Corporate Law 2 (Ethics) Exam revision S1 2018
CORPORATE GOVERNANCE ... - 6 -
FOR LISTED COMPANIES (PUBLIC)...-6-
THE EIGHT PRINCIPLES 2014 ...-6-
DIRECTORS DUTIES AND ETHICS ... - 7 -
1.RISE OF ETHICS CODES ...-7-
2.STANDARD OF CARE AND CONTEMPORARY EXPECTATIONS ...-7-
3.‘BEST INTERESTS OF COMPANY’ AND CONTEMPORARY EXPECTATIONS... ERROR!BOOKMARK NOT DEFINED. 4.INCREASED DISCLOSURE OBLIGATIONS ... ERROR!BOOKMARK NOT DEFINED. 5.CORPORATE CULTURE AND CRIMINAL LIABILITY ... ERROR!BOOKMARK NOT DEFINED. 6.INCREASED PUBLIC AND PRIVATE ENFORCEMENT ... ERROR!BOOKMARK NOT DEFINED. PROFESSIONAL CONDUCT RULES ... ERROR!BOOKMARK NOT DEFINED. STATUTORY DIRECTOR DUTIES ... - 7 -
WHO ARE ‘DIRECTORS AND OTHER OFFICERS’? ...-7-
1. DUTY TO EXERCISE CARE, SKILL & DILIGENCE ...-8-
2. DUTY TO ACT BONA FIDE (HONEST) IN THE BEST INTERESTS OF THE COMPANY FOR A PROPER PURPOSE ...-8-
3. DUTY TO AVOID CONFLICTS OF INTEREST ...-8-
1. USE CARE,SKILL AND DILIGENCE: GENERAL LAW AND S180(1), S180(2) ...-8-
WHAT DOES ‘DILIGENCE’ MEAN?ASIC V RICH [2009]NSWSC1229 ...-9-
THE QUESTION OF SKILL:DANIELS V ANDERSON (1995)13ACLC614 ... -10-
THE QUESTION OF DELEGATION/RELIANCE ... -10-
“STEPPING STONES” LIABILITY ... -11-
S180(2): THE STATUTORY BUSINESS JUDGMENT RULE ... ERROR!BOOKMARK NOT DEFINED. 2. BONA FIDES AND PROPER PURPOSES ... ERROR!BOOKMARK NOT DEFINED. BONA FIDES IN THE BEST INTERESTS OF THE COMPANY ... ERROR!BOOKMARK NOT DEFINED. INTERESTS OF THE COMPANY ... ERROR!BOOKMARK NOT DEFINED. WHAT ARE THE DUTIES DIRECTORS OWE CREDITORS? ... ERROR!BOOKMARK NOT DEFINED. EMPLOYEE ENTITLEMENTS:PART 5.8A ... ERROR!BOOKMARK NOT DEFINED. FRAUDULENT CONDUCT: S596C... ERROR!BOOKMARK NOT DEFINED. EXERCISE POWERS FOR PROPER PURPOSES ... ERROR!BOOKMARK NOT DEFINED. 3) LOYALTY DUTY ... ERROR!BOOKMARK NOT DEFINED. CONFLICT GENERAL LAW ... ERROR!BOOKMARK NOT DEFINED. CONFLICT STATUTORY PROVISIONS ... ERROR!BOOKMARK NOT DEFINED. FINANCIAL BENEFITS ... ERROR!BOOKMARK NOT DEFINED. ‘NO PROFITS’ LIMB ... ERROR!BOOKMARK NOT DEFINED. DUTY TO PREVENT INSOLVENT TRADING ... ERROR!BOOKMARK NOT DEFINED. REMEDIES ... ERROR!BOOKMARK NOT DEFINED. GENERAL LAW REMEDIES ... ERROR!BOOKMARK NOT DEFINED. STATUTORY REMEDIES: ... ERROR!BOOKMARK NOT DEFINED. MEMBER REMEDIES ... - 11 -
COMMON LAW REMEDIES ... -11-
STATUTORY REMEDIES ... -11-
OPPRESSIVE OR UNFAIR CONDUCT – S 232 ... -12-
WHO CAN APPLY? S 234 ... -12-
CONDUCT THAT IS CAPABLE OF BEING OPPRESSIVE ... -12-
DISGRUNTLED SHAREHOLDERS ... ERROR!BOOKMARK NOT DEFINED. EXAMPLES OF OPPRESSIVE AND UNFAIR CONDUCT ... ERROR!BOOKMARK NOT DEFINED. ORDERS THAT CAN BE MADE – S 233 ... ERROR!BOOKMARK NOT DEFINED. EXAMPLES OF ORDERS IN ACTION ... ERROR!BOOKMARK NOT DEFINED. STATUTORY DERIVATIVE ACTION ... ERROR!BOOKMARK NOT DEFINED. TEST TO SATISFY APPLICATION FOR STATUTORY DERIVATIVE ACTION ... ERROR!BOOKMARK NOT DEFINED. WHO MAY APPLY - S 236(1) ... ERROR!BOOKMARK NOT DEFINED. MEMBERS, FORMER MEMBERS ETC ... ERROR!BOOKMARK NOT DEFINED. EFFECT OF RATIFICATION ... ERROR!BOOKMARK NOT DEFINED. COSTS: S 242 A GAME-CHANGER: ... ERROR!BOOKMARK NOT DEFINED. STATUTORY INJUNCTION – S 1324 ... ERROR!BOOKMARK NOT DEFINED. COURT ORDERED WINDING UP – S 461(1) ... ERROR!BOOKMARK NOT DEFINED. MEMBERS’ RIGHT TO INSPECT THE BOOKS ... ERROR!BOOKMARK NOT DEFINED. COMMON LAW REMEDIES ... ERROR!BOOKMARK NOT DEFINED. THE RULE IN FOSS V HARBOTTLE* ... ERROR!BOOKMARK NOT DEFINED. WHAT ARE PERSONAL RIGHTS? ... ERROR!BOOKMARK NOT DEFINED. ACCOUNTS AND AUDIT... - 13 -
1.DISCLOSURE ... -13-
2.CORPORATE FINANCIAL DISCLOSURE ... -14- S45AFINANCIAL REPORTING OBLIGATIONS ... ERROR!BOOKMARK NOT DEFINED. S45AFINANCIAL REPORTING OBLIGATIONS ... ERROR!BOOKMARK NOT DEFINED. PUBLIC VERSUS PROPRIETARY ... ERROR!BOOKMARK NOT DEFINED. FINANCIAL RECORDS S 286& S 344 ... ERROR!BOOKMARK NOT DEFINED. THE GENERAL REQUIREMENT OF FINANCIAL RECORDS (S286) ... ERROR!BOOKMARK NOT DEFINED. NON-COMPLIANCE WITH SECTION 286(1) ... ERROR!BOOKMARK NOT DEFINED. ADDITIONAL REQUIREMENTS: SS286(2),287,288 ... ERROR!BOOKMARK NOT DEFINED. LARGER ENTITIES FURTHER FINANCIAL REQUIREMENTS ... ERROR!BOOKMARK NOT DEFINED. DIRECTORS' DECLARATION? S295(4) ... ERROR!BOOKMARK NOT DEFINED. ANNUAL DIRECTORS’ REPORTS (SECTIONS 298,299,299A,300,300A) ... ERROR!BOOKMARK NOT DEFINED. KEY REQUIREMENTS OF A DIRECTORS’ REPORT: S299(1) ... ERROR!BOOKMARK NOT DEFINED. S299A(LISTED CO AND DISCLOSING ENTITY) ... ERROR!BOOKMARK NOT DEFINED. SPECIFIC INFO – S300– S300A ... ERROR!BOOKMARK NOT DEFINED. S300(10)-(13)&300A ... ERROR!BOOKMARK NOT DEFINED. ANNUAL FINANCIAL REPORTING TO MEMBERS: S314 ... ERROR!BOOKMARK NOT DEFINED. TIME FOR REPORTING S315 ... ERROR!BOOKMARK NOT DEFINED. SANCTION FOR FAILING TO COMPLY ... ERROR!BOOKMARK NOT DEFINED. ASICREPORTING; S319; S346A-C(COMPANY PENALTY)... ERROR!BOOKMARK NOT DEFINED. THE ASX AND THE LISTING RULES (LRS 3.1,3.1A,4.10) ... ERROR!BOOKMARK NOT DEFINED. SECTION 674 AND THE LISTING RULES: ... ERROR!BOOKMARK NOT DEFINED. TECHNICAL REQUIREMENTS ... ERROR!BOOKMARK NOT DEFINED. 3.AUDITORS... ERROR!BOOKMARK NOT DEFINED. WHEN IS AN AUDITOR REQUIRED? ... ERROR!BOOKMARK NOT DEFINED. WHO CAN BE AUDITOR ... ERROR!BOOKMARK NOT DEFINED. RIGHTS AND DUTIES OF AUDITORS ... ERROR!BOOKMARK NOT DEFINED.
COMMON LAW DUTIES: ... ERROR!BOOKMARK NOT DEFINED. LIABILITY TO THIRD PARTIES ... ERROR!BOOKMARK NOT DEFINED. CONTENTS OF AUDITORS REPORT ... ERROR!BOOKMARK NOT DEFINED. FUNDRAISING ... ERROR! BOOKMARK NOT DEFINED.
PART I:VOCABULARY ... ERROR!BOOKMARK NOT DEFINED. PART II:DEBT FINANCE ... ERROR!BOOKMARK NOT DEFINED. THE PPSA REGIME ... ERROR!BOOKMARK NOT DEFINED. WHAT IS A COMPANY ‘CHARGE’? ... ERROR!BOOKMARK NOT DEFINED. FIXED CHARGES =‘SECURITY INTERESTS’ ... ERROR!BOOKMARK NOT DEFINED. FLOATING CHARGES =‘CIRCULATING SECURITY INTERESTS’ ... ERROR!BOOKMARK NOT DEFINED. RETENTION OF TITLE PROPERTY ... ERROR!BOOKMARK NOT DEFINED. NEGATIVE PLEDGES AND RETENTION OF TITLE CLAUSES... ERROR!BOOKMARK NOT DEFINED. PROPERTY IS PPSA ... ERROR!BOOKMARK NOT DEFINED. ROMALPA CLAUSE ... ERROR!BOOKMARK NOT DEFINED. RETENTION OF TITLE (ROMALPA) CLAUSES ... ERROR!BOOKMARK NOT DEFINED. III EQUITY FINANCE – GETTING PEOPLE TO BUY INTO BUSINESS TO RAISE FUNDS . ERROR!BOOKMARK NOT DEFINED. THE NEED FOR DISCLOSURE: TYPES OF DISCLOSURE: S705 ... ERROR!BOOKMARK NOT DEFINED. ASXREQUIREMENTS:LR1.1 ... ERROR!BOOKMARK NOT DEFINED. CONSEQUENCES OF BREACH OF CHAPTER 6D: ... ERROR!BOOKMARK NOT DEFINED. INSOLVENCY ... ERROR! BOOKMARK NOT DEFINED.
INSOLVENCY PRACTITIONERS AND ETHICS ... ERROR!BOOKMARK NOT DEFINED. RECEIVERSHIP... ERROR!BOOKMARK NOT DEFINED. VOLUNTARY ADMINISTRATION S435A... ERROR!BOOKMARK NOT DEFINED. WINDING UP/LIQUIDATION – END OF LIFE... ERROR!BOOKMARK NOT DEFINED.
• DEFINITION OF SOLVENCY ... ERROR!BOOKMARK NOT DEFINED.
“CASH FLOW TEST” ... ERROR!BOOKMARK NOT DEFINED. CASH FLOW:INSOLVENCY TEST (S95A) ... ERROR!BOOKMARK NOT DEFINED. INSOLVENCY PRACTITIONERS AND ETHICS ... ERROR!BOOKMARK NOT DEFINED. THE SAFE HARBOR PROVISIONS S588GA ... ERROR! BOOKMARK NOT DEFINED.
588GA IS DEFENCE ... ERROR!BOOKMARK NOT DEFINED. S588GA(2):ASK WHETHER A DIRECTOR IS: ... ERROR!BOOKMARK NOT DEFINED. THE IPSO FACTO PROVISIONS:**NON EXAMINABLE ... ERROR!BOOKMARK NOT DEFINED. RECEIVERSHIP ... ERROR! BOOKMARK NOT DEFINED.
APPOINTMENT OF RECEIVER ... ERROR!BOOKMARK NOT DEFINED. POWERS OF RECEIVER: ... ERROR!BOOKMARK NOT DEFINED. DUTIES AND LIABILITIES OF RECEIVER : ... ERROR!BOOKMARK NOT DEFINED. PERSONAL LIABILITY OF RECEIVERS AND OTHERS – S 419(1)+ S 419A ... ERROR!BOOKMARK NOT DEFINED. SECTION 419(1): ... ERROR!BOOKMARK NOT DEFINED.
MORTGAGEE-IN-POSSESSION AS ALTERNATIVE ... ERROR!BOOKMARK NOT DEFINED.
VOLUNTARY ADMINISTRATION ... ERROR! BOOKMARK NOT DEFINED.
OVERVIEW OF 7 STEP PROCESS ... ERROR!BOOKMARK NOT DEFINED. 1. APPOINTMENT OF ADMINISTRATOR (SS436A;B;C) ... ERROR!BOOKMARK NOT DEFINED. 2. MORATORIUM ... ERROR!BOOKMARK NOT DEFINED. 3. NOTICE ... ERROR!BOOKMARK NOT DEFINED. 4. CREDITORS GET A SAY (PART OF PURPOSE OF VA) ... ERROR!BOOKMARK NOT DEFINED. 5. INVESTIGATION: S438A ... ERROR!BOOKMARK NOT DEFINED. 6. SECOND MEETING OF CREDITORS: S439A(5) ... ERROR!BOOKMARK NOT DEFINED. 7. EXECUTION OF DEED OF COMPANY ARRANGEMENT: ... ERROR!BOOKMARK NOT DEFINED. THE ADMINISTRATOR ... ERROR!BOOKMARK NOT DEFINED. POWERS OF ADMINISTRATORS S 437A(1) ... ERROR!BOOKMARK NOT DEFINED. LIABILITIES OF ADMINISTRATORS: ... ERROR!BOOKMARK NOT DEFINED. ENDING ADMINISTRATION: ... ERROR!BOOKMARK NOT DEFINED. DEED OF COMPANY ARRANGEMENT (DOCA)... ERROR!BOOKMARK NOT DEFINED.
WINDING UP AKA ‘LIQUIDATION’ – CORPSE OF COMPANY ... ERROR! BOOKMARK NOT DEFINED.
SOLVENT ... ERROR!BOOKMARK NOT DEFINED. INSOLVENT ... ERROR!BOOKMARK NOT DEFINED. WINDING UP:COMPULSORY ... ERROR!BOOKMARK NOT DEFINED. INSOLVENT: ... ERROR!BOOKMARK NOT DEFINED. SOLVENT:(WITH COURTS ASSISTANCE) ... ERROR!BOOKMARK NOT DEFINED. INSOLVENT WINDING UP ... ERROR!BOOKMARK NOT DEFINED. PRESUMPTIONS OF INSOLVENCY: S459C(2) ... ERROR!BOOKMARK NOT DEFINED. WINDING UP CONSEQUENCES ... ERROR!BOOKMARK NOT DEFINED. EFFECT ON CREDITORS: S471B; S500(2) ... ERROR!BOOKMARK NOT DEFINED. EFFECT ON MEMBERS: S468A ... ERROR!BOOKMARK NOT DEFINED. EFFECT ON EMPLOYEES ... ERROR!BOOKMARK NOT DEFINED. WINDING UP: PROPERTY AVAILABLE FOR DISTRIBUTION ... ERROR!BOOKMARK NOT DEFINED. TIMING IS RELEVANT ... ERROR!BOOKMARK NOT DEFINED. WINDING UP: AVOIDANCE REGIME ... ERROR!BOOKMARK NOT DEFINED. VOIDABLE TRANSACTIONS ... ERROR!BOOKMARK NOT DEFINED. UNFAIR PREFERENCE:S588FA ... ERROR!BOOKMARK NOT DEFINED. RUNNING ACCOUNTS... ERROR!BOOKMARK NOT DEFINED. UNCOMMERCIAL TRANSACTIONS:S588FB(NOT PAYING BACK DEBT) ... ERROR!BOOKMARK NOT DEFINED. INSOLVENT TRANSACTIONS:588FC ... ERROR!BOOKMARK NOT DEFINED. UNFAIR LOANS: S588FD(NOT COMMERCIAL REALITY)... ERROR!BOOKMARK NOT DEFINED. UNREASONABLE DIRECTOR-RELATED TRANSACTIONS:S588FDA ... ERROR!BOOKMARK NOT DEFINED. OBSTRUCTING CREDITORS’ RIGHTS:S588FE(5) ... ERROR!BOOKMARK NOT DEFINED. VOIDABLE TRANSACTIONS:588FE AND TIME PERIODS ... ERROR!BOOKMARK NOT DEFINED. S588FF:COURTS MAY MAKE ORDERS ABOUT VOIDABLE TRANSACTIONS ... ERROR!BOOKMARK NOT DEFINED. AVOIDANCE REGIME:PROTECTIVE PROVISIONS/ DEFENCES: S 588FG ... ERROR!BOOKMARK NOT DEFINED. WINDING UP:DISTRIBUTION S 555 ... ERROR!BOOKMARK NOT DEFINED. DEREGISTRATION ... ERROR!BOOKMARK NOT DEFINED. REINSTATEMENT OF A COMPANY IS POSSIBLE IN LIMITED CIRCUMSTANCES … S601AH ... ERROR!BOOKMARK NOT DEFINED.
RELATION BACKDATE VOIDABLE TRANSACTIONS91 ... ERROR!BOOKMARK NOT DEFINED. PERSONAL PROPERTY SECURITIES ACT, 2009 (CTH) ... ERROR! BOOKMARK NOT DEFINED.
‘SECURED CREDITOR ... ERROR!BOOKMARK NOT DEFINED. WHAT IS A ‘SECURITY INTEREST’? ... ERROR!BOOKMARK NOT DEFINED. WHAT IS A ‘PPSA SECURITY INTEREST’? ... ERROR!BOOKMARK NOT DEFINED. PERFECTION OF SECURITY INTERESTS ... ERROR!BOOKMARK NOT DEFINED. CONSEQUENCE OF PERFECTING SECURITY INTERESTS ... ERROR!BOOKMARK NOT DEFINED. POSITION OF SECURED PARTY (POWER) ... ERROR!BOOKMARK NOT DEFINED.
Corporate Governance
For Listed Companies (PUBLIC)
• ASX Corporate Governance Principles
• Principles at asx.com.au
• If not, why not: Listing Rule 4.10.3
• Need certain shareholders to be listed
• These companies ‘look after’ substantial amount of money from shareholders
• ASX also provides guidelines for corporate government principles (MANDATORY)
• Do not apply for non-listed companies but should be taken into consideration of all companies
• ASX are not as strict as statute, does not have to comply with all principles but if not must specify why not.
The eight principles 2014
Compliance is not compulsory but ‘if not, why not’.
Principle 1: solid foundations
Establish and disclose respective roles and responsibilities of board and management and how performance is monitored and evaluated
Principle 2: structuring the board
• Must explain how they chose the board and why
• e.g. industry specific expertise
• Have a board of an appropriate size, composition, skills and commitment to enable it to discharge its duties effectively
Principle 3: act ethically and responsibly
• Act ethically and responsibly (most unlikely not to be included in governance statement)
Principle 4: financial reporting
• Have formal and rigorous processes that independently verify and safeguard the integrity of corporate reporting
• Formal unambiguous guidelines
• Q – company failing to comply with statute to report, if listed, mention there is this principle which may have been breached
Principle 5: disclosure
• Make timely and balanced disclosure of all matters concerning it that a reasonable person would expect to have a material effect on the price or value of its securities
• Very important principle
• If people are investing in a company and leaving it to a board to ‘look after’ it follows that those shareholders are informed of relevant issues
• ASX reinforces the statutory obligation of disclosure.
Principle 6: security holder rights
• Share register, transfer system, electronic register
• Respect the rights of security holders by providing appropriate information and facilities to allow effective exercise of rights
Principle 7: managing risk
• Establish a sound risk management framework & periodically review it Principle 8: remuneration
• Be fair and reasonable in remuneration, don’t over pay directors but sufficient to attract and retain quality directors
• Pay director remuneration sufficient to attract and retain high quality directors and design exec remuneration to attract and motivate high quality senior execs & to align interests with security holder value creation
DIRECTORS DUTIES AND ETHICS
1.Rise of ethics codes
ASX Corporate Governance Principles S180(1) care and diligence duty
Australian Securities & Investments Commission v Rich (2003) 21 ACLC 450, per Austin J Australian Securities and Investments Commission v Healey (2011) 278 ALR 618
Australian Securities and Investments Commission v Hellicar & Ors [2012] HCA 17;
Shafron v Australian Securities and Investments Commission [2012] HCA 18 2.Standard of care and contemporary expectations
• Best interests of shareholders
o Ngurli v McCann (1953) 90 CLR 425, at 438-439 o Greenhalgh v Aderne Cinemas Ltd [1951] Ch 286
• No scope to be generous with co resources, etc
• But, ‘unconfirmed regulatory consensus’?
• No relevant judicial authority but has been a shift: Ramsay and Marshall
o Australian Securities & Investments Commission v Healey (2011) 278 ALR 618, at 625 [14], per Middleton J
Statutory Director Duties
Who are ‘directors and other officers’?
Broad category of people included; directors defined in
s9
o A person who is appointed (ASIC search will locate this)
o Also includes people who are not validly appointed but acting as though they are (acting directors)
o People who the directors/body are accustomed to act in accordance with the persons wishes and instructions
• Number of potential people liable for breach of director duty is broad
• If creditors have lost money and claim against directors they will extend defendants to any person with director duties in order to maximise their claim.
Definition of officer
• Senior management – normally obligations of directors
• Definition s 9
• Secretary
• Person with significant capacity to affect corporations financial standing
• Anyone (other than legal advisor) who the director is accustomed to act on their instruction
• Receiver, manager
• Administrator
• Liquidator
• Trustee or person administering a compromise or arrangement
1. Duty to exercise care, skill & diligence o Obligation to be careful and competent
2. Duty to act bona fide (honest) in the best interests of the company for a proper purpose
o Fiduciary obligation duty o Act for the ‘right’ reasons
3. Duty to avoid conflicts of interest
1. Use Care, Skill and Diligence: general law and s180(1), s180(2) 1. Common law duty
2. Statutory duty
3. Reliance or delegation 4. Business Judgement Rule
Subjective standard of care in past – now objective
• There is ‘baseline’ level of competence to understand the business
• Minimum standard of care that must be met regardless if capable of reaching this through lack of expertise you are expected to have it
• Financial competence – not enough to have ‘done your best’ or borderline minimum standard – must have the standard to run the company involved in and run it properly (ASIC - Centro Case)
Sources of the duty (multiple)
• Contractual
o If employee AND director (executive) most likely employment contract
• common law – tort: Daniels v Anderson (1995) 37 NSWLR 438 o similar to negligence law – due diligence and care
o standard of director duties is substantially objective – almost the same as the duty of statutory duties (s180)
• Fiduciary
• Statutory: S180; ASIC v Rich [2003] NSWSC 85 o Defence of ‘business judgement rule’
Re HIH Insurance Ltd (in prov liq); ASIC v Adler (2002) 41 ACSR 72;
Daniels v Anderson (1995) 37 NSWLR 438;
ASIC v Rich (2009) 75 ACSR 1.
Description of the current duty
The modern standard of care: ASIC v Rich [2009] NSWSC 1229
Chair of the board was more experienced in financial matters than anyone on the board, had highest level of awareness and court required to assess the standard of care and if they owed a ‘higher’ duty because of level of knowledge
2 factors court will consider.
• Level of responsibility put on individual director by the corporation
o In this case he was given more responsibility due to his knowledge o Chair does not necessarily have a higher level of care
o Must assess the individual’s responsibility, knowledge and experience
o Court stated the chair had to meet a higher level of care due to the standard expected because of his skill set he was on the board.
• What is the standard of care reflecting modern community expectations i.e. objective minimum standard
What does ‘diligence’ mean? ASIC v Rich [2009] NSWSC 1229 Austin, J findings in in ASIC v Rich para [7203]
Statutory duty establishes minimum standard of care with consideration to;
1. become familiar with fundamentals of business 2. keep informed
3. monitor company affairs
4. maintain familiarity with financial status of company by appropriate means , in the case of a director, review financial statements and board statements and make further enquiries to build on the documents where appropriate (this was used in Centro decision also – because further enquiries were not conducted)
5. in the case of a director, have a reasonable informed opinion of the company’s financial position
The question of skill: Daniels v Anderson (1995) 13 ACLC 614
• Base level of financial competence and knowledge of the business
• Director was making profits on paper but accruing significant losses (50 mill)
• Daniels wrote to board and raised some issues with control of company
• Failed to stipulate that Anderson was running large losses and had failed to take advice
• CEO unable to supervise the employee due to inadequate skill in foreign exchange therefore he had no defence based on lack of skill.
• Level of skill = level required to conduct the relevant position The question of delegation/reliance
Can directors be liable if they permit the company to contravene the law?
ASIC v Cassimatis (No 8) [2016] FCA 1023
• Storm financial advisors owned by Cassimatis family
• Advice to borrow money to invest despite vulnerable people – elderyly, low income etc
• Business model of Storm was wrong
• Breached numerous provisions of Corps Act
• Advice given to clients MUST be appropriate for them
• Breach duty of care as not correct to expose the company to risk harm exceeding the benefit. Careless decision exposed company to unnecessary risk.
Section 189
When not expert they can use advice provided by someone else in the area concerned Sections 198C, 198D & 190
198C - Delegation to managing director, employee of company who works full time 198D - Board can set strategic direction and delegate things to managing director to
implement it.
190 - Where delegation, can escape liability if; good faith, acted on reasonable grounds, made good enquiries, the delegate was reliable and capable of carrying out the duty
Some matters cannot be delegated
e.g. Hardy restructure – fundamental company matter cant be delegated – the restructure was ok but the press release was not accurate
ASIC v Healey [2011} FCA 717 (Centro)
o Short term liabilities were incorrectly classified in accounting reports as non-current liabilities and guarantees given after the balance date had not been disclosed o Both matters affected the assessment of the companies solvency and liquidity
o Directors failed to question the debt after reliance on advice from company management and external auditors
o Defence when it was ‘we delegated this to a well-known accounting group with international reputation’
o They failed to comply with statutory obligations to approve the accounting reports Court stated
o While directors are entitled to rely on management the reliance cannot be
substituted for their own non-delegable duty, including due care and diligence, to approve the reports
o It was not beyond the director to consider the big picture
o Each director relied completely on the processes of the advisers and failed to see obvious errors because they all took the same approach
o No director took it upon themselves to review the report and consider them for him/her self
o Crucial question of delegation, cannot delegate the ‘big stuff’.
o Centro had big liability regularly and directors should have questioned this.
Vines v ASIC [2007] NSWSC 75.
o Court thought the director should have questioned structure of re-insurance and the risks of a disaster.
o Cannot delegate this task, must ask relevant questions. Can’t ignore asking questions.
“Stepping Stones” liability
o Corporation did something wrong, you were director at the time, you have done something wrong by allowing contravention of the law
o May constitute carelessness -ASIC v Cassimatis (No 8) [2016] FCA 1023
MEMBER REMEDIES
Common law remedies
• Separate orders to Corps Act
• Personal rights – infringes on contract between shareholder and company o A contractual right of person has been breached
Statutory remedies
** More powerful and most likely source of answer **
• Oppressive and unfair conduct – s 232
• Proceedings on behalf of the company – Part 2F.1A
• Injunctions – s 1324
• Winding up orders – s 461 (and other places)
• Practical self-help remedy – s247A – capacity to inspect books
Oppressive or Unfair Conduct – s 232 Conduct of the company’s affairs
• contrary to the interests of the members as a whole; or
• oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members.
• S233 = remedy court can issue as a result of breach s232
Allows pressure to be put on board to pay attention to members. Often small shareholder of small company likely to make claims under this
Who can apply? s 234 A member
Niord Pty Ltd v Adelaide Petroleum NL (1990) 54 SASR 87
• have to be registered before can apply Re Independent Quarries Pty Ltd (1994) 12 ACLC 159
• reason relevant shareholder was not on register was as a direct result of the
oppressive action. Where wrongdoing is what stops yo being registered you may still be able to apply
• 234b If removed by selective reduction of capital, can still apply
• 234c past members
• 234 d+e
A member at what time?
Re Spargos Mining NL (1990) 3 WAR 166
• Conduct occurred before you were a member can still apply. If oppressive conduct previously it could still be affecting value of shares now.
Conduct that is Capable of Being Oppressive Affairs of the company – s 53
• Widely defined
• Includes conduct of directors, company itself, members, shareholders etc
• Do affairs of company include that of a subsidiary?
Re Norvabron Pty Ltd (No 2) (1987) 5 ACLC 184
• Did actions of subsidiary become conduct of holding company – had clear knowledge aas directors of company to prevent wrong action
• Court decided yes, action of subsidiary could be that of company as they had same directors
Isolated actions and even future proposed actions may be caught
• No length of time or minimum incidents to evidence the conduct Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459
• Removed one team to make it a ‘neat’ league
• The test is not about unhappy members, it is objective, the decision was made in good faith in the interests of the company
Omissions can also be sufficient evidence
• If controllers of company fail to call directors meeting, the omission can form oppression
Shum Yip Properties Development Ltd v Chatswood Investment & Dvpt Co Pty Ltd [2002]
NSWSC 12
• Continued failure to pay dividends – omission showed oppression Sanford v Sanford Courier Service Pty Ltd (1986) 5 ACLC 394
Meaning of Oppressive and Unfair
To be determined objectively: would any reasonable director have acted in that way?
Wayde v NSW Rugby League Ltd (1985) 180 CLR 4, see Brennan J:
‘[t]he operation of [s232] may be attracted to a decision made by directors which is made in good faith for a purpose within the directors’ powers but which reasonable directors would think to be unfair’.
Balancing interests
• examine the co’s background and the reasonable expectations of shareholders. Not a
‘sour grapes’ offence just because a member didn’t agree with the action of the majority
ACCOUNTS AND AUDIT
1.Disclosure
• Disclosure is a regulatory concept as philosophy
• Disclosure obligations under common law and general statutory disclosure obligations o Obligations that apply to everyone in Australia: for instance giving misleading
information or specific Corporations act obligations or director duties obligations and even financial reporting requirements (all voluntary or mandated)
o Is there such stuff as involuntary disclosure such as media acting and presenting information
Morgan Crucible Co Plc v Hill Samuel Bank Ltd [1991] 1 AllER 148
o Misleading information and statutory obligations
• Specific financial reporting requirements – very specific
• Company has to keep everyone informed whilst also ensuring that other people aren’t releasing information they should be or that isn’t true
• Involuntary disclosure (David Jones - $1.6b takeover bid disclosure, bidder not heard of was hoax but directors complied with requirements but for wrong purpose and didn’t create accurate market; Whitehaven Coal)
CHECK LIST
• All need to comply with s286
• If small you can stop there
• Larger and public s288 and s285, 292-323D 2. Corporate financial disclosure
• Specific Corp Act disclosure that the company must do- lots of different frameworks
• Introduction: Chapter 2M
o Risks can be accessed accurately if you have audited and had the right enquiries
• Base requirement: financial records (all companies) o Companies must have financial reports
• Annual financial and directors reports (some companies – it depends on size predominantly)
• Provide materials to members – send out/AGM (it depends)
• Lodge reports at ASIC/ASX (it depends) (regulator) o Wouldn’t apply if you weren’t lodged with ASX
• Get reports audited (it depends) o Varies by size
Some of the layers
• Small proprietary vs large proprietary
o S45A (what makes a company proprietary)
• Trade-off for being listed is increased accountability
