Regal Hastings v Gulliver – Directors could have protected themselves if made full disclosure & have actions ratified at G.M Queensland Mines v Hudson – Hudson, M.D protected b/c kept board fully informed of dealings & coy had v few shareholders such that board approval effectively same as shareholder approval (p.444)

Requires a director with material personal interest to give notice of the interest to other directors

• Must give details of nature & extent of interest relating to affairs of coy – S191(1)

• Must be given at director meeting ASAP aware of interest – S191(3)(b)

➢ S191 does NOT APPLY to pty coy w/1 director – S191(5)

➢ Directors of pty coy can rely on S194 (below)

Self-interested director boardroom voting - (Also applies to CH2E Related Party Transactions) Public coy: (p.443)

S195(1) – director who has material personal interest prohibited from voting and must not be present while matter is considered at board meeting

➢ Unless resolution passed or approval by ASIC as per-requirements met in

➢ S195(2)

Pty coy: (p.444)

Corps Act does not prohibit Director from voting where board meeting considers matters relating to the interest – Left to the coy’s constitution(if any) or S194

(p.467)which permits directors to vote or retain benefit of transaction where approval & disclosure (S191) is

provided

(What is) Confidential info – Wright v Gasweld (p.459)

• Skill and effort expended to acquire information

• Degree to which information is guarded and made difficult to acquire

• Whether info made known as confidential

• Industry practice

• Whether information shared by senior employee

Competing with coy (p.464)

General rule: Directors not permitted to compete with coy

• Bell v Lever – Non-execs cannot be prevented from acting as competing coy’s director BUT

• Markwell Bros v CPN Diesel – CANNOT divulge confidential info to other coy OR for own use

(6)

6 Related-Party Transactions: CH 2E (pg. 438/439)

A public company cannot give a financial benefit to a related party unless it obtains the prior shareholder approval – S208

Examples of “giving financial benefit” – S229(3):

Related parties – S228 (p.440)

(a) Giving/providing finance or property (b) Buying/sellin asset (c) Leasing asset (d) Supplying/Receiving

services (e) Issuing

securities/granting an option

(f) Taking up or releasing obligation

People

• directors of the public coy

• spouses, de facto spouses, parents and children of public coy directors Entities

• directors of an entity that controls the public coy

• entity controlled by a related party referred to in s 228(1), (2) or (3) (s 228(4));

• an entity that was a related party of the kind referred to in s 228(1), (2) or (3) (s 228(4)) during the previous 6 months (s 228(5)); or

• entity that acts in concert with a related party of a public company on the understanding that the related party will receive a financial benefit if the public company gives the entity a financial benefit: s 228(7).

Shareholder approval meeting

(p.441) When shareholder approval NOT required

(exceptions)

– S210 – S216 (p.440)

• Public coy must call shareholder meeting to consider resolution of giving financial benefit

• Coy must lodge w/ASIC notice of meeting AT LEAST 14 days before notice given to members – S218(1)

Voting exclusion (p.442)

• Related party gaining financial benefit cannot vote for the proposed resolution

• Transactions that would be reasonable in the circumstances if parties were dealing at arm’s length or terms were less favourable to related party than arm’s length – S210

• Reasonable remuneration as an officer or employee of public coy – S211(1)

• Repayment of expenses incurred by related parties in performing duties as an officer/employee of public coy – S211(2)

• Payment in legal costs incurred by officer in defending an action involving a liability incurred as officer of public coy – S212(2)

• Small amounts: Money given to director or spouse <$5000 – S213

• Financial benefits to or by closely-held subsidiary – S214

• Benefits given to related party as a member of public coy that do not discriminate unfairly against other members – S215

(7)

7 Duty to avoid conflict of interest by not taking corporate opportunities

Director breaches the fiduciary duty to avoid conflicts of interests where the director, without appropriate disclosure or approval, takes up an opportunity that should have gone to the company

• Diversion: Cook v Deeks (p.454) – Excluded minority shareholder

• Director taking up opportunity: Southern Cross Mine v Ensham (p.457) – CEO acquired business opportunity arising from his position. He did not make complete and accurate disclosure.

(court rejected)

• Director taking up opportunity: Queensland Mines v Hudson (p.456) – Hudson, M.D made full disclosure (court approved)

Duty not to misuse coy funds

Directors are under a F.D to use coy funds for legitimate biz purposes

• Paul A Davies (p.453) – used coy funds w/o shareholder approval for own private purpose

• Totex-Adon v Marco (p.452) – Mixed funds

Duty not to prejudice creditors’ interests – Walker v Winborne (p.512)

Directors taken to prejudice creditors interests if they cause coy to enter into arrangements which reduce pool of assets that would otherwise be available to be shared amongst creditors

Employee’s interests: Cannot receive priority over coy members – employee’s interests not generally considered – Parke v Daily News Ltd (p.415)

{Coy owned 2 newspaper, sold 1; wanted to distribute proceeds as compensation for dismissal; shareholder brought action to prevent payments}

PHOENIX ACTVITY

When directors form a new coy and transfer old coy’s biz & valuable assets for little or no consideration (p.515)

• Disposal of property for inadequate consideration

➢ Kinsela v Russell Kinsela (p.515) – Directors of family coy arranged for transfer of biz/lease to themselves (on advantageous terms)

➢ McNara v Flavel (p.520) – Director of insolvent coy arranged for it to cease trading and allow other company to use business name without payment for goodwill associated with brand name

• Shareholders

CANNOT RATIFY

breaches that prejudice creditors’ interest

• Kinsela v Russell Kinsela

Nevertheless, creditors cannot bring a civil action to recover losses against directors who are in breach of duty – pg520

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