable
§ Extends to errors and mistakes and is not confined to procedural irregularities
§ Director: person validly appointed to position of D (s9(a)(i))
§ Officer: another person who makes/participates in making decisions which affect the whole or a substantial part of the co’s business (s9(c)(i) or a person who makes decisions that affect financial standing (s9(c)(ii))
§ Employee: also liable in limited circumstances (ie s182, 183) o 2. Identify the legal basis of the duty
§ [ASIC/Co.] can bring a claim both at general law and under statute as the two claims operate side by side (s185)
§ Whilst the general law and statutory duties govern similar conduct, statutory duties are more favourable for several reasons:
• A) the stat duties ae wider in scope as they apply to employees, officers and directors
• B) the stat consequences are broader because ASIC has the power under statute to seek remedies under s1317E (such as disqualifying a director and can attempt to impose criminal liability (s184), whereas CL is restricted to compensation orders (but can apply equitable principles)
§ However, should still look at both common law and statutory duties iven the difference in remedies available
1. DUTY TO ACT IN GOOD FAITH AND IN BEST INTERESTS OF THE COMPANY
• Applies to directors, secretaries, receivers, administrators, liquidators and officers (s9)
a) Rule –
• s181(1)(a): a director or other officer must exercise their powers and discharge their duties in good faith and in the best interests of the corporation
• Note: No substantial difference between the equitable and statutory duty
• Note: s184 – criminal liability (see under proper purposes) b) Test –
• D was acting in GF if they believe they are acting in the best interests of the company (subjective) and that belief was reasonable (per surrounding circumstances) (Objective) (Adler (2002))
o Breach if they act in a way that no rational D would have believed as best interests of co (Adler (2002))
o Note: Their belief but with minimum standards (Hutton) c) ‘Best interests of the company’ - Who are interests owed to?
• Generally – duty owed to SH’s as a collective (Greenhalgh) o ‘interests of company’ is flexible (present and future SH’s)
o If divergent interests (eg long term vs short term investors) “act fairly between members” (Mills)
o Can have regard to the interests of other groups (stakeholders) in so far as this also benefits the company (but if conflict, SH’s paramount) (Darvall)
• Individual SH’s: general rule – fiduciary duties owed to co and not ind SH’s (Percival)
o Exception - There is a relationship of trust and confidence (Coleman; Brunninghausen)
§ Company is a small, family co. – dealing with SH’s personally
§ director is the driving force in the company (Coleman);
§ director has high degree of inside knowledge – SH’s relying on D (Coleman);
§ The transaction is between director and SH (Brunninghausen)
• Creditors:
o No duties owed to creditors unless nearing insolvency (Kinsela) – see insolvency o No right of action on creditors to bring action for breach (Spies (2000))
• Corporate Groups:
o A director only owed duties to the co in which he is a director (Walker v Winbourne) – will only owed duties to another co of corporate group if the interests of the two companies coincide (eg Equiticorp – Co threatened by failure of other group member)
o Note: s187 – D of subsidiary taken to act in GH in best interests if:
§ Const of subsidiary expressly authorises D to act in best interests of HC
§ Subs wholly owned by HC
§ Subs is not insolvent at the time/doesn’t become insolvent as a result
§ D acts in GF in best interests of HC
• Employees:
o No duty is owed to employees, except where E’s interest is consistent with the co’s interests as a whole (SH’s) (Parke v Daily News) (eg. Treating employees in a draconian manner would see co deserted (Bowen LJ in Hutton))
o Employees interests: providing extra benefits; making redundant etc.
• Nominee Directors:
o Must act in best interest for company to which they are directors à but Const may permit them to act in interests of nominator (Levin (1962))
• Other Stakeholders:
o So long as in interests of the co(SH’s) – eg consequences of community (Teck Corp)
