John-Paul Redmond Barrister Blackstone Chambers. Law of Associations Types of Business Organisations: Sole Trader UnincorporatedAssociations Corporations.

John-Paul Redmond Barrister Blackstone Chambers

Law of Associations Types of Business Organisations: Sole Trader UnincorporatedAssociations Corporations Partnerships Trading trusts and Public unit trusts

Topics covered this lecture: 1. Corporate Governance; 2. Legal Capacity of a Company; 3. Alteration of the Company Constitution; and 4. Lifting the Corporate Veil.

Corporate Governance Definitions Corporation A new artificial legal entity which can enjoy rights and be subject to duties in much the same way as human beings who are treated as legal persons Corporations Act 2001, s 57A: Subject to this section, in this Act, corporation includes: a company; and any body corporate (whether incorporated in this jurisdiction or elsewhere); and an unincorporated body that under the law of its place of origin, may sue or be sued, or may hold property in the name of its secretary or of an office holder of the body duly appointed for that purpose. Neither of the following is a corporation : an exempt public authority; a corporation sole. To avoid doubt, an Aboriginal and Torres Strait Islander corporation is taken to be a corporation for the purposes of this Act.

Corporate Governance Company : Generally an organisation of legal persons registered or incorporated by government authority, which is a separate entity distinct from its shareholders and others. Corporations Act 2001, s 9 "company" means a company registered under this Act and: in Chapter 2K (other than sections 273A to 273E), includes a registrable body that is registered under Division 1 or 2 of Part 5B.2 of this Act; and in sections 273A to 273E, includes a registered body that carries on business outside its place of origin; and in Parts 5.7B and 5.8 (except sections 595 and 596), includes a Part 5.7 body; and in Part 5B.1, includes an unincorporated registrable body.

Corporate Governance Origins of Company Law English Company Law In medieval times, companies could not be formed under general law but were incorporated by consent of monarch under Royal Charter eg trade guilds, local authorities Evolution of trading companies eg East India Company incorporated by Royal Charter or special statute By end of 17th century evolution of joint stock (undertaking divided into shares) companies from partnerships to undertake large scale commercial ventures Enactment of general companies legislation to provide for registration of a company upon application to registrar of companies [Companies Act 1844 (Eng)] and introduction of limited liability for shareholders [Companies Act 1855 (Eng)]

Corporate Governance Australian Company Law Constitutional Position and Effect Historically, Australian company law has been characterised by a lack of uniformity and the Constitution confers no clear power on the Commonwealth to make laws with respect to all companies. s 51(xx) conferred power ‘with respect to foreign corporations and trading and financial corporation’s formed within the limits of the Commonwealth” The courts have held that s 51(xx) does not empower the Commonwealth to make laws with respect to the incorporation of trading and financial corporation’s; Huddart Parker & Co Pty Ltd v Moorehead; NSW v Commonwealth

Corporate Governance Huddart Parker & Co Pty Ltd v Moorehead A narrow interpretation is given to the power in s 51(xx) so as to deny the Commonwealth the power to make laws with respect to the formation of companies. Based on the strict interpretation of the word ‘formed’, meaning already in existence It was also regarded as questionable whether mining, investment and charitable companies were ’trading or financial corporations’. NSW v Commonwealth A challenge by several states to the constitutional validity of certain sections of the Commonwealth Corporations Act 1989 which provided for the incorporation of trading and financial corporations Held s 51(xx) did not empower the Commonwealth to make laws with respect to the formation of trading and financial corporations and consequently, provisions that related to company formation were invalid.

Corporate Governance The courts have taken the view that ‘formed within the limits of the commonwealth’ is to be interpreted as referring to corporations which have already been created in Australia and that this excludes the power of the commonwealth over the process of corporation or registration – registration or corporations of a company is a crucial part of the process related to companies. The effect of this interpretation is that the states are largely responsible for the regulation of companies, and has lead to the weakness reflected in historical attempts to have uniformity in company legislation.

Corporate Governance Historical Attempts at Corporate Regulation Pre 1950 - each State had its own Companies Act, which lead to a lack of uniformity which affected companies which operated in several states. Uniform Companies Act 1961 - drafted and adopted by the State and Commonwealth parliaments, however it failed to rectify the lack of uniformity and inconvenience for companies operating in several states. The Interstate Corporate Affairs Commission (ICAC) 1975 – sever states formed ICAC to improve administrative matters, eliminate duplication of routine procedures and uniform reciprocal arrangements, while successful for member states, old problems prevailed for states that didn’t join.

Corporate Governance Commonwealth State Co-operative Scheme 1978 Implemented a national scheme of company law and attempted uniformity in law and administration; however the scheme was criticised for failing to produce administrative efficiency and as being inappropriate to Australian markets and business climate. Corporations Act 1989 Cth The first uniform legislation, however, was held to be unconstitutional by the High Court in NSW v Commonwealth because it provided for incorporation of trading and financial corporations Corporations Law Scheme 1991 National scheme of legislation after Commonwealth and State Corporations Agreement 1990. It was administered and enforced on a national basis with an AAT and Federal Court Jurisdiction, but constitutional limitations were revealed in High Court decisions: Re Wakim (1999) Bond v R (2000) R v Huges (2000)

Corporate Governance Re Wakim The cross-vesting provisions were unconstitutional and the Federal Court did not have the power to decide matters that were exclusively within the jurisdiction of the States. Since the Corporations law was legally State legislation this decision meant the Federal Court could not hear or decide Corporations Law cases Bond v R The Commonwealth DPP had the power to initiate and institute prosecutions, because of constitutional reasons it did not have the power to appeal against sentences R v Hughes It was only the peculiar circumstances of the case that prevented a successful constitutional challenge to the Commonwealth’s DPP power and called for prompt reform of the Corporations Law Scheme. A Commonwealth body that undertook a function under State law involving the exercise of a duty had constitutional powers in relation to State legislation only if the Constitution gave the Commonwealth Parliament power in relation to the matter

Corporate Governance Current Australian Regime A new scheme resulted from the previous cases, based on a referral of constitutional powers from each state for the purpose of enlarging the Commonwealth’s heads of legislative power, pursuant to s 51(xxxvii) Commonwealth Constitution. From this, the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 were enacted. The law is administered by ASIC, who is responsible to the Commonwealth Government, Commonwealth Parliament and Commonwealth Attorney-General, not State Bodies. Australian Securities and Investments Commission Act 2001 (Cth) ASIC is a statutory corporation created under ASIC Act 1989 – generally has the function of administering the Corporations Act – however there are some specific functions: Maintenance of national company register- computer database accessible to public with separate file for each company registered under the Corporations Act containing information such as directors details, registered office ; Law reform: s 11 (2)(b) ASIC Act Surveillance and investigation: Pt 3 ASIC Act eg ss 19, 28 – 39 ASIC Act Enforcement through initiation of civil proceedings and criminal prosecutions: ss 49,50 ASIC Act. Education by releasing policy statements, practice notes and media releases on ASIC’s interpretation of the Corporations Act.

Corporate Governance Decision to Incorporate The decision to incorporate is generally an optional decision, however, where there are 20 or more persons wishing to carry on a business for gain, it is mandatory: s115CA. There are advantages and disadvantages of incorporation, which include: Advantages: A company is a new legal entity that’s solely liable for its own debts There is limited liability for members for the debts of a company A company has an indefinite existence (perpetual succession) Business proprieties look for tax advantages. Eg, tax effective superannuation Disadvantages: Limited role of shareholders in management structure of company, eg s198A CA Increasing number of penalty provisions which apply to defaulting directors, including civil penalty provisions Fees associated with incorporation, and on filing various returns with ASIC, paperwork associated with company registers, meetings and accounts

Corporate Governance 2.Procedure to Obtain Registration of a Company There are 6 steps in the pre-incorporations procedure: Proposed company name Agreement as to constitution Consent to become members Consent of first directors and secretary Lodgement of Application Payment of Prescribed Fees (i)Proposed Company name The proposed name of the company must be available: s148(1)(a) CA. IF not available A name will not be available where: It is identical to a name reserved or already registered for another body under the act: s147 CA It is unacceptable under the regulations of the act – eg. Reg. 2B.6.01(2): A name likely to be offensive to a member of the public: Little v ASIC

Corporate Governance 2.Procedure to Obtain Registration of a Company Little v ASIC The AAT directed the ASIC that the name Virgin Mary Pty Ltd was unacceptable for registration because it would be offensive to members of the Christian and Islamic faiths A name may be reserved, which prevents the name from being used by another company: s152(1) CA. On registration ASIC gives the company an ACN, and registers it along with the name: s118 CA. Some Requirements of the name include: Limited public company must have ‘Ltd’ after its name; limited proprietary company must have ‘Pty Ltd’ after its name: s148(2) CA. No liability company must have ‘N/L’ after its name: s148(4) CA.

Corporate Governance 2.Procedure to Obtain Registration of a Company (ii)Agreement as to constitution The first members sign an agreement as to the constitution where: one is adopted instead of the replaceable rules: s136(1); or where it is mandatory to have a constitution, eg, no liability company: s112(2)(b); s150(1) CA. (iii)Consent to become members The first members sign a consent to become members of the company and also to take up the shares and pay for them where the company has a share capital: s117(2)(c)(k)(m) & (5) CA. (iv)Consent to first directors and secretary First directors and secretary sign consent to act in that capacity on registration of the company: s117(2)(d),(e),(f); (5) CA.

Corporate Governance 2.Procedure to Obtain Registration of a Company (v)Lodgement of Application The applications is lodged with ASIC under s117 CA The details are to be found under s117(2): address of company’s proposed registered office: s117(2)(g) for a public company – opening hours of registered office: s117(2)(h) address of proposed principal place of business: s117(2)(i) for public company limited by shares or unlimited company and non-cash consideration, details of non-cash consideration: s117(2)(l) for company limited by guarantee, amount each member has agreed to guarantee: s117(2)(m) whether company will have an ultimate holding company: s117(2)(ma), and if so, the: name of ultimate holding company: s117(2)(mb)(i) ABN, ACN or ARBN of ultimate holding company: s117(2)(mb)(ii) Place ultimate holding coy registered if not Australia: s117(2)(mb)(iii) State or territory in which coy is to be taken to be registered: s117(n) May also have to be lodgement of a constitution where one is adopted and its a public company: s117(3) – there is also a prescribed form: s117(4)

Corporate Governance 2.Procedure to Obtain Registration of a Company (vi) Payment of Prescribed Fees When an application with ASIC you are required to pay your fees: s1351; s1354 CA – Limited by shares $400, limited by guarantee $350 3.Certificate of Incorporation ASIC may issue a certificate of registration and give ACN: s118(1). Generally will only refuse to issue certificate in exceptional circumstances – ie if disqualified person is named as director s1274(7A) CA – certificate is conclusive evidence that all requirements of registration have been complied with and evidence company was registered on that date.

Corporate Governance 4.Foreign Companies A foreign company is one incorporated or unincorporated body formed outside Australia: s9 def’n. There is no need to reincorporate in Australia to do business here. The business just needs to register, as they cannot carry on business in Australia unless registered: s18-21 CA. The registration requirements are set out in s601CD CA.

Corporate Governance 5.Types of Registered Companies (i)Classification according to the liability of members on winding up The classification of these companies is found in s112(1) – division into 4 types; company limited by shares, company limited by guarantee, no liability company, unlimited company (very rare). Company Limited by Shares Definition – One where the liability of a shareholder is to contribute to the liabilities of the company on winding up but limited to the amount, if any, that’s unpaid on shares: s9 & 516 CA Liability of shareholders: s516 CA; Characteristics: Name – It must have Ltd at the end of its name: s148(2) CA; Public or proprietary status: s112(1) CA; Use – exclusively used for trading Prevalence – the most common form of company in our society

Corporate Governance 5.Types of Registered Companies Company Limited by Guarantee Definition – Liability is limited to the amount its members undertake to contribute in the winding up of the company: s9 & 517 CA Liability of members: s517 CA; Characteristics: Name – must have Ltd at the end of its name: s148(2), s149 CA; Public or proprietary status - Can only be incorporated as a public company s112(1) CA; Share capital – No share capital cause it is only limited by guarantee Use – generally used as NFP (Not for Profit), eg RACQ

Corporate Governance 5.Types of Registered Companies No Liability Company Definition – One where there is no contractual right under its constitution to recover calls made upon its shares from a shareholder who fails to pay for it: s112(2)(c), s254M(2) CA Liability of members – as above sections – if a shareholder does not pay its calls the shares are subject to forfeiture: s154Q, also the shareholder is not entitled to the dividend: s254W CA Characteristics: Name – Must have NL (No Liability) at the end of its name: s148(2), s149 CA; Public or proprietary status – Can only be a public company: s112(1) CA; Share capital – It must have a share capital: s112(2)(a) CA Use – Find that they must state in their constitution their sole purpose is for mining purpose: s112(2)(b), mining purposes defined in s9 CA (mining purpose objects) – must not engage in activities outside those mining purposes: s112(3) – the contravention of this provision does not invalidate any act or transactions: s112(5).

Corporate Governance 5.Types of Registered Companies (ii)Classification according to Public or Proprietary Status Public Company How is a public company defined – A company other than a proprietary company: s9 CA What are its characteristics Name – Must have Ltd at the end of its name: s148(2), s149 CA; Shareholdings – public companies have shares spread amongst a large number of shareholders, to enable equity funding for large projects the company may enter into

Corporate Governance 5.Types of Registered Companies Proprietary Company What is the definition of a proprietary company – One registered as a proprietary company s9, s 45A(1) CA Real definition comes from the restrictions which apply set out in s112 & 113 CA – it must be a company limited by shares: s112(1), not have more than 50 non-employee shareholders: s113 (excluded are people who are employees of a subsidiary: s113(3)), cannot engage in activities that require the disclosure of a lodgement document, eg prospectus: s113(3) What are its characteristics? Name - Must have Pty Ltd in its name: s148(2) CA; Nature of shareholdings – Held by a small number of persons (s 112(1)) Prevalence – Most common in our society Use – Its use is primarily for small family business or joint venture companies set up for a limited project

Corporate Governance 5.Types of Registered Companies Does a private company enjoy privileges a public company does not? Minimum number of directors s 201A Private comp can have 1, public must have 3 Removal of directors (s 203D + E) In a Pty Ltd, the board of directors can remove a fellow director. In a Ltd, only the members can remove a director. Small vs Large Pty Ltds small proprietary company is one that satisfies two of following criteria: (a) consolidated revenue for financial year for company and any entities it controls is less than $25 million; or (b) value of consolidated assets at end of financial year of company and entities it controls is less than $12.5 million; or (c) company and the entities it controls have fewer than 50 employees at end of financial year: s 45A(2) CA large proprietary company is a proprietary company that is not a small proprietary company: s 45A(3) CA Advantages of Small Pty Ltd Not required to prepare annual financial accounts or disclose financial information to ASIC (Part 2M.3)

Corporate Governance 5.Types of Registered Companies (iii)Classification according to Holding or Subsidiary Company Body corporate is subsidiary of another body corporate if other body: s46(a) (i)-(iii) Controls composition of board of directors ‘Control’ – s47: Holding company has control to make appointments if: Person cannot be appointed without exercise by holdings company of power in person’s favour Appointment as director follows from person being appointed director of holding company N.B. Practical control is not enough – must be real power: Mount Edon v Burmine; Bluebird v Graf. In a position to cast/control more than 50% of voting power at general meeting ‘Voting Control’ – Legally enforceable power or practical control – whether revocable or not; provided under that control of another person doesn’t depend on some other act N.B. If proxy but holding company undertakes to vote in way that shareholder’s want – not enough: Bluebird v Graf Holds more than 50% of issued shares (excluding preference shares) ‘Holds’ – person who is registered as holder of shares on company’s register; N.B. >50% of value not number of shares: Re Swan Brewery

Corporate Governance 5.Types of Registered Companies Y Ltd will be a subsidiary of X Ltd where X Ltd: Controls composition of board of directors (s 46(a)(1)); or Meaning of control here refers to control flowing from a legally enforceable power, and not some kind of de facto or practical control of the board of directors (Mount Edon Gold Mines v Burmine Ltd; Bluebird Investments v Graf) S 47 is relevant: how does it fit into s 46(a)(1)? S 47’s purpose is to indicate non-exhaustively some cases in which composition of Y Ltd’s board is taken to be controlled by X Ltd ie where X Ltd has the power to appoint or remove all or a majority of directors

Corporate Governance 5.Types of Registered Companies In a position to cast or control casting of more than 50% of the voting power at a general meeting (s 46(a)(2)); or Concept of “control test” – satisfied if a company has a legally enforceable power to control the casting of the necessary number of votes required. However, certain arrangements falling short of “control” will still satisfy the first part of s 46(a)(2), by virtue of the “position to cast” test. That is, where a company is in a position to cast the required percentage of votes if it has a present ability to cast the votes; for example, where there company holds open proxies enabling it to cast more than 50% of the votes at a general meeting of another company.

Corporate Governance 5.Types of Registered Companies Holds more than 50% of issued shares excluding preference shares (s 46(a)(3). A company only “holds” shares if it is a registered shareholder. Shares in a subsidiary held by a nominee in trust for the holding company are treated as being held by the holding company (s 48(3)) But if the company is holding the shares as trustee or other fiduciary capacity, the shares not being “held” by the company (s 48(2)). s46(b): the first body is a subsidiary of a subsidiary of the other body (X ltd  Y Ltd  Z ltd)

Corporate Governance 1. Prior to the Company Law Review Act 1998 Prior to CLRA 1998 a company’s constitution was comprised of the memorandum of association and the articles of association. The memorandum of association set out provisions relevant to the company’s external dealings with outsiders eg/ the objects of the company, a limitation clause. The articles of association sets out provisions relevant to the internal dealings of the company eg/ appointment of directors, shareholder’s rights: Asbury Railway Co Ltd v Riche

Corporate Governance 2. Companies Registered After the Company Law Review Act 1998 (i)Status of memorandum and articles of association CLERP provides the memorandum of association is abolished and articles of association are not necessary: s134 CA: Provides that a company is not required to have a constitution and introduces the concept of replaceable rules which establish basic rules of internal management  effect that a company may be governed by a constitution, replaceable rules, or a combination of both. (ii)Optional Constitution A company may adopt a constitution, either on registration (each person specified on the application for registration agrees to the terms) or after registration: s136 CA and that the company may modify or repeal its constitution, or provisions by special resolution: s136(2) CA. A constitution may limit a company’s exercise of powers and set out the objects of a company: s125(1)(2) CA. A constitution may govern the internal management of a company: s134 CA.

Corporate Governance (iii)Mandatory Constitution It is optional for a company to have a constitution unless: s136 CA: No liability companies are required to have a constitution which states that the company’s sole objects are mining purposes: s112(2)(a) CA. A company limited by guarantee which wishes to remove the word “limited” from its name must have a constitution: s150 CA.

Corporate Governance 3.Companies Registered before the Company Law Review Act 1998 Where a company chooses to retain its existing constitution, the memorandum and articles of association comprise their constitution: s1415 CA. The company may modify or repeal its constitution/ provision by special resolution: s136(2) CA. Where a company chooses to repeal its constitution and doesn’t replace it with another, the company is governed by the replaceable rules: s134 CA.

Corporate Governance 4.Replaceable Rules (i)Nature of Replaceable rules The replaceable rules are rules that govern the internal administration and management of companies. (ii)Application of Replaceable rules The replaceable rules will apply to all new companies, unless the company displaces or modifies these rules by its constitution: s135(2) CA. Where the company adopts the replaceable rules, they are subject to amendment by enacted law. As a general rule replaceable rules apply to all companies. (iii)Replaceable rules and single director/shareholder companies Proprietary companies where the same person is both its sole director and sole shareholder are an exception to this general rule: s135 CA. The business of the company is to be managed by or under the direction of the director who may also exercise all the powers of the company such as the power to issue shares, borrow money and issue debentures (s 198E(1)). The director may execute a negotiable instrument (s 198E(2)) The director may appoint another director by recording the appointment and signing the record (s 201F) The director is to be paid remuneration for being a director that the company determines by resolution (s 202C). Only apply to single director or shareholder Pty Ltd. The replaceable rules become applicable as soon as shares issued to another person or appoints additional directors.

Corporate Governance 4.Replaceable Rules (iii)Replaceable rules and proprietary companies Before issuing shares of a particular class, directors of a proprietary must offer them to the existing holders of shares of that class: s254D CA. Directors in a proprietary company may pay dividends as they see fit: s254W(2) CA. Directors of a proprietary company my refuse to register a transfer or shares in the company for any reason: s1091E CA. Failure to comply with applicable replaceable rules is not of itself a contravention of Corporations Law. Therefore provisions relating to criminal and civil liability are inapplicable: s135(3) CA.

Corporate Governance 4.Replaceable Rules (iv) Examples of replaceable rules – see s 141 Rules covering the appointment, removal, resignation and powers of directors: ss224C,D; s225A; s226A; s226E Rules covering members’ meetings. Eg/ notice requirements, quorum requirements, rights to appoint a proxy, voting rights and voting: ss249J; s49T; s249X; s250E; s250J Rules governing shares. Eg/ registration and transfer of shares and payment of dividends: s254U; s1091B (v)Mandatory Replaceable rule A mandatory replaceable rule cannot be replaced by the company’s constitution. Section 249X provides for the appointment of proxies, is a mandatory replaceable rule for public companies.

*Legal Capacity of a Company 1.Issue Has [Company] acted outside the scope of its legal capacity? 2.Companies Position under Common Law Doctrine of Ultra Vires The doctrine of Ultra Vires holds that acts done by the company which fall beyond the scope of its objects were void as being beyond its power, and a company could only enter into a transaction within or reasonably incidental to its substantive objects: Ashbury Railway Co v Riche. Distinction between Object and Powers Distinction is drawn between substantive objects (an activity construed as independent of other activities) and mere powers (powers exercised in furtherance of or incidental to objects of the company): Ashbury Railway Co v Riche.

Legal Capacity of a Company 2.Companies Position under Common Law Ashbury Railway Co v Riche The substantive object of the company was to make railway carriages. Another clause in the constitution stating that the company could purchase land was interpreted by the common law as a mere power, therefore it would have to be exercised as incidental to the substantive object of making railway carriages.

Legal Capacity of a Company 2.Companies Position under Common Law Here, the objects of [company] are listed in its [constitution/memorandum of incorporation] as being: [List or state objects]. Whether or not these activities are ultra vires depends whether or not they fall within the objects of the company. IF causally connected to the object Here, [activities] can be classed as casually connected to the [object]. It therefore stands that these are not ultra vires and [company] is liable to [fulfil contract etc]. IF not causally connected to the object Here, [activities] are clearly not incidental to the objects clause, and the common law would deem the activity Ultra Vires and void [the contract] to have no effect. Distinction between substantive objects and powers Substantive: object that a construction of const as a whole is capable of being pursued as an independent activity Power: object that on construction of const as a whole can only be exercised in furtherance of or as incidental to the substantive objects of a company (eg the power to borrow or the power to lend) However, the doctrine of Ultra Vires has been abolished and regard must be had to the position of the company under the Corporations Act: s125(2) CA.

Legal Capacity of a Company 3.Company Constitution as Statutory Contract Section 140(1) Corporations Act provides that a company’s constitution and the replaceable rules that apply to a company have the effect of a statutory contract between: The company and each member: s140(1)(a) CA Where the constitution sets out that disputes between company and members will at the first instance go to arbitration, courts will enforce it as a contractual promise: Hickman v Kent, Romney Marsh Sheep-Breeders’ Assn Members can only enforce provisions of constitution where the provision affects them as members Where provision gives benefit to a member in a different capacity (ie wages and conditions of company solicitor who was also member), provisions will not be enforceable: Eley v Positive Government Security Life Assurance Co Ltd. The company and each director and company secretary: s140(1)(b) CA Only applies to sections which affect directors in that capacity: Shuttleworth v Cox Bros and Co (Maidenhead) Ltd. A member and each other member: s140(1)(c) CA Where provisions of the constitution affect one member vis a vis the other – eg right of pre-emption on transfer of shares Each person agrees to observe, and perform the constitution and rules so far as they apply.

Legal Capacity of a Company 3.Company Constitution as Statutory Contract Shuttleworth v Cox Bros and Co (Maidenhead) Ltd A director was director for life according to the company’s constitution, however the company changed constitution to be able to remove him. Held The original provision was subject to the statutory power to alter the constitution

Legal Capacity of a Company 4.Companies Position under Corporations Act Section 124 CA gives a company the powers of a natural person as well as the special powers of a body corporate. Section 124(1) CA grants a company unlimited legal capacity to perform basic juristic acts such as contracting with third parties and transacting with property. No application to directors abusing their powers or shareholders breaching their duties (ANZ Executors v Qintex Australia) No application to question of authority of directors or other organs of the company (Darvall v North Sydney Brick & Tile Co (No 4))

Legal Capacity of a Company 4.Companies Position under Corporations Act s 124(1): A company has the legal capacity and powers of an individual both in and outside this jurisdiction. A company also has all the powers of a body corporate, including the power to: issue and cancel shares in the company; issue debentures (despite any rule of law or equity to the contrary, this power includes a power to issue debentures that are irredeemable, redeemable only if a contingency, however remote, occurs, or redeemable only at the end of a period, however long); grant options over unissued shares in the company; distribute any of the company's property among the members, in kind or otherwise; give security by charging uncalled capital; grant a floating charge over the company's property; arrange for the company to be registered or recognised as a body corporate in any place outside this jurisdiction; do anything that it is authorised to do by any other law (including a law of a foreign country). The company’s constitution may set out the objects clause, however, such a requirement is not mandatory: s125(2) CA.

Legal Capacity of a Company 4.Companies Position under Corporations Act Restrictions on Exercise of Company Powers Pursuant to s125 CA there are two mechanisms that a company can utilise to restrict its power: Express prohibition – The constitution may contain express restrictions or prohibitions on company’s exercise of powers, which does not include replaceable rules: s125(1) CA. Objects clauses – The Constitution may insert objects clauses: s125(2) CA. Example: A joint venture company where no member has control, the members, to protect themselves, may: Restrict company’s activities to particular pre-agreed objects (ie a specific project) Limit the company’s power to borrow eg no more than 60% of company’s issued share capital Effect of breach: Here, [company] has [express prohibition/objects clause] regarding [activity], and by their acts of [activity] are prima facie in breach. However, the exercise of this power is not invalid, the doctrine of ultra vires is abolished and the members have no rights against any third party contractors: s125 CA.

Legal Capacity of a Company 5.Shareholder Remedies Here, [company] [constitution/replaceable rules] has created a statutory contract between the company and its members, and by breaching this contract [company] may be liable: s140(1)(a). IF conduct is Oppressive Here, [shareholder/member] may make an application to the court for relief because of oppressive conduct by the conduct: s232 CA. The court may make an order if the conduct of the company, an actual or proposed act or omission or resolution is contrary to members interest or oppressive or unfair: s232(a)- (e) CA. Oppressive is determined objectively in the eyes of a commercial bystander and asks has there been unfairness/conduct so unfair that reasonable directors not have thought the decision fair: Wayde v NSW Rugby League Ltd per Brennan J. Oppression = unfairness where the unfairness results from abuse of majority power or control (Jenkins v Enterprise Gold Mines)

Legal Capacity of a Company 5.Shareholder Remedies Therefore [shareholder/member] can apply to the courts for an injunction to [prevent/stop] [company] from doing [act]. Equitable injunction or declaration (members can only enforce provisions in constitution that confer rights on members in their capacity as members) A restriction on powers clause does not necessarily confer rights Rights to dividends does IF breach has not occurred Here, the breach has not yet occurred. Therefore [shareholder] may be able to seek an injunction to restrain [company] from doing [act]: s233(1)(i) CA.

Legal Capacity of a Company 5.Shareholder Remedies IF breach has occurred Here, the breach has already occurred. [Shareholder/member] may able to apply for a court order requiring: s233(1)(a)-(j): winding up; constitutional modification regulation of future conduct; order for the purchase of any shares transmitted by will or by operation of law; for the purchase of shares with an appropriate reduction of the company's share capital; for the company to institute, prosecute, defend or discontinue specified proceedings; authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company; appointing a receiver or a receiver and manager of any or all of the company's property; prohibitory injunction; mandatory injunction

Legal Capacity of a Company 5.Shareholder Remedies IF seeking application for Winding Up Here, [shareholder] is seeking to wind up [company] under s233(1)(a) CA. Therefore the provisions of s461(K) CA apply: s233(2) CA. The court will only wind up [company] when it is just and equitable to do so. It has been held that it would be just and equitable to wind up a company if there is a complete failure of the substratum of the company or disappearance of the common intention of the members: Re Tivoli Freeholds Ltd. IF original intention gone Here, the court would consider there to be a [disappearance of the common intention of the members/ failure of the substratum], which is wholly unrelated to the current activity. Therefore [shareholders] application may be successful. IF original intention still applicable Here, it is unlikely that the court will allow [shareholders/members] application as [companies] intention is related to the present activities

*Alteration of the Company Constitution Issue Can [party] alter [company’s] constitution and the validity of any changes? 2.Amendment of Constitution [Company] has a wide power to alter its constitution and as the constitution forms a statutory contract with its members (s140(1)(a)) any alteration to the constitution will bind all members of [company] including those who did not vote in favour of it: s136(2) CA. Cannot contract out of statutory power of alteration (Russell v Northern Bank Development) – however, an agreement outside constitution between shareholders as to how they shall exercise their voting rights on a particular resolution to alter the constitution is valid. An alteration can be made by way of special resolution: s136(2) CA, which is a resolution which requires a majority of 75% of members in the General Meeting: s9 CA. IF majority don’t have 75% of votes Here [majority] would not be able to alter the constitution as they only have [x]% of the votes and they require 75%. IF majority hold 75% of the votes Here [majority] hold 75% of the votes and would be able to pass the special resolution to alter the constitution. IF it is unclear what percent the majority hold Here, it is unclear of the voting power that [majority] hold. In this case we should proceed under the assumption that they have the required 75% voting power.

Alteration of the Company Constitution 2.Amendment of Constitution Further, the special resolution will need to comply with the notice requirements: s249L(1)(a)-(c), 249(H(1). The notice requires: At least 21 one days notice must be given: s249H(1) CA, or 28 days for a publicly listed company: s294HA CA, however shorter notice is permitted for: An AGM, provided all voting members agree beforehand: s249H(2)(a) or Any other general meeting, providing members with at least 95% of votes agree beforehand: s249H(2)(b). The place, date and time of the meeting is specified: s249L(1)(a) CA Statement of the general nature of the meeting’s business: s249L(1)(b) CA Setting out an intention to propose the special resolution and state the resolution: s249L(1)(c). IF Constitution provides additional requirements Here, [company’s] constitution provides for additional requirements of [requirement]. This requirement must also be satisfied: s136(3) CA, and this requirement can not be modified or repealed unless it is complied with: s136(4) CA. Here, the notice requirements [have/have not] been complied with.

Alteration of the Company Constitution 2.Amendment of Constitution IF Public Company If the alteration is successfully made to the constitution, ASIC must be notified of the change within 14 days of the alteration: s136(5) CA. The date of the alteration is: Day of special resolution: s137(a)(i) CA Date specified in special resolution: s137(a)(ii) CA Day of court order: s137(b)(i) CA Date specified in court order: s137(b)(ii) CA Here, the effective date would be [as above list].

Alteration of the Company Constitution 3. Are there restraints on the power to alter the constitution? Where the provisions of alteration deal with the variation of class rights where there is a share capital, then a number of statutory limitations apply: s246B and s246C CA. The limitations on varying rights occur where: The constitution sets out a procedure for variation: s246B(1), or If there is no constitution or no procedure set out: s246B(2).

Alteration of the Company Constitution 4. Did the Constitution provide methods for altering Constitution? Here [clause #] of the constitution provides a procedure for variation or cancellation of rights, which must be complied with if the following preconditions are met under s 246B(1) & (2): Company has a share capital consisting of classes of shares; and Rights are attached to a class of shares; and There has been a variation of cancellation of class rights. (i)Company has a share capital of class shares A class of shares refers to a category of shares that differ sufficiently in terms of rights, disabilities, and other incidences to make it distinguishable from other categories of shares, if there are any, in the capital structure of the company: Clements Marshall Consolidated Ltd v ENT Ltd. IF Different Classes of shares Here, this precondition will be met as the share classes are comprised of [employee and ordinary shares], or are distinguishable by way of [voting rights, dividend rights, winding up rights, liability to pay call on shares etc]. IF shares appear the same Here, this precondition will not be met, as there does not appear to be any distinction between the shares.

Alteration of the Company Constitution 4. Did the Constitution provide methods for altering Constitution? (ii)Rights attach to share Here, there are specific rights attached to the class of shares by way of the constitution. This is [Analogous/similar] to Buckland v Johnstone the special right focused on was the voting rights. (iii)Variation of cancellation of class rights in proposed amendment Variation has been held to mean something that affects the strict legal right attached to shares: Buckland v Johnstone. Covers a variation that affects strict legal rights attached to shares (eg where company’s constitution is altered to change voting rights of a class of shares (Buckland v Johnstone) Does not cover variation that, as a matter of business, affects enjoyment of class rights or their commercial value. For example, an issue of further shares by company in one class of shares, so that there are more shares in that class, does not constitute a variation of voting rights attached to shares of another class even though its effect is to dilute the block vote or relative voting power of shares in the other class (Greenhalgh v Ardernce; White v Bristol Aeroplane) Further, there are statutory presumptions which are presumed to be a variation of class rights: s246C CA.

Alteration of the Company Constitution 4. Did the Constitution provide methods for altering Constitution? IF classes of shares are split into further classes and rights between sub-classes are different Here, [class of share] has been split into further classes, and the rights between the new sub-classes are different. It is presumed that this will be a variation: s246C(1) CA. IF rights attached to some shares in a class are varied. Here, the rights attached to some of the [class of share] have been varied. This is viewed as a variation of all shares in the class: s246C(2) CA. IF company with no share capital divides its members of a class into sub-classes Here, [company] does not have a share capital, but has divided its members of a class into sub-classes with different rights. This is viewed as a variation of rights: s246C(3) CA. If company with no share capital varies rights to some members in a class Here, [company] does not have a share capital, but has varied the rights attached to some members of a class. This is viewed as a variation of all members in the class: s246C(4) CA. IF company with one class of shares issues a new class of shares with different rights Here, [company] previously only had one class of shares, has issued a new class of shares which have different rights. This is a variation of class rights: s246C(5)(a) CA, unless rights are provided for in: Company’s constitution: s246(5)(b)(i) or A notice, document or resolution lodged with ASIC: s246(b)(ii).

Alteration of the Company Constitution 4. Did the Constitution provide methods for altering Constitution? IF Company offering New Preference Shares Here, [company] is offering new preference shares/bonus shares which rank equally with existing preference shares is a variation of class rights of existing preference shares: s24(6), unless authorised by: The terms of the issue of the existing preference shares: s246(6)(a). The company’s constitution, as in force when the existing preference shares were issued: s246(b). Preference Shares A preference share traditionally has more rights than ordinary shares, with rights including: No right to vote unless dividends are in arrears A right to receive a fixed dividend in priority to ordinary shares, provided there is a profit and a dividend declared by the company A right to receive any return of share capital in priority to the ordinary shareholder in the winding up of a company No right to share or surplus assets on winding up

Alteration of the Company Constitution 4. Did the Constitution provide methods for altering Constitution? IF no protection of existing share rights Here, there is nothing in the terms of the existing shares or by the constitution to prevent [minority] shares being affected by the new issue. Therefore there would be a variation of a class right and there may be constraint on the power to vary [minority] interest. IF protection providing for non-variation Here, there is a term provided for in the [constitution/terms of share issue] to protect the existing shares and therefore would not be considered a variation.

Alteration of the Company Constitution 4. Did the Constitution provide methods for altering Constitution? (iv)Conclusion IF all elements made out Here, all the preconditions have been satisfied. [Company] would have to comply with [clause #] in its constitution to amend its constitution. If the clause is not complied with the resolution will not be valid: Buckland v Johnstone. IF Preconditions are not satisfied Here, the preconditions have not been satisfied. [Company] would not have to comply with the clause and therefore the amendment would be valid IF Advising Minority Holding Here, a dissenting minority of 10% or more may be able to apply to the court to set aside the variation, cancellation or modification: s246D CA, however there must be unfair or prejudicial behaviour, and a time limit of 1 month applies: s246D; ss232-234 CA.

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution Here, [company’s] constitution is silent as to the procedures for variation or cancellation of rights. Therefore class rights can only be varied by: s246B(2) CA: The passing of a special resolution by members in a general meeting; and With the written consent of at least 75% of the shareholders in that class. IF Procedural requirements Satisfied Here, [company] has satisfied the requirements by [activity] and the variation will be valid. IF Procedural requirements Not satisfied Here, [company] has not satisfied the requirements to vary or cancel the rights, and the variations will not be valid.

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution (i)Fraud on the Minority However, in either situation, the general law imposes limitations on the majority voting power. Here, it is necessary to consider the equitable limitation on majority voting power, commonly known as fraud on the minority: Peters American Delicacy Pty Ltd v Heath. Not based on fiduciary principles (Ngulri v McCann) Shareholders do not stand in a fiduciary position to the company or other shareholders (cf promoters and directors) Shareholders are not affected by equitable rule relating to conflict of duty and interest Shareholders right to note is an incident of property that they have in the shares, that they can use to advance their own personal interests Refers to the doctrine on fraud on the minority or doctrine of fraud on the power (Peters American) Fraud: Does not necessarily denote CL meaning of dishonest conduct May merely mean abuse of power Ie power has been exercised for a purpose outside the scope of the majority’s voting power having regard to purposes of company contemplated by its constitution (Peters American Delicacy)

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution The two categories of amendments identified in Gambotto were: (a) Those relating to the expropriation of shares of the minority or valuable property rights attaching to shares (b) Those that were “oppressive” as relating to the law of corporations IF forced share transfer In Gambotto the court defined expropriation to include a forced transfer of shares from one shareholder to another. Here there [is/is not] an expropriation of shares. IF expropriation of Value attaching to minority Shares This is a grey area as to whether expropriation attaches to value attached to minority shares. Case law in this area, and the approach of Gambotto seems to suggest that taking away dividends and voting rights will be valuable property rights, but merely taking away right to priority may not be valuable property rights.

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution Gambotto v WCP Ltd After a successful take over bid of WCP, the bidder acquired 99% of its share capital Sought to alter the constitution to allow any member with over 90% of the shares to acquire all other issued shares Was justified on the grounds of potential taxation and administrative cost savings Held Where alteration of constitution involved expropriation of shares owned by the minority will only be valid if it is proved that it was for a proper purpose and fair in all circumstances Expropriation for tax and administrative purposes for the majority was not a proper purpose and the alteration was invalid Expropriation would be valid if it prevented the company from suffering significant detriment or harm

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution Type 1 Amendment – Expropriation of Share/Property Rights Here, there is a type 1 amendment as the effect of the amendments is to expropriate [minority’s] shares/valuable property rights attaching to shares. In Gambotto, it was held that for the expropriation to be valid, it must be exercised: For a proper purpose; AND Absence of oppression (ie be fair in the circumstances)

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution (i)Is there a proper purpose To justify this type of alteration exceptional circumstances are required, because of the proprietary nature of shares (Gambotto @ 426). Gambotto stated that it will only be a proper purpose is the alteration is to secure the company from significant detriment or harm. IF Minority shareholder competing with the company Here, [company] would argue that the expropriation is justified as the minority is in competition with the company. This would, prima facie, be a proper purpose and will be reasonable provided it is not oppressive: Sidebottom v Kershaw IF amended to meet regulations Here, [company] would argue that the expropriation was justified as it is necessary to ensure the company can continue to comply with regulations governing the [principal business it carries on]: Gambotto. Gambotto gave the example of a regulation requiring 100% Australian ownership and foreign investor unwill to sell shares.

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution IF amended to be more commercially viable Here, [company] would argue that the proper purpose is commercial advantage. However, in Gambotto, it was held that the majority can not appropriate for a commercial advantage. This is because it would be for a person gain and therefore an improper purpose: Brown v British. IF amended for tax or administrative benefits Here, [company] would be arguing that the expropriation is for tax or administrative benefits, as from McHugh J in Gambotto who reasoned that a reduction in tax liability for the company is a proper purpose as it promotes the interest of the company. However, the majority in Gambotto held that there needed to be something more than these benefits for there to be a proper purpose.

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution (ii)Is there fairness? This requires there to be an absence of oppression: Gambotto per McHugh J, and will depend on both procedural and substantive elements. Procedural fairness Majority shareholders disclose all relevant information relating to the alteration; and Shares to be expropriated are to be valued by an independent expert (Gambotto @ 426) Whether majority shareholder should refrain from voting on proposed amendment was left open by court Substantive fairness Required that the terms of expropriation be fair Largely concerned with the price offered for shares so that expropriation below market value is prima facie always unfair although one substantially above market value would not necessarily be accepted as fair Fairness of price cannot be assessed solely on current market value but depends on other factors such as assets, earnings, dividends, nature of company and its future prospects (Gambotto @ 426)

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution IF issues as to procedural fairness Here, there may be issues around the procedural requirements. Procedural fairness requires: The majority disclose all relevant information which leads to alteration All relevant steps taken to ensure fairness (independent valuation of shares) IF issues as to substantive fairness Here, [minority] would argue that there is a lack of substantive fairness based on the price of the shares. However, fairness can not be assessed solely on current market value; other factors must be taken into account such as assets of company, future direction and dividends: Gambotto.

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution Therefore, on the facts, it would appear that the requirements for a type 1 amendment [have/have not] been satisfied. The onus to establish the requirements is on the majority, because minority shareholders are usually disadvantaged in terms of information they can obtain (Gambotto @ 426). IF requirements satisfied Here, the requirements have been satisfied and the amendment would be valid. IF requirements not satisfied Here, the requirements have not been satisfied and the amendment would not be a valid amendment.

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution Type 2 Amendment – Transactions involving other conflicts of Interest Here, the rights are not property rights and it is necessary to consider the type 2 amendment which relates to a conflict of interest and advantages: Gambotto. The amendment will be invalid if it is: Beyond any purpose contemplated by the constitution Oppressive as per s232-234 CA (i)Beyond any purpose contemplated by the constitution Here, the purpose of the amendment is beyond the contemplated purposes in the constitution. Refer to Module 3A Flow for more about objects clauses. Refers to the doctrine on fraud on the minority or doctrine of fraud on the power (Peters American) Fraud: Does not necessarily denote CL meaning of dishonest conduct May merely mean abuse of power Ie power has been exercised for a purpose outside the scope of the majority’s voting power having regard to purposes of company contemplated by its constitution (Peters American Delicacy) It will not be for a company purpose where amendment is outside scope of majority’s voting power having regard to purposes of company contemplated by company constitution (eg to secure some personal gain or some ulterior special advantage)

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution (ii)Is there oppression? Oppressive behaviour/fraud on the minority is made out by the court applying an objective test. The test is if the majority has passed a resolution that no body of reasonable persons could have supposed to be within the scope of the majority power having regard to the contemplated purposes of the company: Peters’ American Delicacy Co v Heath per Latham CJ and Dixon J. Oppression has special meaning of unfair conduct in Corps Act s 232 – 234 (Gambotto @ 425) Onus of proof of showing the alteration is invalid is on the party complaining because the court will not presume fraud on the power or oppression or other abuse of power (Peters American Delicacy @ 482

Alteration of the Company Constitution 5. Where there is no constitution or procedure for altering Constitution In Gambotto the Court held that the test is not what is bona fide in the best interest of the company as a whole. Example of Type 2 amendment: Constitution presently provides company must pay directors’ expenses incurred on company business; but Proposed amendment requires all to be approved by shareholders in general meeting. OVERALL: Therefore, there [would/would not] be a limitation of power under the general law.

*Lifting the Corporate Veil 1.Issue Can [company’s] corporate veil be lifted, and [party] recover costs from [company] or [director]? 2.What is the Corporate Veil? The corporate veil refers to a company being a separate legal entity from members and directors. In Saloman v Saloman Lord MacNaughten held that a company is a different person from the subscribers, even where incorporation occurs from earlier business, and it is substantially the same, the company is not at law, an agent of the original party. This is reflected in s124(1) CA which gives a company all the legal capacity and powers of a legal person plus all the powers of the body corporate. Here, [company] is considered a separate legal entity from [directors/members]

Lifting the Corporate Veil 2.What is the Corporate Veil? Saloman v Saloman S had a leather business that he operated together with his 4 sons. Under the Companies Act (Eng) he incorporated the business as A S Co Ltd, a private company. S was the only substantial shareholder. He and his 2 sons were directors. S entered into an agreement (deed) with the company to sell his business to the company for 39,000 pounds and to apply the money towards: debentures secured by a mortgage (10,000 pounds); purchase of share capital (20,000 pounds) ; repayment of business debts and cash. After some time the company became insolvent. Upon a sale of the assets, the sum realised was less than the amount of the mortgage held by S and the unsecured creditors received nothing. The liquidator brought an action to set aside the transaction. It was claimed that the company was formed in fraud of the unsecured creditors that it was a mere agent of S.

Lifting the Corporate Veil 2.What is the Corporate Veil? Saloman v Saloman Held: Providing the formalities of incorporation were observed it was not contrary to the Companies Act for a trader to gain limited liability and obtain priority as a debenture-holder over other creditors. A separate entity is formed under incorporation even if all the shares are owned by one person Lord Macnaghten: “The company is at law a different person altogether from the subscribers to the memorandum, and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them”

Lifting the Corporate Veil 2.What is the effect of the Corporate Veil? Here, the effect of the corporate veil is that [company] will be responsible for its own debts. Additionally incorporation means that: Holding and subsidiary companies are treated as separate legal entities: Industrial Equity Limited v Blackburn Even within a corporate group, such as holding/subsidiary, directors owe duties only to the company in which they are a director: Walker A company may contract with its controlling members: Lee v Lee’s Air Farming Ltd Controlling members can be a secured member of the company and have preference over unsecured members: Saloman v Saloman A member has no legal or equitable interest in the property of the company: Macaura v Northern Assurance Co A company can commit an offence (Hamilton v Whitehead) A company can be liable in tort to a member: Lee v Lee’s Air Farming Ltd

Lifting the Corporate Veil 2.What is the effect of the Corporate Veil? Company has legal capacity of an individual and powers of a body corporate (s 124(1)) Company is liable for own debts – not directors and not shareholders who are only liable on a winding up of the company to the extent of any amount left unpaid on shares Holding companies and subsidiary companies (related companies under s 50) are treated as separate legal entities (Industrial Equity v Blackburn) Even within a corporate group, directors owe duties only to the company of which they are a director (Walker v Wimborne) Members have no legal or equiatable interest in the company’s propert (Macura v Northern Assurance; cf shares being personal property of the shareholder, have proprietary interest: s 1070A(1))

Lifting the Corporate Veil 2.What is the effect of the Corporate Veil? Once a company is registered under the Corps Act, it is a separate legal entity, separate from its members and from those who manage it (the directors). Salomon v Salomon Ltd established that: Company is a principal – not agent of or trustee for its shareholders in absence of facts showing agency or trustee relation Company is separate from and can contract with its controlling shareholder Company is separate from its managing director Irrelevant under the Corporations Act to investigate motives of a sole trader for incorporating a business (eg limiting liability of members) Here, [company] will be responsible for [act] unless there is a relevant exception to pierce the corporate veil

Lifting the Corporate Veil 2.What is the effect of the Corporate Veil? Industrial Equity Limited v Blackburn A group of companies which Industrial Equity was the holding company of disclosed sufficient profits from which a dividend could be paid. The profits were made by the subsidiaries, and Industrial Equity asserted they could pay the dividends from these profits. Held Each company within a group is separate legal entity. Just because the group’s accounting requirements treated teh group as a single entity, did not mean the corporate veil could be lifted for other purposes.

Lifting the Corporate Veil 2.What is the effect of the Corporate Veil? Lee v Lee’s Air Farming Ltd Lee was a pilot who operated a business and owned 2,999 of the 3,000 shares Lee was killed in a workplace accident and his wife sought payment under the workers compensation scheme. Initially the claim was rejected because Lee was not a ‘worker’ under the definition because he had control of the company. Held by the Privy Council The company was a separate legal entity from its founder and it could enter into a contract of employment with him

Lifting the Corporate Veil 2.What is the effect of the Corporate Veil? Macaura v Northern Assurance Co Macaura owned land on which he sold timber, until he sold the land and timber to a company he formed and was paid all the fully paid shares A fire destroyed the timber, and the insurance policy was still in Macaura’s own name, and had not been transferred to the company Insurance company refused to pay citing that only persons with a legal or equitable interest in property are regarded as having an insurable interest Held Court agreed with insurance company that only the owner of the timber had the insurable interest Shareholders, have no legal or equitable interest in their company’s property

Lifting the Corporate Veil 2.What is the effect of the Corporate Veil? Pioneer Concrete Services Ltd v Yelnah An agreement between 3 independent parties One of the parties had subsidiaries that was meant to act in the best interest of Pioneer concrete The holding company entered into a contract with Yelnah in breach of the agreement Held The holding company was not a party to the clause of the agreement, rather it was an undertaking given by its subsidiary and the two were separate entities

Lifting the Corporate Veil 2.What is the effect of the Corporate Veil? Industrial Equity Limited v Blackburn A group of companies which Industrial Equity was the holding company of disclosed sufficient profits from which a dividend could be paid. The profits were made by the subsidiaries, and Industrial Equity asserted they could pay the dividends from these profits. Held Each company within a group is separate legal entity. Just because the group’s accounting requirements treated teh group as a single entity, did not mean the corporate veil could be lifted for other purposes.

Lifting the Corporate Veil 3.Can the Corporate Veil be lifted/pierced under the Corporations Act? Here, [plaintiff] may be able to pierce the corporate veil, which would make any act or omission of the company, an act by its members, and therefore escheat responsibility to members. Note that under the Common Law, the courts were reluctant to pierce the veil. Here, the relevant exceptions may be: Duty of directors to prevent insolvent trading by the company: s588G-U CA Liability of holding company for permitting a subsidiary company to trade while insolvent: s588V CA Liability of directors for debts incurred by body corporate acting as a trustee: s197 CA Uncommercial Transactions: s588FB CA The veil will be lifted for the purpose of treating corporate insiders (directors and related) differently from others who have dealings with the company. Designed to ensure directors do not gain preferential treatment at the expense of creditors Charging Company Officers: s267 CA Company officers who lend their company funds secured by a charge over its assets are treated differently from arm’s length secured creditors. Liability for Financial Assistance: s260A, 260D CA. Pierced the veil to ensure that officers liable for civil penalties who were involved in their company’s contraventions of the CA.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company This exception is designed to ensure directors are attentive to the situation in the corporations, and to protect creditors who cannot otherwise get payment for the company debt: Woodgate v Davis. Here, [director] in acting as director, is under a duty to prevent the company from trading while insolvent: s588G CA (i)Standing Only certain people can institute proceedings against [director]. [Plaintiff] bears the onus of proof, on the balance of probabilities as they are seeking to make [director] liable: ASIC v Plymin. IF Liquidator is Plaintiff Here, [plaintiff] is a liquidator, and therefore can institute proceedings, against [director]: s558G CA. IF a Creditor is Plaintiff Here, [plaintiff] is a creditor of [company], and therefore can institute proceedings against [director]: s588R-U. IF Other Plaintiff Here, [plaintiff] does not fall within one of the categories of people who can institute proceedings, and therefore would not have standing. However, we will proceed as if they did.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company (ii)Did [Company] Incur a Debt after 23 June 1993? The company must have incurred: An ordinary debt: s255G CA, OR Be deemed to have incurred a debt where company enters into certain transactions adversely affecting its share capital or misapplies its assets: s588G(1A) CA. A debt is generally accepted to mean an obligation by one person to pay a sum of money to another. Here [loan etc] would be considered a debt, under general law. However, when [company] incurred the debt is also relevant, as the debt must have been incurred after 23 June 1993: s588G(1)(d) CA. Here, [Company] will incur a debt when it, by choice, does or omits to do something which as a matter of substance and commercial reality renders it liable for a debt: Standard Charter Bank v Anitco, or an obligation imposed by law: Shepherd v ANZ.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company The date will vary depending on the terms of agreement: Taylor Module Engineering, however, when a company has no real chance to avoid the debt the obligation will be incurred when the contract was made: Standard Charter Bank v Antico. Other situations include. IF there is a Lease involved Here, the date involves the breaking of a lease. It was held that date incurred was: Antico: For normal rent – At the beginning of the tenancy Period Lease – At the end of the term IF lease contained a break clause Here, the lease contains a break clause. The better view is that after a break option has passed, the rent was incurred on the date the option expired: Shepherd v ANZ. IF person demanding repayment of an amount previously paid Here, [plaintiff] is seeking repaying of [money] under the contract as [company’s] consideration failed. The debt is incurred at the time of the demand: Shepherd v ANZ.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company IF Money Borrowed Here, the debt incurred is money borrowed. The date the debt is incurred is the date of the contract: Hawkins v Bank of China. IF Paying a Dividend Here, [company] is paying a dividend. The debt is taken to have been incurred when the dividend is paid or, if the company has a constitution that provides for the declaration of dividends, when the dividend is declared: s588G(1A)(1) CA. IF making a reduction of share capital, otherwise authorised by law Here, [company] is making a reduction of share capital, otherwise authorised by law in Division 1 of Part 2J.1. The debt is taken to have been incurred when the reduction takes effect: s588G(1A)(2) CA. IF Buying Back Shares Here, [company] is buying back shares (does not matter is the consideration is not a sum certain in money). The debt is taken to have been incurred when the buy ‑ back agreement is entered into: s588G(1A)(3) CA. IF redeeming redeemable preference shares that are redeemable at its option Here, [company] is redeeming redeemable preference shares that are redeemable at its option. The debt is taken to have been incurred when the company exercises the option: s588G(1A)(4) CA.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company IF issuing redeemable preference shares that are redeemable otherwise than at its option Here, [company] is issuing redeemable preference shares that are redeemable otherwise than at its option. The debt is taken to have been incurred when the shares are issued: s588G(1A)(5) CA. IF financially assisting a person to acquire shares for themselves or for a holding company Here, [company] is financially assisting a person to acquire shares for themselves or for a holding company. The debt is taken to have been incurred when the agreement to provide the assistance is entered into or, if there is no agreement, when the assistance is provided: s588G(1A)(6) CA. IF entering into an uncommercial transaction Here, [company] has entered into uncommercial transaction, other than one that a court orders, or a prescribed agency directs. The debt is taken to have been incurred when the transaction is entered into: s588G(1A)(7) CA. Therefore, the date the debt was incurred would be [date of contract, when dividend declared etc]. This date is [before/after] 23 June 1993.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company (iii)Was [director/s] a director at the relevant time? Here, [director] needs to have been a director at the time the debt was incurred: s588G(1)(a) CA. [Director] will be considered a director if they are: s 9 Defn. A person who: Is appointed to the position of a director; or 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 Unless contrary intention appears, a person who is not validly appointed as a director if: They act in the position of a director; or The directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company IF person is CEO or Managing Director Here, [director] hold the office of [CEO; s198C(i)] and is therefore a director under s9(a)(i) CA. IF person is part time chair person Here, [director] is a part time chairperson: s248E(1)) and is therefore a director under s9(a)(i) CA. IF person is not a director but acts in the capacity as one Here, [director] does not meet the clear definition of director, however they may still fall within s9(b). [Director] will only be classified as a director if they acted in that capacity and the board accepted the advice, and acted on it without their own discretion: Re Hydrodam. Therefore, [director] [was/was not] a director at the time the debt was incurred.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company (iv)Was [company] insolvent at the relevant time? Whether [company] was insolvent will depend on if they were solvent: s95A(2) CA. A person is solvent if and only if they are able to pay all their debts when they become due and payable: s95A(1) CA. The test of insolvency is an objective test. The court will use the commercial test of insolvency, as distinct from the balance sheet test: Sandell v Porter. This test relates to the overall liquidity of the company, and consideration is given to the whole financial position, not just the temporary lack of liquidity.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company Indicia of the test include: Appropriate calculation to determine if solvent is to weight up company debts against its good debts and case resources readily available assets: Sandell v Porter Companies financial position must be examined in its entirety and not viewed as a temporary issue of liquidity: Sandell v Porter Readily realisable assets including mortgaging or selling property, but not terminating companies business: Re Timbatec Pty Ltd.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company IF assets fundamental to the operations of the business Here, [company] intends to sell assets that are not readily realisable as they are fundamental to the operations of the business. Therefore on the balance of probabilities, it is likely that the court would find [company] insolvent at the relevant time. IF Assets not fundamental Here, [company] intends to sell assets which are not fundamental to the operations of the business and would probably be considered as realisable. IF company has unsecured credit it can use to pay Here, [company] has a resource in credit. [Plaintiff] would argue that this does not constitute a realisable asset, however, in Lewis v Doran the court held that it did not matter that as a commercial reality the company had a resource such as an unsecured borrowing or voluntary extension of credit by another party, as long as the court was satisfied that the resource allowed it to pay its debts as they become payable. Therefore, on the facts it appears that [company] was [solvent/insolvent] at the time the debt was incurred.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company Presumptions of Insolvency However, there are rebuttable presumptions as to insolvency: s588E CA. If either presumption is proved, the onus will be on [director] to demonstrate otherwise: s588E(9) CA. IF Company Being Wound Up Here, [company] is being wound up, therefore is presumed to be insolvent: s588E(3)(a) CA. If it can be proved that the company was insolvent for any time within a 12 month period from the date of filing of the application for winding up, it is assumed to be insolvent for the whole time thereafter: s588E(3)(b) CA. IF there has been a failure to keep records Here, [company] has [failed to keep proper accounting records/have improperly disposed of the company books], and a presumption of insolvency will attach if: s588E(4) CA. The company has failed to keep financial records for a period required by s286(1): s588E(4)(a) CA. Must keep financial records that: Record, explain its transactions and financial positions and performance: s286(1)(a) and Would enable true and fair financial statements to be prepared and audited: s286(1)(b) The company has failed to retain financial records for 7 years as required by s286(2): s588E(4)(b) CA.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company IF minor contravention of failure to keep financial records Here, [director] would argue that the contravention of s588E(4)(a) CA is only minor or technical and the presumption should not apply: s588E(5) CA. IF Presumption would prejudice a right or interest of a person Here, [director] would argue that the presumption of insolvency would prejudice a right or interest of a person under s588E(4) CA. The presumption will not apply if: The contravention was due solely to someone destroying, concealing or removing financial records from the company: s588E(6)(a) CA. The records were not destroyed, concealed or removed by the director: s588E(6)(b) CA. The person was not directly or indirectly involved or reckless: s588E(6)(c) CA. IF proof of insolvency in other proceedings Here, [company] was proven to be insolvent in previous proceedings, there will be a presumption of insolvency in those proceedings: s588E(8) CA. Therefore, on the balance of probabilities it is likely that [company] was [solvent/insolvent] at the time the debt was incurred.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company (v)Did [director] have reasonable grounds of suspecting [company] was insolvent? The question is whether, at the time the debt was incurred, did [director] have reasonable grounds of suspecting that [company] was insolvent, or was going to become insolvent: s588G(1)(c) CA. Need to establish: Reasonable Grounds Suspect Reasonable Grounds The test for reasonable grounds is an object test, judged according to the standard of a reasonably competent and diligent director in the proper discharge of their duties within the Corporations Act and common law: ASIC v Plymin. Suspect Suspect means a positive feeling of actual apprehension of mistrust that the company is insolvent, which includes a slight opinion without sufficient evidence of the matter, but requires more than idle wondering: Queensland Bacon Pty Ltd v Rees. In ASIC v Plymin, the court stated 14 indicators which indicate reasonable grounds to suspect insolvency. Here, [plaintiff] would re relying on [indicia from below] to demonstrate a reasonable grounds of suspecting [company] was insolvent.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company Indicators of Insolvency Continuing losses. (present in ASIC v Plymin) Liquidity ratios below 1. Overdue Commonwealth and State taxes (present in ASIC v Plymin) Poor relationship with present Bank, including inability to borrow further funds. ((present in ASIC v Plymin) No access to alternative finance. Inability to raise further equity capital. Suppliers placing [company] on COD, or otherwise demanding special payments before resuming supply. Creditors unpaid outside trading terms. Issuing of post-dated cheques (present in ASIC v Plymin) Dishonoured cheques. (present in ASIC v Plymin) Special arrangements with selected creditors. Solicitors' letters, summons[es], judgments or warrants issued against the company. (present in ASIC v Plymin) Payments to creditors of rounded sums which are not reconcilable to specific invoices. (present in ASIC v Plymin) Inability to produce timely and accurate financial information to display the company's trading performance and financial position, and make reliable forecasts.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company IF the director signed financial reports Here, it will also be relevant that there was a financial report signed by [director], as [director] has a duty to disclose solvency: s295(4) CA. Here, the auditor’s report would show that reasonable grounds. Here, [director] on balance was likely to have had reasonable grounds to suspect that [company] was [solvent/insolvent].

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company (vi)What was the directors state of mind? For a contravention to occur: The director was ‘aware’ that there are grounds for suspecting: s588G(2)(a)CA or A reasonable person in a like position in a company in the company’s circumstances would be so aware: s588G(2)(b) CA. IF director was ‘aware’ Here, [director] would need substantive awareness that there were reasonable grounds for suspecting insolvency: ASIC v Plymin. This does not require an actual suspicion of insolvency, but does require an awareness of facts which would reasonably support insolvency. IF a reasonable person would be so aware This is judged by the standard appropriate for a director with varying competence, however, if there are special skills present they will be considered: 3M Australia v Kemmish. Here, [plaintiff] would argue that while the director was unaware, a reasonable person in their position would have been aware of the reasonable grounds for suspecting insolvency: ASIC v Plymin. Therefore, based on [director] state of mind, the director [should/should not] have been reasonably aware of the grounds for suspecting insolvency.

Lifting the Corporate Veil 4.Directors’ Duty to prevent Insolvent Trading by the Company (vii)Did the director fail to prevent the company from incurring the debt? There is no obligation on [plaintiff] to prove that [director] was under a duty to take a particular step which would have been effective to prevent [company] from incurring the debt: Elliot v ASIC. Prevention is extended to include inactivity or omission as well as acts by [director]: ASIC v Plymin. Here, [director] has failed in preventing [company] from incurring the debts by [doing/not doing] [act]. Therefore, if all 6 elements are established, [director] would prima facie be liable for the consequences that follow, unless there is a defence.

Lifting the Corporate Veil 5.Are there a Defence available? The defences available to [director] apply to Alleged contraventions of s588G(2) CA, in relation to incurring a debt, and includes proceedings under s588M CA in relation to the director incurring the debt: s588H(1). (i)Reasonable grounds to expect that the company was solvent Where a person had reasonable grounds to expect, and did expect the company to be solvent, even when incurring the new debt: s588H(2) CA. The test requires an objective consideration of all information that was available at the time: 3M Australia v Kemish. Expectation means ‘regarded as likely’: CBD v Fredrich, and here, [director] would have to demonstrate a measure of confidence, greater than a mere hope of possibility that the company was solvent: Tourprint International v Bott. IF director does not inform themselves of the true financial position Here, [director] has not sought to inform themselves of the true financial position of the company either before being director, or while acting as director. Therefore, this defence will not be available: CBA v Fridrich.

Lifting the Corporate Veil 5.Are there a Defence available? (ii)Reliance on information as to solvency from another competent person Here, [director] may be able to establish a defence on the basis that they placed reliance on information provided by [person]: s588H(3) CA. In order to establish this [director] would need to show they had reasonable grounds to believe and did actually believe: That a competent and reliable person was responsible for providing adequate information about the company’s solvency: s588H(3)(a)(i) CA. Here, [person director got information from] was [qualifications, expertise of person etc] which [would/would not] be considered a competent and reliable person for providing information about the company’s solvency. That the person was fulfilling that responsibility: s588H(3)(a)(ii) CA. Here, [director] had confidence in [person] in such a way which gave them reasonable grounds for believing that the responsibilities were being performed: ASIC v Plymin. That on the basis of the information provided, the company was solvent at the relevant time: s588H(3)(b) CA. Here, [director] believed the information presented by [person] which held that at the relevant time [date from earlier] [company] was solvent.

Lifting the Corporate Veil 5.Are there a Defence available? (iii)Director was Ill or did not take part in the management of company Here, [director] was [ill/good other reason/not take part in management of company] at the time the debt was incurred, and can raise the defence in s588H(4) CA. IF director excluded or Deceived from management by co-director Here, [director] has been [excluded/deceived] from management by a co-director. This will not be sufficient for the defence where [director] has not demonstrated a proper degree of commitment to become involved in the management of the company. Here [director] [has/has not] demonstrated commitment to becoming involved. IF director abdicates duties to a co-director Here, [director] has abdicated his duties as director to a co-director, [co-director]. This is not sufficient as it is inconsistent with the duties imposed on all directors by both statute and common law.

Lifting the Corporate Veil 5.Are there a Defence available? (iv)Director took all possible steps to prevent company from incurring the debt Here, [director] will argue that [action] was all he could do to prevent [company] from incurring the debt: s588H(5). In assessing the action, the court may have regard to: Any action with a view to appointing an administer of the company: s588H(6)(a) CA. When the action was taken: s588H(6)(b) CA. Results of the action: s588H(6)(c) CA. If director resigns Here, [director] has resigned from their position in an attempt to prevent [company] from incurring the debt. Arguably this may suffice, however, the vote may still proceed without [director]. IF Reservation by executive director to a Managing Director re solvency Here, [director] may argue that they expressed reservation to the managing director about the company’s decision to continue trading when the solvency was doubted. This is not likely to be sufficient steps: Burrron? Therefore, [director] may rely on [defence #1,2,3, or 4] regarding their breach of duty.

Lifting the Corporate Veil 6.What are the consequences for breach? If [director] is found to have traded while insolvent, the corporate veil will be lifted and [director] will be liable. In addition to compensation, s588G CA is a civil penalty provision under s1317E CA and may attract criminal penalties under s588G(3) CA. (i)Compensation The court may, on application for a civil penalty order, make an order requiring [director] to pay compensation: s588J CA. The court must be satisfied that: The person committed the contravention in incurring the debt: s588J(1)(a) CA. The debt is wholly unsecured: s588J(1)(b) CA. The person the debt is owed suffered loss or damage as a result of company’s insolvency: s588J(1)(c) CA. The value of compensation is equal to the amount of that loss or damage. IF company that incurred the debt is in liquidation Here, [company that incurred the debt] has been placed in liquidation; however, the liquidator may still be able to seek compensation from [director] who contravened s588G CA: s588M CA. The liquidator can still mount compensation recovery proceedings whether or not ASIC has commenced an application for a civil penalty order or criminal proceedings: s588M(1)(e) & (f). Further ASIC will bear the cost of proceedings as part of the civil penalty order or criminal proceedings.

Lifting the Corporate Veil 7.Liability Here, [director] would be liable to [company that incurred the debt] to the amount of loss or damage suffered. IF Creditor initiated Compensation Here, [plaintiff] is a creditor, who may also be able to bring a compensation claim: s588R-588U CA. The provisions provide time for liquidators to decide whether to initiate their own proceedings. [Plaintiff] must wait 6 months after the beginning of winding up, and give notice to the liquidators stating: Creditor intends to begin proceedings under s588M CA: s588S(a) CA. Asking the liquidator to give, within 3 months of the notice: A written consent to begin proceedings: s588S(b)(i) CA. or A written statement of reason why the liquidator thinks creditor should not pursue the action: s588S(b)(ii) CA. If after the 3 months, the liquidator has not consented, [plaintiff] may be able to apply to the courts to begin proceedings: s588T(2) CA. However, a creditor will not be able to bring proceedings against the director where the liquidator has: Applied under s588FF in relation to the debt; s588U(1)(a) CA. or Applied begun proceedings under s588M CA; s588U(1)(b) CA. or Intervened in an application for a civil penalty order against the director for breach of s588G CA: s588U(1)(c) CA. Therefore, [plaintiff] [may/may not] be able to apply for compensation under s588M CA. If they are successful, the amount recoverable is the amount of the loss or damage suffered by the individual creditor: s588M(3) CA.

Lifting the Corporate Veil 7.Liability (ii)Civil Penalty Provisions In addition to compensation orders under s588J CA, the court may impose pecuniary orders: s1317G CA, or disqualify [director] from managing companies: s206C CA. Pecuniary Orders Only ASIC (s1317J(1)) or the responsible corporation (s1317J(2)) may apply for a declaration or pecuniary order. The court may order a pecuniary penalty payable to the commonwealth if a declaration is made under s1317E, and the contravention is of a civil penalty provision, and is materially prejudice against the company or its ability to pay creditors: s1317G(1) CA. Here [director] [would/would not] be required to pay a pecuniary order. The maximum payable is $200,000 for an individual: s1317G(1B)(a) CA, or $1 million for a body corporate: s1317G(1B)(b) CA. Disqualification from Managing Companies Here, in addition to compensation orders, [director] may be disqualified from managing any corporation for a number of years: s206C CA. The court must be satisfied that disqualification is justified: s206(1)(b) CA. (iii)Criminal Offences Here, the contravention of s588G CA, has been done dishonestly. [Director] would be liable for compensation equal to the amount of that loss or damage: s588K CA, or imprisonment, or both.

Lifting the Corporate Veil 8.Can the corporate veil be pierced at common law? Australian courts have been reluctant to lift the corporate veil, unless legislation allows for it. The courts have however lifted the corporate veil in some cases where there is: Fraud – When the company uses a company as a vehicle for fraud: Re Darby Avoidance of legal obligations – where a company has been used as a sham so as to avoid a legal obligation under contract or statute: Gilford Motor Co Ltd v Horne. Involvement in director’s breach of duty – Where a company knowingly participates in a directors breach of fiduciary duties: Green v Bestobel Industries Ltd.

*Directors and Officers Issue Is [director] a validly appointed director? IF there are no issues with validity of appointment of directors, re who can be director, disqualification, appointment process etc and ONLY issues with duties owed by a director are Fiduciary duties. Specific duties are: Duty to act bona fide in the interests of the company Duty to exercise powers for proper purpose Duty to avoid conflicts of interest Duty not to misuse position or information Duty to act with due care and diligence Duty to retain discretionary powers

Directors and Officers What are directors and officers? (i)Directors Director is defined in s9 CA as a person who: Is appointed to the position of a director 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 Unless the contrary intention appears, a person who is not validly appointed as a director if: They act in the position of a director or The directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes IF De facto Director Here, [director] is a de facto director in that they have resigned as a director but continue to exercise top level management functions: DCT v Austin; Natcomp Technology Australia Pty Ltd v Graiche. Therefore, [director] is a director. IF Shadow Directors Here, [director] is a shadow director as they are part of a holding company which acts as a shadow director of its subsidiary: Standard Chartered Bank of Australia Ltd v Antico. Therefore, [director] is a director

Directors and Officers IF person is CEO or Managing Director Here, [director] hold the office of [CEO; s198C(i)] and is therefore a director under s9(a)(i) CA. IF person is part time chair person Here, [director] is a part time chairperson: s248E(1)) and is therefore a director under s9(a)(i) CA. IF person is not a director but acts in the capacity as one Here, [director] does not meet the clear definition of director, however they may still fall within s9(b). [Director] will only be classified as a director if they acted in that capacity and the board accepted the advice, and acted on it without their own discretion: Re Hydrodam.

Directors and Officers DCT v Austin Madgwick J held that it is not practicable to formulate a general statement as to what constitutes acting as a director as it often involves a question of degree requiring a consideration of the duties performed in the context of the operations and circumstances of the company. However a necessary condition of acting as a director is that the person exercised top level management functions.

Directors and Officers (ii)Officer Unless contrary intention appears, an officer is defined in s9 CA as a: director or secretary person who participates in making decisions that affect the whole or substantial part of the business of the company; has the capacity to affect significantly the company’s financial standing; the directors of the coy are accustomed to act under instruction from (excluding professional advice) receiver or receiver and manager administrator of coy administrator of deed of company arrangement liquidator of corporation trustee or other person administering compromise or arrangement between coy and someone else

Directors and Officers IF officer is a person who makes or participates in making decisions which affect the whole or substantially part of the business of the corporation Here, [officer] is someone who [makes or participates in making decisions which affect the whole or substantially part of the business of the corporation]. This would include a director of a holding company, but not the director/officer of a subsidiary as they basically participated in the management operations of the subsidiary and had an effect on the whole business organisation: ASIC v Adler.

Directors and Officers ASIC v Adler The court held that Adler, a director of HIH was an officer of a wholly-owned HIH subsidiary under the s 9 Definition, even though Adler had not been appointed a director or officer of the subsidiary. Adler’s role as director of HIH, the subsidiary holding company, and a member of HIH’s investment committee indicated that he participated in making decisions that affected the whole or a substantial part of the subsidiary’s business. Adler also had the capacity to significantly affect the subsidiary’s financial standing because of his role on the holding company’s board and investment committee

Directors and Officers Was director eligible to be appointed as director? Only certain people can be appointed as director. To be appointed the person must be over 18: s201B(1) CA, and be a natural person (eg, not a company). However, this doesn’t stop a person or corporation being deemed to be a director under the CA. Here, [director] meets those requirements, however they may be disqualified from being appointed if they fall under any of the categories in Part 2D.6 CA, unless the appointment is made with the permission of ASIC or the courts under s206G: s201B(2) CA.

Directors and Officers Disqualifications which would disqualify director from acting? [Director] may be disqualified from acting in the capacity of director via: Automatic Disqualifications – s206B CA. The court’s power of Disqualification: s206C CA. ASIC’s power of disqualification: s206F(1) CA. The disqualification provisions are not designed to be punitive, more of a deterrent and to protect creditors and the public from those who have offended and may offend again: Chew v NSCS.

Directors and Officers (i)Automatic Disqualifications A person is automatically disqualified from managing corporations if they are convicted: s206B(1) CA. IF convicted on indictment of an offence affecting a company. Here, [director] has been convicted on indictment of an offence that: Concerns the making, or participation in making of decisions which affect the whole or a substantial part of the company: s206B(1)(a)(i) CA. Concerns an act that has the capacity to significantly affect the company’s financial standing: s206B(1)(a)(ii) CA. Therefore, [director] would be disqualified from holding office.

Directors and Officers IF convicted of an offence in contravention of CA and punishable by imprisonment for 12 months or more, or an offence involving dishonesty and punishable by imprisonment for 3 months or more. Here, [director] has been convicted of an offence that: Is a contravention of this act and is punishable by imprisonment for a period greater than 12 months: s206B(1)(b)(i) CA. Involves dishonesty and is punishable by imprisonment for at least 3 months: s206B(1)(b)(ii) CA. Therefore, [director] would be disqualified from holding office. IF convicted of an offence against the law of a foreign country punishable by imprisonment of greater then 12 months. Here, [director] has been convicted of an offence against the law of a foreign country that is punishable by imprisonment for 12 months or more: s206B(1)(c) CA. Therefore, [director] would be disqualified from holding office.

Directors and Officers The disqualification period will start the day the person is convicted and will last for 5 years. IF person does not serve a jail term Here, [director] did not serve a jail term, and the period of disqualification will end 5 years after the day on which they were convicted: s206B(2)(a) CA. Here, [director] [has/has not] satisfied the time requirements, and [could/could not] act in the capacity of director. IF person does serve a jail term Here, [director] did serve a jail term, and the period of disqualification will end 5 years after the day on which they are released from prison: s206B(2)(b) CA. Here, [director] [has/has not] satisfied the time requirements, and [could/could not] act in the capacity of director. A person is also automatically disqualified from managing corporations if they have an undischarged bankruptcy: s206B(3) CA. [Director] would be disqualified iif they have executed a person insolvency agreement under Part X of the Bankruptcy Act 1966, or a similar law of an external territory or foreign country, and the terms have not been complied with.

Directors and Officers (ii)Court’s Power of Disqualification The court on the application of ASIC, the court may disqualify a person from managing corporations for a period that the court considers appropriate in three situations. IF person contravened a Civil Penalty Provision Here, [director] has contravened a civil penalty provision. The court will disqualify the person if the contravention has occurred: s206C(1)(a) CA, and the court is satisfied the disqualification is justified: s206C(1)(b).

Directors and Officers Rich v ASIC McHugh J commented that the approach of the courts in determining the period of disqualification is similar to that adopted in sentencing in criminal cases, considering Elements of: Retribution Deterrence Reformation Mitigation Factors such as: Size of any loss suffered by corporation, its creditors and consumers Legislative objectives of personal and general deterrence Contrition on the part of the defendant Gravity of the misconduct Defendants previous good character Prejudice to the defendants business interest Personal hardship and willingness of the defendant to render assistance to statutory authorities and administrators

Directors and Officers Re HIH Insurance Ltd; ASIC v Adler Santow J set out the factors which have led to the longest period of disqualifications. These included: Large financial losses High likelihood that the defendant will continue to engage in similar conduct The activities were undertaken in areas where there was postential to cause great harm Lack of contrition or remorse Disregard for the law Dishonesty and an intention to defraud Previous contraventions

Directors and Officers IF person has been an officer of 2 or more failed corporations Here, [director] has been an officer of 2 or more failed corporations in the past 7 years at the time they failed: s206D(1)(a) CA. The court must also be satisfied that the failure of the company was due to its management: s206(1)(b)(i) CA, and that the disqualification is justified: s206(1)(b)(ii) CA. For the purposes of this section a corporation fails if: a Court orders the corporation to be wound up under: section 459B of this Act; or section 526 ‑ 1 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 ; because the Court is satisfied that the corporation is insolvent; or the corporation enters into voluntary liquidation and creditors are not fully paid or are unlikely to be fully paid; or the corporation executes a deed of company arrangement and creditors are not fully paid or are unlikely to be fully paid; or the corporation ceases to carry on business and creditors are not fully paid or are unlikely to be fully paid; or a levy of execution against the corporation is not satisfied; or a receiver, receiver and manager, or provisional liquidator is appointed in relation to the corporation; or the corporation enters into a compromise or arrangement with its creditors under Part 5.1 (including that Part as applied by section 45 ‑ 1 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 ); or the corporation is wound up and a liquidator lodges a report under subsection 533(1) (including that subsection as applied by section 526 ‑ 35 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 ) about the corporation's inability to pay its debts.

Directors and Officers IF director has repeatedly contravened the act Here, [director] has: Twice been an officer of a company which breached acts and failed to take reasonable steps to stop the breach: s206E(1)(a)(i) CA. Twice contravened the act while officer of a company: s206E(1)(a)(i) CA Therefore, [director] would be disqualified from holding office.

Directors and Officers (iii)ASIC’s power of disqualification ASIC can disqualify a person from managing a company for up to 5 years in three situations. IF within 7 years director was officer of 2 or more companies which were wound up within 12 months of officer leaving Here, [director] was an officer of 2 or more companies in the past 7 years, and either during their tenure as officer or within 12 months of leaving, the company was wound up and a liquidation report lodged: s206F(1)(a) CA. Therefore, [director] may be disqualified from acting as director. IF ASIC has given the person notice to demonstrate why they should not be disqualified Here, [director] has been given notice by ASIC requiring them to demonstrate why they should not be disqualified, and an opportunity to be heard on the matter: s206F(1)(b) CA. Therefore, [director] may be disqualified from acting as director. IF ASIC satisfied disqualification is justified Here, ASIC is satisfied that the disqualification of [director] is justified for [reasons]. Therefore, [director] may be disqualified from acting as director.

Directors and Officers Cullen v Corporate Affairs Commission It was appropriate to disqualify a person under the predecessor of s206F CA. It was established that the director of four failed companies Had not met standards that community expects Did not remit group tax Failed to take appropriate action to minimise losses Intermingled the affairs of different companies Period of disqualification was fixed for 2 years, with 5 years reserved for the worst case involving dishonesty or a large number of defaults

Directors and Officers Delgona v ASC A disqualification of 2.5 years was imposed. Matters considered included that the transgressions were serious and the director showed a lack of understanding of the way a company should operate including: Lack of knowledge of accounts requirements Failure to hand over books to liquidator Lack of knowledge that a company of which the person was a director was insolvent

Directors and Officers Appointment of Directors A company must have a minimum number of directors. IF Proprietary Company Here, [company] is a proprietary company and must appoint at least 1 director. The director must ordinarily reside in Australia: s201A(1) CA. IF Public Company Here, [company] is a public company and must appoint at least 3 directors. The directors must ordinarily reside in Australia: s201A(2) CA. There is no maximum number of directors required by the CA, however, the constitution will usually deal with it. The first directors are appointed by putting the names in the application form to register the company: s120(1) CA. Consent forms must be attached to the application: s117(5) CA, and if there is not consent, company commits an offence: s201D(1) CA.

Directors and Officers IF later directors Here, [director] is being appointed after the first directors have been appointed. They will be appointed by a general meeting by ordinary resolution under the replaceable rules: s201G CA or a method specified in the constitution. IF casual vacancy Here, [director] is being appointed to a casual vacancy because of a resignation of a previous director. The position can be filled by the board of directors, but it is subject to consent by members at a general meeting: s201H(1) CA. IF Proprietary Company Consent needs to be given by the general meeting within 2 months of the appointment: s201H(2) CA. If public company Consent needs to be given at the next annual general meeting: s201H(3) CA. Vacation of Office Removal of director of public company Any resolution to remove by board of directors is void s 203E Removal by ordinary resolution of members in general meeting on 2 months notice to company before meeting s 203D  valid way of removing a director

Directors and Officers Types of Directors (i)Managing Directors Appointment of managing directors is permitted under the replaceable rules: s198C CA, or the company’s constitution. can be delegated any powers of board of directors: s198C(1) appointed under service agreement prescribing eg remuneration, powers: s201J appointed from among directors: s201J board may revoke powers given: s198C(2) They act as the director and officer of the company (CEO) and generally manages the daily business of the company. (ii)Governing Director Appointment of the governing director is permitted under the constitution of a small family proprietary company which has several directors. The Governing Director is granted broad powers for the running of the business: Whitehouse v Carlton. (iii)Executive Directors Executive directors are full time employees under service contracts of the company who carry out the daily management of the company business: eg, managing director, director of finance.

Directors and Officers (iv)Non-Executive Directors Non-Executive directors are not involved in the daily running of the company, rather they attend board meetings for a set fee. They are meant to bring an independent view to board meetings and for good corporate governance a majority of non-executive directors on the board is expected. (v)Committee of Directors Directors of the company can delegate any of their powers to a committee of directors: s198D(1) CA. The delegate/committee must follow directions of board: s198D(2) CA, and the exercise of power is as effective as if directors had exercised it: s198D(3) CA. The purpose of the delegation is to carry out particular management functions such as audit committee. Recent failures of big public companies have been due to the failings of the audit committees, eg HIH. (vi)Alternate Directors Where a director is unable to attend board meetings due to illness or incapacity, an alternate director can be appointed with the approval of the other directors: s201K CA. The exercise of power is as if it was exercised by the original director: s201K(3) CA. Alternate Directors have the same duties of a normal director: Markwell Bros Pty Ltd v CPN Diesels, however, they only have the powers, rights and duties of a director when they’re acting in the place of the appointer: Strathmore Group Ltd v Fraser.

Directors and Officers Powers of Directors Generally the board has exclusive management power of the company: s198A CA, except for some residual powers under the CA, constitution of company or the ASX. Division of powers between BoD and members in general meeting Normal division of powers Replaceable rule s 198A or company’s constitution normally vests all management powers in the BoD except powers that CA, constitution or ASX listing rules (if pub comp) gives to members in general meeting Extent of powers Effect of directors acting within their powers Directors acting within powers may act against the wishes of the majority shareholders who cannot control the board whilst in office (Howard Smith v Ampol Petroleum @ 837). Powers of general meeting Powers under CA Altering constitution s 136(2) Removing director s 203C,D

Directors and Officers Duties of Directors Directors owe duties under the general law and under the CA. The general fiduciary duties owed by directors include: The general fiduciary duties owed by directors include: Duty to act bona fide in the interests of the company Duty to exercise powers for proper purpose Duty to avoid conflicts of interest Duty not to misuse position or information Duty to act with due care and diligence Duty to retain discretionary powers Here, it is necessary to consider [duty #1-6]. The statutory duties are contained in ss180-184 CA in addition to general law duties in s185 CA.

Directors and Officers Fiduciary Duties Generally There is no accepted legal definition of ‘fiduciary’; however the preferable one is from Hospital Products v USSC, which states that, a fiduciary is ‘someone who undertakes to act on behalf of, or for the benefit of another in some particular matter’. The existence of a fiduciary relation is determined according to the nature and scope of the relationship between the parties and this is a question of fact for each case: Hospital Products v USSC. (ii)Who owes the duty? The relationship between director and company is established as giving rise to a fiduciary duty, but only between the director and their company: Mills v Mills. Under the general law both directors and senior executives are subject to fiduciary obligations: Drysdayle. However, under the CA directors and officers are subject to the duties.

*Duty to Act Bona Fide in the Best Interest of the Company Duty to Act Bona Fide in the Best Interest of the Company 1.Issue Has [director] breached a duty to [company] in [exercising powers of management to issue shares]? 2.Duty Owed Directors are under a duty to act bona fide (in good faith) in the best interest of the company as a whole: ASIC v Whitlam. While the courts are reluctant to review business judgements of directors and substitute their own judgements on merits unless required by statute: Harlowe’s Nomines Pty Ltd v Woodside (Lakes Entrance) Oil Co NL, they will interfere when a director fails to act bona fide in the best interests of the company. Duties are owed under the general law and the Corporations Act. Here, [plaintiff] would argue that the [decision] of [director] was not in the best interest of [company] as a whole.

Duty to Act Bona Fide in the Best Interest of the Company Who is the duty owed to? Generally the duty will be owed to the members as a collective whole (not a minority) that should be considered by directors: Kinsela v Russell Kinsela. IF company is solvent Here, [director] would owe the duty to the members as a collective group or whole, as [company] is solvent and has no real risk of insolvency - does not include the interests of the company as a commercial entity (Ngurli v McCann). IF company is insolvent Here, [director] would be more interested in the interest of the creditors as [company] is insolvent or there a real risk of insolvency: Kinsela v Russell Kinsela. This does not mean that the directors owe a separate duty to creditors: Spies v The Queen.

Duty to Act Bona Fide in the Best Interest of the Company Kinsela v Russell Kinsela Coy (funeral director’s business) in financially precarious position Coy was insolvent, but directors not sure of that Entered into lease for premises it owned and ran business out of for 3 years w possible extension for 3 years and an option to purchase Lessees were Mr and Mrs Kinsela – directors of coy Lease approved by shareholders who were all Kinsela family members Held by Street CJ The lease was voidable at the instance of the coy Director’s duties to coy included not prejudicing creditor’s interests when coy is nearing insolvency Liquidator was able to request that lease be avoided

Duty to Act Bona Fide in the Best Interest of the Company Generally there will be no duty owed to individual shareholders Percival v Wright. The director needs to have been in direct and close contact with the individual member so that the director caused the member to act in a certain way which turned out to be detrimental to them: Peskin v Anderson. IF company retains a family nature Here, the facts are similar to Coleman v Myers, where a fiduciary relationship arose to the individual because of the family character of the company, position of directors in the family and company, a high degree of inside knowledge and the way the shareholders were convinced to sell. Our situation is similar in that [reasons] and therefore [director] may owe [individual] a fiduciary duty. IF only 2 shareholders Here, the facts are similar to Brunninghausen v Glavanics, where a fiduciary arose to the individual. In that case there were only 2 shareholders (both were directors also), and B convinced G to sell their shares and resign as director so that B could act on an offer of sale (unknown to G). An individual fiduciary duty was found because G was the company, aside from B, and G relied on B for information about the company. Our situation is similar in that [reasons] and therefore [director] may owe [individual] a fiduciary duty.

Duty to Act Bona Fide in the Best Interest of the Company Has the duty been breached? It is necessary to consider both primary subjective test, and the objective standard which has been applied in some situations. (i)Subjective Test Regard must be had to the specific case law, but generally the test of whether the duty to act bona fide in the best interest of the company is a subjective duty of honesty or good faith: Whitehouse v Carlton Hotel. May need to consider: If failed subjectively to give proper consideration to the company’s interest – breach of subjective duty: Whitehouse v Carlton Hotel. Directors assume companies interest corresponds with their own and fails to consider company’s interests: Walker v Wimborne Payment to employees when employment continues is not usually a breach as iindustrial relations may be improved: Parke v Daily News Ltd.

Duty to Act Bona Fide in the Best Interest of the Company (ii)Objective Standard Some cases have placed an objective standard qualification on the subjective test. This is called the ‘commercial benefit’ test: ‘Whether an honest and intelligent person in the position of [director] of [company concerned] could have reasonably believed in all circumstances that the transaction was for the commercial benefit of [company]’: Charterbridge Corp Ltd v Lloyd’s Bank Ltd; Farrow Finance Co Ltd (in Liq) v Farrow Properties Pty Ltd (in Liq). IF Breach There will be a breach of this standard where [director] considers the company interest but expends [company’s] money irrationally (referred to as the honest lunatic director). There will also be a breach when the director acts in a way that no reasonable director would have considered to be in the best interests of the company: ASIC v Adler. IF no Breach There will not be a breach of this standard even if [director] subjectively failed to consider [company’s] interest, if objectively it was for the commercial benefit of [company]. Here this is applicable as [director] [acts done]. Therefore, on balance it would seem that there [is/is not] a breach by [director] to act bona fide in the best interests of [company]. NB: directors are presumed to have acted in good faith and in the best interest of their company and those persons alleging a breach of duty bear the onus of proving that this is in fact, not the case.

Duty to Act Bona Fide in the Best Interest of the Company Remedies If there is a breach, [directors] action is voidable at the instance of [company]. Other remedies may be available to members including: Statutory Derivative Action: s236 CA Injunction: s1324 CA. Oppression (individual shareholder right to pursue): s232 CA.

Duty to Act Bona Fide in the Best Interest of the Company Breach under the Corporations Act [Director] may also be liable under a breach of s181(1)(a) CA, which mirrors the general law above, and requires directors to act in good faith in the best interest of the corporation, and has no effect on the equitable duties: s185 CA. Section 181(1)(a) mirrors the general law or equitable duty – everything is the same. The section is a civil penalty provision, so only ASIC can enforce it: s1317E(1)(a) CA. The court may: Make a declaration of contravention: s1317F CA. Impose a pecuniary Penalty: s1317G CA Disqualify [director] from bearing office: Make a compensation order, for any loss or damage resulting from the breach: s1317H CA. IF action is reckless or intentionally dishonest Here, [director] has acted recklessly or intentionally dishonest, which would also make them criminally liable for their actions: s184(1) CA. However, ASIC will address civil penalty provisions before considering criminal action. Therefore, [director] [may/may not] be liable under the Corporations Act for the breach if ASIC choose to begin proceedings.

Duty to Exercise Powers for a Proper Purpose 1.Issue Did [director] exercise their power for a proper purpose? 2.Duty Owed As director [director] must exercise their powers for a proper purpose, not for a purpose foreign to the power or to obtain some private advantage: Mills v Mills. The onus of establishing that there was an improper exercise of power rests on [plaintiff] as they are asserting misuse: Ascot Investments v Harper. Duties are owed under the general law and under the Corporations Act. Here, [director] has exercised their power for [purpose]. In considering this purpose an objective test is used involving 2 steps: Howard Smith v Ampol Petroleum. What are the purposes for which the power may be exercised? Why was it exercised by the directors?

Duty to Exercise Powers for a Proper Purpose What are the purposes for which the power may be exercised? The court will examine the purposes for which the power may be exercised. This is a question of law. The court will need to ascertain the nature of the power and the purpose for which it was conferred: Howard Smith. This is a question of law for the courts Must be exercised in the proper interests of the members generally There is no set test as to what is a proper and improper purpose, however, the court will try to identify some objective purpose to the power and will be guided by the constitution of the company: Whitehouse v Carlton Hotel.

Duty to Exercise Powers for a Proper Purpose The board of directors has an unfettered power to issue shares: s124(1)(a) RR. Unless there is a restriction on this power in the constitution, the board and [director] are generally free to issues shares; however the issuing of shares is not always done for a proper purpose. IF purpose to raise capital required by company Here, [director] would argue that the purpose was to raise capital required by the company. It has been held that this is a proper purpose, but it would be too narrow a purpose to be the only reason to issue shares: Howard Smith IF purpose to secure the financial security of company Here, [director] would argue that the purpose was to secure the financial security of the company. It has been held that this is a proper purpose: Harlowe’s Nominees.

Duty to Exercise Powers for a Proper Purpose IF purpose a good commercial opportunity to issue shares Here, [director] would argue that the purpose was a good commercial opportunity existed by issuing shares. It has been held that this is a proper purpose: Pine Vale Investments v McDonnell. IF power manipulates voting power in favour of one shareholder or group Here, [plaintiff] would be arguing that the purpose was to manipulate the voting power in favour of one shareholder or a group of shareholders. This has been held to be an improper power: Whitehouse v Carlton Hotel. IF power destroys a majority interest Here, [plaintiff] would be arguing that the purpose was to destroy a majority voting power. If the directors are motivated by a desire to relegate a majority interest into a minority power by issuing more shares it will be held to be an improper power: Ngurli v McCann and Howard Smith. Therefore on balance, the purpose of the power exercised [may/may not] have been done for a proper purpose.

Duty to Exercise Powers for a Proper Purpose Why was the power exercised? The reason the power was exercised is a question of fact, tested objectively: Howard Smith. It is the perception of the directors, rather than the objective commercial justification which will determine the purpose: Re Southern Resources. Here, [director] would argue that the power was exercised to [raise capital/secure financial security/good commercial opportunity], however, [plaintiff] would argue that the purpose was to [destroy a majority interest/manipulate voting power]. IF more than one purpose Where there is more than one purpose the court will not intervene unless it is established that [directors] motivating purpose is improper. The ‘but for’ test is used: Whitehouse v Carlton Hotel. The test is ‘but for’ the presence of the improper purpose, the power would not have been exercised. Here, [directors] would argue that the motivating purpose was [reason]. Regardless of whether the improper purpose is dominant or but one of a number of significantly contributing causes, the issue of shares is invalidated if improper purpose is causative in the sense that, but for its presence, the power would not have been exercised (Whitehouse v Carlton Hotels @ 426-27)

Duty to Exercise Powers for a Proper Purpose If the need for shares is finance based, the court will consider a variety of factors. IF defending hostile takeover bid Here, similar to Howard Smith, they sought to increase share numbers to defend a takeover bid. While it was conceded that capital was needed, no other means was sought, and it was held that, but for, the takeover, the share issue would not have happened. This is not considered an improper purpose if designed to maximise the value of members’ shares or advance the commercial interests of the company. IF no other sources of finance have been sought Here, [directors] have not pursued any other means of raising capital, such as loan capital or selling assets. This would indicate that but for the improper purpose the shares would not have been issued: Howard Smith.

Duty to Exercise Powers for a Proper Purpose IF other sources of capital pursed Here, [directors] have pursued other means of raising capital, such as loan capital or selling assets. This evidences that the financial factor was main reason behind the share issue, and the issuing would have occurred even without the effects on the majority voting control: Howard Smith. IF amount of share issue greater than 15% Here, the share issue is more than 15% which requires a resolution of support from members in the general meeting: ASX Listing Rules. Therefore, if the majority members were in danger of losing their majority, they would vote against such a proposal. IF Directors support the Majority Here, it will be relevant that the directors support the majority voting power. This shows an intention to carry out the issuing despite the affect on the majority power.

Duty to Exercise Powers for a Proper Purpose Howard Smith Ltd v Ampol Petroleum Ltd A takeover of R W Mill (Holdings) Ltd, whose major shareholders (Ampol and Bulkships) owned 55% of the capital The 2 independent shareholders pooled their votes to make a joint takeover bid Howard Smith made a higher takeover bid and to ensure it succeed Miller issued sufficient shares to reduce Ampol- Bulkships majority Held Miller had breached their duty and the share issued to Howard Smith was invalidated Directors were motivated to reduce the combined majority shareholding, and this was invalid.

Duty to Exercise Powers for a Proper Purpose Whitehouse v Carlton Hotel Pty Ltd Carlton Hotel was a family company controlled by the father who was its governing director, and had the sole power to issue shares There were 3 classes of shares: A (the father held), B (his wife) and C (2 sons and 4 daughters), and only A class shares had voting rights while the father was alive. When the family divorced, the daughters sided with mother, and sons with father To prevent losing control, the father issued B class shares to his son, and some time later sought to annul the allotment Held The allotment was invalid as a result of the governing director’s breach of duty Father was motivated by purely selfish considerations, in the hope that after his death the company would be controlled by those who he favoured Interestingly the decision to invalidate the share issued was advantageous to the director who issued them and changed his mind

Duty to Exercise Powers for a Proper Purpose Hannes v MJH Pty Ltd The motivating purpose and the real reason for the governing director’s actions to issue shares to himself and enter into a serve agreement was self-interest and desire to derive additional personal benefits These motives overshadowed the directors duty to act in the interests of the company and to act for a proper purpose

Duty to Exercise Powers for a Proper Purpose Kokotovich Constructions Pty Ltd v Wallington An issue of shares by a governing director to his children was invalid even though one of the purposes of the issue was to raise capital Concluded that but for the governing directors improper purpose of manipulating voting power, the share issue would not have been made

Duty to Exercise Powers for a Proper Purpose Remedies If there is a breach, [directors] action is voidable at the instance of [company]. Other remedies may be available to members including: Statutory Derivative Action: s236 CA Injunction: s1324 CA. Oppression (individual shareholder right to pursue): s232 CA.

Duty to Exercise Powers for a Proper Purpose Duty under Corporations Act [Director] may also be liable under a breach of s181(1)(b) CA, which mirrors the general law above, and requires directors to exercise their power for a proper purpose and has no effect on the equitable duties: s185 CA. The section is a civil penalty provision, so only ASIC can enforce it: s1317E(1)(a) CA. The court may: Make a declaration of contravention: s1317F CA. Impose a pecuniary Penalty: s1317G CA Disqualify [director] from bearing office: Make a compensation order, for any loss or damage resulting from the breach: s1317H CA. IF action is reckless or intentionally dishonest Here, [director] has acted recklessly or intentionally dishonest, which would also make them criminally liable for their actions: s184(1) CA. However, ASIC will address civil penalty provisions before considering criminal action. Therefore, [director] [may/may not] be liable under the Corporations Act for the breach if ASIC choose to begin proceedings.

Duty to Avoid Conflict of Interest 1.Issue Has [director] breach a duty to [company] to avoid a conflict of interest. 2.Principle and Scope [Directors] duty is not to have an interest in a contract, trust or other transaction with a company, unless the director makes full disclosure of the nature of the transaction to the members of the company in general meeting, and they approve of it by ordinary resolution: Aberdeen Railway Co v Blaikie Bros; Woolworth’s v Kelly. The test of whether it is a breach is an objective test, generally tested by considering whether a reasonable man, looking at the circumstances of the case could see a ‘real sensible possibility of conflict’: Phipps v Boardman.

Duty to Avoid Conflict of Interest A breach may occur where the contract is direct or indirect. Direct vs indirect interests (SA v Clark) Director breaches duty whether the interest in the contract is direct or indirect Direct = where director contracts personally with the company Indirect = where director is director and shareholder of another company (SA v Clark) or partner in partnership that contracts with the company (Aberdeen) IF director contracts personally with company Here, the breach would be a direct breach as [director] has contracted personally with [company], and has obtained a direct benefit. [Director] may be liable unless full disclosure has been given. IF director is a shareholder as well and contracts with company Here, the breach would be an indirect breach as [director] is also a shareholder, and contracts with [company]: South Australia v Clarke. An indirect breach will still be considered a breach of conflict. [Director] may be liable unless full disclosure has been given.

Duty to Avoid Conflict of Interest IF director is a partner in a partnership which contracts with company Here, the breach would be an indirect breach as [director] is a partner in a partnership which is contracting with [company]: Aberdeen Railway Co v Blaikie Bros. An indirect breach will still be considered a breach of conflict. [Director] may be liable unless full disclosure has been given. IF director receives a salary from the other company Here, [director] receives a salary from the other company; however this in itself will be insufficient to constitute a conflict: Baker v Palm Bay. There needs to be something more than an ephemeral association and [director] being personally involved in both transactions would suffice: QLD Mines v Hudson. IF there is a real possibility of conflict Here, [director] has dealings with [company], which is contracting with [contracting company], which may result in an indirect benefit from the contract: QLD Mines v Hudson. Whether this conflict is sufficient will depend on the extent of [directors] interest. Generally the more involved [director] is the more likely there will be conflict: ANZ v Bangadilly. It is not necessary for conflict to cause either a loss to the company, or a profit to the director for there to be a breach: Gemstone v Grasso. There are qualifications on the strictness of the application of the conflict rules.

Duty to Avoid Conflict of Interest Qualifications on strictness of application While [director] may have breached the duty to avoid conflict of interest, there are qualifications which may lessen the general rules and permit [director] to have a conflicting interest, if [director] can show: They have been given authority by the company’s constitution to proceed with involvement in the transactions There has been full disclosure

Duty to Avoid Conflict of Interest Effect of s 194 (voting and completion of TX – directors of proprietary companies) Director of pty ltd: Is permitted to vote Can retain benefits of TX and company cannot avoid it provided that the director discloses nature and extent of interest in relation to affairs of company at directors’ meeting. Legal effect is that: Lessens director’s fiduciary duty to a degree; but Must be strictly complied with if equitable duty is to be prevented from operating (Guinness Plc v Saunders) Interested director can vote but still subject to a duty to vote in interests of company as a whole (Aust Growth Resources v Van Reesema) Disclosure of interest = no formal disclosure of facts to directors is required where directors are wholly aware of facts and in circumstances where relevant director’s interest is apparent (Woolowrths v Kelly) So don’t need some dogmatic declaration of interest where the director’s interest is apparent etc

Duty to Avoid Conflict of Interest Full Disclosure The precise requirements for full disclosure under the general law are unclear. It has been generally accepted that full disclosure and consent must be given to members at a general meeting: Regal Hastings Ltd v Gulliver. IF no disclosure Here, [director] has failed to make any disclosure to the members in general meeting or the board of directors. Therefore, [director] would likely be found to have breached their duty of conflict of interest. IF partial disclosure Here, [director] has only disclosed part of the interest. This is unlikely to be sufficient because it fails to give members all the information needed to identify risks and whether the transaction is in the best interests of the company: Pilmer v Duke Group. Therefore, [director] would likely be found to have breached their duty of conflict of interest. IF full disclosure and no consent at General Meeting Here, [director] has made full disclosure of their interest to members at a general meeting; however, the members have not given their consent for the transaction to continue. Therefore this is unlikely to be sufficient and [director] would likely be found to have breached their duty of conflict of interest.

Duty to Avoid Conflict of Interest IF full disclosure and consent at General Meeting Here, [director] has made full disclosure of their interest to members at a general meeting and the members have consented for the transaction to continue. This is likely to be sufficient disclosure and lessen [directors] duty: Furs Ltd v Tomkies. IF disclosure only to Board of Directors Here, [director] has made full disclosure of their interest only to the board of directors who have given their consent. Unless there is a provision in the constitution allowing for this disclosure, it is unlikely that this will be sufficient to attenuate [directors] duty: Woolworths v Kelly.

Duty to Avoid Conflict of Interest Woolworths v Kelly Provision in const Kelly chairman, board resolved that it would establish pension fund, under fund entitled to $26 000 pa Board then resolved to increase K’s entitlements Change of control of Woolworths, new board wanted to reduce K’s entitlements Argued K made adequate disclosure even though no formal declaration of interests – no need to, quite clear that K was interested in resolution to establish fund Held – could rely on const & disclosure Samuels JA – no need for ritualistic disclosure, substance is important so if everyone on the Board knew, that will be sufficient. no further information he could have given them Kirby P (dissent) – focussed on fact there was no actual disclosure (formalities)

Duty to Avoid Conflict of Interest (ii)Authority by Company’s Constitution Here, [director] would argue that they cannot be disqualified because they have acted in accord with clause # of [company’s] constitution. A typical provision would be similar to: Where a director has an interest in a contract with the company: The contract cannot be voided The director is not disqualified from office The director is not liable to account for any profit realised The director can be accounted for in quorum (minimum number of people needed to start the meeting) at any meeting where the contract was considered Providing the director makes full disclosure of the interest at the first relevant meeting of the board of directors. [Director] is still able to vote on matters relating to the contract with [contracting company], however, [director] must still meet the fiduciary duties to act honestly for the company as a whole etc: Australian Growth Resources Corp Pty Ltd v Van Reesema.

Duty to Avoid Conflict of Interest IF director has complied with requirements (inc. disclosure as above) Here, [director] would argue that they have fully complied with the requirements in the constitution as they have [set out things they’ve done], which is sufficient to less or attenuate the duty to a degree: Guinness Plc v Saunders. IF director has complied with some requirements Here, [director] would argue that they have complied with the requirements in the constitution as they have [set out things they’ve done]. However, [director] has failed to [meet requirement #], and therefore this will not lessen or attenuate the duty as the provisions need to be strictly complied with to prevent the equitable principle from operating: Guinness Plc v Saunders. IF Board of Directors already aware of the interest Here, the board of directors were already aware of the interest of [director] with regard to the contract with [contracting company]. In this case there does not need to be explicit disclosure of the interest: Woolworths v Kelly.

Duty to Avoid Conflict of Interest Duty under Corporations Act In addition to the common law duty, [director] may also be liable under s191(1) CA, for failing to give notice of a material personal interest in a matter which relates to the affairs of [company]. At a meeting of directors, [director] must give details of: The nature and extent of their personal interest The relation of the interest to the affairs of the company (i)Material Personal Interest in the matter The interest must involve a relationship of some real substance, to the contract or some arrangement proposed so that it has the capacity to influence the vote of the director upon the decision to be made: McGellin v Mount King Mining NL. It does not matter whether the interest is direct, indirect or continuing. Here, the interest is [state interest] which clearly [is/is not] a relationship of real substance which has the power to influence the voting.

Duty to Avoid Conflict of Interest (ii)Affairs of the company Affairs of the company are defined in s53 CA, which provides an extensive definition. Any dealings by a body: s53(a) This category covers: Promotion Formation Membership Control, business Trading Transactions Dealings, property Liabilities Profits Receipts Losses Outgoings Expenditure of the body corporate.

Duty to Avoid Conflict of Interest Where the body is a trustee, matters concerned with the identification and rights of any beneficiaries under the trust: s53(b) This category applies without limiting the generality of this sub-section and involves any rights or payments made under the trust that any beneficiary has received or is entitled to receive. The internal management and proceedings of the body: s53(c) Any act done by or on behalf of or in relation to the body corporate, its business or property when: s53(d); a receiver is in possession of or has control over the body's property; the body is under administration; a deed of company arrangement executed by the body corporate has not yet terminated; a compromise or arrangement between the body and any other person or persons is being administered; the body is being wound up

Duty to Avoid Conflict of Interest Ownership of a body's securities: s53(e) This includes: Shares Debentures Interests in a managed investment scheme. Powers over voting rights and the disposal of shares in the body corporate: s53(f) This includes the power to exercise or control the exercise of voting rights attached to the shares or their disposal. Matters concerned with the ascertainment of persons financially interested in the body's success or failure, or able to control or materially influence its policy: s53(g) There appears to be no distinction in this category between people who influence directly and those who do so indirectly. Neither is there any distinction between people who influence from within the company structure (such as directors and shareholders) and those from without. As the category is very wide, it will clearly be a question of fact as to whether or not a person falls into it.

Duty to Avoid Conflict of Interest Dealings in the body's securities: s53(h) The circumstances under which a person acquires or disposes (or becomes entitled so to do) of shares in, debentures of or interests in a managed investment scheme made available by the body. As with sec 53(e) and (f), information acquired under this clause is important in determining who holds and deals with the securities of the body corporate. Schemes for the sale of interests in a managed investment scheme: s53(i). Matters arising out of an audit or relating to an auditor's report: s53(j)

Duty to Avoid Conflict of Interest Exemptions from notice [Director] will be exempt from giving notice of an interest is it falls within one of the categories of s191(2) CA. These categories include: IF information about the interest: s191(2)(a)(i)-(viii) CA. If the interest: arises because the director is a member of the company arises in relation to the director's remuneration as a director of the company; or relates to a contract the company is proposing to enter subject to approval by the members arises because the director is a guarantor, has given an indemnity or security for all or part of a loan to the company; or arises because the director has a right of subrogation to matters in (iv); or relates to a contract that insures, or would insure, the director against liabilities relates to any payment by the company or a related body corporate in respect of an indemnity permitted under section 199A or any contract relating to such an indemnity; or is in a contract, or proposed contract, with, or for the benefit of, or on behalf of, a related body corporate and arises merely because the director is a director of the related body corporate; [Director] will not be required to give notice.

Duty to Avoid Conflict of Interest IF the company is Proprietary Here, [company] is a proprietary company and the other directors are aware of the nature and extent of the interest and its relation to the affairs of the company (191(3) CA) therefore, notice will not need to be given: s191(2)(b) CA. And director can vote, maintain benefits and company can’t avoid transaction: 191(4) CA. IF certain conditions are satisfied: s191(2)(c)(i)-(iii) CA. If [director] has already given notice of the interest under s191(1) CA, and notice also given to any new directors, and the nature or extent of the interest has not materially changed above that disclosed, they will be exempt from the need to give notice of the interest. IF director has given standing notice under s192 CA Here, [director] has given a standing notice of the nature and extent of the interest under section 192 and the notice is still effective in relation to the interest. [Director] will be exempt from giving additional notice: s191(2)(d) CA.

Duty to Avoid Conflict of Interest (iv)Has notice been given Notice: must give details of; and the nature and extent of the interest; and the relation of the interest to the affairs of the company; and be given at a directors’ meeting as soon as practicable after the director becomes aware of their interest in the matter. The details must be recorded in the minutes of the meeting. IF notice given Here, [director] has provided the board of directors with the required notice at the first available directors meeting. The notice included the required information. Therefore, [director] may not be liable for breach of duty. IF notice given but incomplete Here, [director] has given some notice to the board of directors, but failed to provide all the required information. It is likely that this is insufficient and [director] would be liable for breach of duty. IF no notice given Here, [director] has failed to give notice to the board of directors regarding their interest in [company]. Therefore, [director] may be liable for a breach of their duty.

Duty to Avoid Conflict of Interest Remedies A breach of the statutory requirements does not derogate from the general law or the company’s constitution: s193 CA. Avoidance or recession at the option of the company (Woolies v Kelly) Account of profits - Furs Limited v Tomkies (1936) 54 CLR 583; Regal (Hastings) Ltd v Gulliver Equitable compensation - Tavistock Holdings Pty Ltd v Saulsman (1990) 3 ACSR 502; Constructive trust - Cook v Deeks [1916] 1 AC 554; Equitable Injunction IF Breach of Corporations Act. Here, [director] has breached their duty by failing to give full and proper disclosure of their interest. The contravention of s191 CA, does not affect the validity of any transaction, act or agreement: s191(4) CA. Section 191(1A) CA, imposes strict liability on [director], who may face a maximum penalty of a fine of 10 penalty units ($1,100) or 3 months imprisonment, or both: Sch 3 CA.

*The Misuse Rule 1.Issue Has [director] breached a duty to [company] to avoid a conflict of interest regarding corporate opportunity? 2.What is the misuse Rules? As director, [director] is under a duty to avoid conflict or any real sensible possibility of conflict: Qld Mines v Hudson. Here, either the appropriation rule or profit rule will apply. IF appropriate company property Here, [director] is under a duty to not appropriate company property in his or her own favour without the fully informed consent of the members in general meeting: Cook v Deeks. IF gained profit [Director] must account to a company of which he or she is director for any benefit or gain which is obtained or received by use of or by reason of his or her position or of opportunity or knowledge resulting from that position unless it’s with the fully informed consent of the members in general meeting: Chan v Zacharia; Furs Ltd v Tomkies.

The Misuse Rule Elements of the Misuse Rule To establish the misuse rule it is necessary to: (Regal (Hastings) Ltd v Gulliver) Show the act of the director is related to the affairs of the company and done in the course of their management and in utilisation of their opportunities and special knowledge as directors Looking for the act of the director resulting in a personal profit The company did not give its fully informed consent (i)Gain special knowledge in the court of management The misuse rule will not be breached where the opportunity falls outside the scope of trust and agency which is created by the relationship of director and company: Qld Mines v Hudson. If there is a sufficient temporal and casual connection between the fiduciary obligations of [director] and the corporate opportunity, relevant factors include: Circumstances in which the opportunity arises Nature of the opportunity Nature and extent of companies operations Anticipated future operations

The Misuse Rule IF opportunity came to director by virtue of that office Here there is a strong argument that the opportunity came about as a result of [director’s] position in [company], which would be a breach of their duty: Furs Ltd v Tomkies IF company has already considered opportunity Here the opportunity has previously been contemplated and rejected by [company]. Similar to Qld Mines v Hudson here it is likely that this will be favourable to director. IF company was unable to pursue the opportunity Here [Director] would argue [company] was not in the position to take advantage of the opportunity therefore the opportunity was beyond his fiduciary obligation. In Regal Hastings the court held that it does not matter that the company cannot pursue opportunity as to allow this argument would provide temptation for directors not to exercise their best efforts in their capacity. However this position may be relaxing in Australia: Per Deane J in Chan v Zacharia.

The Misuse Rule IF director learned of opportunity in his personal/private capacity Here [director] would argue that there is an insufficient nexus as he gained the opportunity in his private capacity rather than in his capacity as a director of [company]. Providing [director] can prove this, there is a good chance the court will accept the argument: Lord Russel in Regal. If took the opportunity before becoming director The facts here resemble those in SEA Food International v Lam as the business opportunity arose before [director] was a director. In SEA the court held that an opportunity prior to the director being appointed was not in his capacity as director, however the court did note the future anticipated operations may be a relevant consideration. Therefore the court would examine [director’s] knowledge of him becoming a director and the anticipated future operations of [company] at that time.

The Misuse Rule IF company not involved in that area at the time Here [director] would be seeking to relying on the fact [coy] was not involved in the business area at the relevant time. In SEA Food International v Lam noted that the future anticipated operations may be a relevant consideration to whether there has been a conflict. In the present case [talk about likelihood of coy pursuing that business opportunity]. Argument put forward by director that the transaction was fair Here [director] should attempt to argue that the transaction was fair by the company. Although not currently an established excuse: Regal; Parker v McKenna there does appear to be a shifting judicial attitude to a position in favour of such an argument: by analogy with Furs Ltd v Tomkies; Mills v Mills. Therefore, on the balance of probabilities it is likely that [director] [has/has not] acted on an opportunity arising from being [director].

The Misuse Rule (ii)Profit A profit made by a third party (rather than the director himself) will not be a breach (Regal Hastings v Gulliver). IF profit clearly gained Here, [director] has clearly gained a profit from the misuse of position. IF no profit on facts Here, [director] does not appeared to have profited from the opportunity.

The Misuse Rule (iii)Consent Under the General Law [director] will not be liable if: there was fully informed consent by [coy] members in general meeting: Qld Mines v Hudson there was provision in the constitution allowing directors to take up business opportunities or where there is provision for a bona fide resolution ratifying action. IF there has been some consent by members but not fully informed Here the members have consented but they would argue that that consent was not fully informed and therefore the breach should be found: Furs Ltd v Tomkies. In light of the decision in Tomkies, here there is likely not to be fully informed consent. IF there has been consent of the board Here there has been consent of the board. This consent is usually insufficient to remove coy right to complain: Woolworths v Kelly However if there is a constitutional provision facilitating that approval then it is likely to be good consent. IF director is majority shareholder In this case, [director] may be saved by the fact that she/he is a majority shareholder. Similar situation arose in Qld Mines v Hudson. In that case the court held that there was an informal acceptance by the members, but in that case the shareholders were also the directors. Therefore, considering all the elements, it would appear that [director] has misused their position as [director] and acquired knowledge or profit by way of the managements operations.

The Misuse Rule Strictness of Application Generally [director] will not be able to avoid liability by proving that [company] did not suffer any loss, or that the transaction is otherwise fair to the company: Regal (Hastings) Ltd v Gulliver. Where director breaches fiduciary duty director cannot avoid liability by proving that the company did not suffer any loss or tha the TX is otherwise fair to the company (Regal Hastings v Gulliver @ 154; Furs v Tomties @ 592) Although, fairness may be relevant to an application to the court for relief by a director under s 1318 (Fexuto v Bosnjak) No answer to breach of fiduciary duty that any profit made is of a kind that the company could not have exploited for itself (eg for financial reasons) (Regal Hastings v Gulliver @ 134, 144-5; Gemstone v Grasso @ 702; cf Chan v Zacharia @ 204-05)

The Misuse Rule Remedies May be liable for: Account of Profits: Regal (Hastings) Ltd v Gulliver. Constructive trust over certain property Shares held on constructive trust for innocent party Equitable compensation where the breach causes loss to the company: Tavistock Holdings Pty Ltd v Saulsman.

The Misuse Rule Duty under Corporations Act (i)Misuse of Position s182(1) CA – A director, secretary, other officer or employee of a corporation must not improperly use their position to: Gain an advantage for themselves or someone else or Cause detriment to the corporation (ii)Element of Misuse of Position 1. defendant was at relevant time a director of corporation; 2. defendant made improper use of his/her position; 3. defendant made improper use for purpose of gaining an advantage or alternatively, causing detriment to corporation; 4. advantage was either for director or for some other person. (iii)Misuse of Information s183(1) CA – A director, secretary, other officer or employee of a corporation must not improperly use the information position to: Gain an advantage for themselves or someone else or Cause detriment to the corporation

The Misuse Rule (iv)Element of Misuse of Information defendant was at relevant time a director of corporation; defendant acquired the relevant information; defendant acquired that information by virtue of position as director of corporation; defendant made improper use of information; defendant made improper use for purpose of gaining an advantage or alternatively, causing detriment to corporation; advantage was either for director or some other person (v)Application Elements (1), (2), (3) in each section can be easily applied with regard to the facts.

The Misuse Rule (vi)‘improper use of position/information’ It is an objective test as it consists of a breach of the standards of conduct that would be accepted of a director by a reasonable person with regard to: R v Byrnes: Knowledge of the duties Power and knowledge of the director Circumstances of the case Consists of breach of standards of conduct that would be expected of a director by reasonable persons with knowledge of duties, powers and authority of a director and the circumstances of the case (R v Byrnes) Content of the standards of the conduct which the law applies to directors here may mean in a particular case that a director’s state of knowledge or purpose may be relevant (eg duty to exercise power for proper purpose) (R v Byrnes; R v Towey @ 61) Director may act “improperly” although there was no intent to act otherwise than honestly and in the best interests of the company as a whole (R v Byrnes) Consequently, this section resemble the general law fiduciary duty to avoid conflict of interests The fact that the benefits received by the director are reasonable does not preclude a finding that a director has made improper use of that position or information (Cummings v Claremont Petrol) The director’s state of mind or their purpose may also be relevant: R v Byrnes.

The Misuse Rule (vii)‘to gain an advantage for themselves or to cause detriment to the corporation’ The courts have emphasised the word ‘to gain’ and that proving a breach of these provisions is done by showing improper use for the purpose of gaining and advantage or causing detriment without having to show that the conduct in fact caused the advantage to be gained or the detriment to be caused: Chew v R. Narrower than the general law fiduciary duty regarding avoidance of conflicts of interests where proof of such purpose is not necessary Wider than the general law fiduciary duty because it covers gains to others (the general law only covers personal profit)

The Misuse Rule Statutory Remedies Section 182 and 183 are civil penalty provisions: s1317E(1) CA. Consequently under Part 9.4B CA the court may: Make a declaration of contravention, then Impose a pecuniary penalty: s1317G CA. Disqualify director from bearing office Make a compensation order: s1317H CA. Additionally the sections may impose criminal liability if breaches are a result of dishonesty (s 184(2), (3)).

*Duty of Due Care and Diligence Duty of Due Care and Diligence 1.Issue Has [director] breached the duty of due care and diligence to [company] regarding conduct surrounding [takeover by company]? 2.General Law Duty Here, [director] is employed by [company] in the capacity of [director/non-executive director]. A duty of carer can arise: Daniels v AWA Ltd. IF non-executive director Here, [director] is a non-executive director and is also subject to the duty of care and diligence. The basis for the duty arises through equitable obligations, and also under the tort of negligence: Permanent Building Society (in liq) v Wheeler. IF Executive Director Here, [director] is an executive director. Generally the duty of care arises through [directors] employment contract; however, a duty also arises through equitable obligations and under the tort of negligence.

Duty of Due Care and Diligence General Principles [Director] is under a duty to take reasonable care in the performance of their office. The test is an objective standard judged by reference to what a reasonable director in the same position would have done, and also any skills [director] had at the time of taking office: Daniels v AWA Ltd. ‘Same position’ will vary depending on the type of company, the size, nature of business and enterprise, and board composition. There is no clear distinction between the obligations of Executive and non-executive directors, as each situation must be considered individually, as more or less may be required of non- executive directors, depending on the circumstances: Daniels v Anderson.

Duty of Due Care and Diligence [Director] must take reasonable steps to place themselves in a position to guide and monitor the management of the company. More particularly: Directors must familiarise themselves with the company’s business when they join the board; Directors need not have equal knowledge and experience, but they are under a continuing obligation to make inquiries and keep themselves informed about the company’s business operations; Directors must be familiar with the company’s financial position; Directors appointed because they have special skills or experience in an aspect of the business of the company must pay attention to other aspects of the business which might reasonably be expected to attract inquiry, even if this is outside their area of expertise; Directors must be allowed to make business judgments and take commercial risks, but can’t safely proceed on the basis that ignorance and failure to inquire are protection against liability for negligence; Directors can’t shut their eyes to corporate misconduct and then claim they didn’t see the misconduct and didn’t have a duty to look.

Duty of Due Care and Diligence IF director has a special skill Here, [director] has specialist skills, [lawyer/accountant etc]. Therefore [director] will be held to a higher standard of care for decisions within the scope of their expertise: Gold Ribbon (Accountants) Pty Ltd v Sheers. In ASIC v Rich the qualifications of a chartered accountant together with broad financial experience was relevant to finding a higher level of duty. IF director argues that subjective considerations should be made Here, [director] is arguing that the fact they were not qualified should be considered. In Gamble v Hoffman, the court held that subjective characteristics did not affect the subjective standard. IF director absent from board meetings Here, [director] has been absent from board meetings, which may be argued as a breach of directors duty to pay proper attention to the affairs of [company]. In Vrisakis v ASIC it was held that a director is expected to attend all meetings unless exceptional circumstances, such as illness or absence from the state. The recent trend of high accountability would mean that [directors] absence without good reason would likely be a breach of duty. IF director was not paying attention but relying on other directors Here, [director] would be seeking to argue that his function only required him to attend the meetings and be concerned about things in his field. However, in Re Property Force Consultants the court held that the fact a director is appointed for specialised skill does not relieve him of his duty to pay attention to the company’s affairs which might be reasonably expected to attract inquiry.

Duty of Due Care and Diligence CBA v Friedrich A director is obliged to inform himself as to the financial affairs of the company and to the extent necessary to form each year, the opinion of solvency required for the directors under s259(4) CA, and this obligation cannot be avoided by claiming that they never read the financial statements

Duty of Due Care and Diligence Daniels v Anderson AWA made losses on foreign exchange transactions Deals were not adequately supervised – there weren’t adequate internal controls to enable deals to be monitored Director able to conceal losses he was making on deals Audits took place – Daniels was the audit partner Real situation did not come to light notwithstanding audits – Daniels was aware of internal control defects, mentioned to CEO but warnings never taken up Sued auditors for negligence – for failing to bring defects to board’s attention Auditors argued company & directors had been negligent Held auditors had been negligent, so had company Executive directors were held negligent, but non-executive directors were not – had requested information but full details were concealed from them

Duty of Due Care and Diligence Gold Ribbon (Accountants) Pty Ltd v Sheers Director with special skills didn’t use them for the benefit of the coy Non-executive director had extensive commercial lending experience Company he sat on board of was making unsecured loans to accountant’s service coy at very high interest rates Directors set up operation and administration of loan scheme which was very high risk, the administrator in change inexperienced and incapable of filling role, and standard due diligence procedures not carried out on borrowers Held QCA director had breached his duty of care: Didn’t involve himself in lending scheme and ensure it worked properly when he had special skills that made him capable However held that his breach of duty did not cause the loss as the other directors were also involved in scheme

Duty of Due Care and Diligence ASIC v Healey & Ors Facts: (ASIC) commenced proceedings against two executives and six non-executive directors of the Centro entities. The two executives were former chief executive officer and managing director Andrew Scott and former chief financial officer Romano Nenna (who was the only defendant who was nota director). The six non-executive directors were former non-executive chairman Brian Healey, current non-executive chairman Paul Cooper, and former non- executive directors Peter Wilkinson, Sam Kavourakis and Peter Goldie, and current non-executive director Jim Hall.

Duty of Due Care and Diligence ASIC v Healey & Ors Facts: ASIC sought declarations that each of the defendants had breached their statutory duty of care and diligence owed to the Centro entities and thereby contravened ss. 180(1), 601FD(1) and 344(1) of the Corporations Act 2001 (C ‟ th)(the Act) in approving consolidated financial accounts for the Centro entities for the financial year ending 30 June 2007. The consolidated financial statements incorrectly classified $1.5 billion in debt as non-current liabilities (when they were in fact current liabilities) and failed to disclose US$1.75 billion in guarantees (which was found to be a material event which had been entered into post the balance date). This was in circumstances where both Centro management and Centro ‟ s external auditor, Pricewaterhouse Coopers (PwC), had previously reviewed the financial statements and the directors ‟ report and had failed to identify any such errors. Prior to the hearing of the case, the former CFO, Mr Nenna, admitted having contravened ss.180(1) and 601FD(3) of the Act and therefore the case focussed on ASIC ‟ s allegations against the defendant directors each of whom, with the exception of the former CEO Mr Scott, were non-executive directors on the relevant Centro boards at the time.

Duty of Due Care and Diligence ASIC v Healey & Ors The issues: The key question before the Court was whether directors of substantial publicly listed entities are required to apply their own minds to, and carry out a careful review of, the proposed financial statements and the proposed directors ‟ report, to determine that the information they contain is consistent with the director ‟ s own knowledge of the company ‟ s affairs, and that they do not omit material matters known to them or material matters that should be known to them. ASIC alleged that the directors breached s.344(1) of the Act by failing to take all reasonable steps to comply with or secure compliance by the Centro entities with certain financial reporting obligations contained in ss.295A (which states that a directors ‟ declaration in relation to financial statements under s.295 must only be made after the CEO or CFO have given the directors a declaration in the form specified in the Act), 296 (which requires financial reports to comply with accounting standards), 297 (which requires financial statements and notes to give a true and fair view of the financial position and performance of an entity) and 298 (which requires certain information to be included in an annual directors ‟ report.

Duty of Due Care and Diligence ASIC v Healey & Ors The issues: Relying on the same conduct, ASIC also alleged that the defendant directors had contravened ss. 180(1) and 601FD(3) of the Act. Section 180(1) requires a director and officer to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of the corporation in the corporation’s circumstances. Section 601FD(1)(b) sets out a similar obligation for officers of the responsibility entity of a registered scheme.

Duty of Due Care and Diligence ASIC v Healey & Ors Held: (per Middleton J) Justice Middleton of the Federal Court of Australia handed down his decision finding that each director was aware of the current interest bearing liabilities and the guarantees, and was aware of or should have been aware of the relevant accounting principles which would have alerted each director to the apparent error in the proposed financial statements. In doing so, His Honour held that each of the directors: failed to take all reasonable steps to focus and consider for himself the content of the financial statements, particularly as to short-term debt and whether the guarantees should have been disclosed; failed to make enquiries of management, the board audit committee or other directors as to proposed statements in the financial statements relating to the short term debt and guarantees, and failed to have apparent errors corrected; and failed to request that the directors be given declarations required under s.295A of the Act.

Duty of Due Care and Diligence ASIC v Healey & Ors Held: (per Middleton J) Each of the defendant directors had breached their duty of care and diligence in relation to the Centro entities (thereby contravening ss.180(1) and 601FD(3)) and had failed to take all reasonable steps to ensure compliance with the financial reporting obligations in the Act (in contravention of s.344). His Honour also held that the former CFO had contravened ss.180(1) and 601FD(3) of the Act.

Duty of Due Care and Diligence ASIC v Healey & Ors Held: (per Middleton J) What was required of the directors? Justice Middleton held that: “Directors are entitled to delegate to others the preparation of books and accounts and the carrying on of the day-to-day affairs of the company. What each director is expected to do is to take a diligent and intelligent interest in the information available to him or her, to understand that information, and apply an enquiring mind to the responsibilities placed upon him or her. Such a responsibility arises in this proceeding in adopting and approving the financial statements. Because of their nature and importance, the directors must understand and focus upon the content of financial statements, and if necessary, make further enquiries if matters revealed in these financial statements call for such enquiries.”

Duty of Due Care and Diligence ASIC v Healey & Ors Held: (per Middleton J) Held that the omissions in the relevant financial statements were not a “mere technical oversight” but “were matters that could have been seen as apparent without difficulty upon a focussing by each director, and upon a careful and diligent consideration of the financial statements” and that in the circumstances each of the directors should have enquired further into the matters revealed by the financial statements. Found that the matters not disclosed in the financial statements were either well known to the directors, or if not well known to them, were matters that should have been well known to them, and that in light of the significance of the matters that they knew, they could not have, nor should they have, certified the truth and fairness of the financial statements, and published the annual reports in the absence of the disclosure of those significant matters.

Duty of Due Care and Diligence ASIC v Healey & Ors Held: (per Middleton J) Directors are required to have the ability to read and understand the financial statements, including the understanding that financial statements classify assets and liabilities as current and non-current, and what those concepts mean, and should have an understanding of the need to disclose certain events post balance sheet date. This does not require directors to be familiar with every accounting standard, but sufficiently aware and knowledgeable to understand what is being approved or adopted. Found that if the defendant directors had understood and applied their minds to the financial statements and recognised the importance of their task, then each director would have questioned each of the matters not disclosed.

Duty of Due Care and Diligence ASIC v Healey & Ors Held: (per Middleton J) Justice Middleton stated: “I do consider that all that was required of the directors in this proceeding was the financial literacy to understand basic accounting conventions and proper diligence in reading the financial statements. The directors had the required accumulated knowledge of the affairs of Centro, based upon the documents placed before them and discussion at board meetings. Each director then needed to formulate his own opinion, and apply that opinion to the task of approving the financial statements.”

Duty of Due Care and Diligence ASIC v Healey & Ors Held: (per Middleton J) To what extent can directors delegate responsibility and rely on others? Directors are not required to have infinite knowledge or ability and are entitled to delegate (as noted above), seek assistance in carrying out their responsibilities and rely on others. However, His Honour held that the “extent of reliance should not be taken too far”. This is because the Act explicitly requires that the declaration required to be given by the directors under s.295(4) and the annual directors ‟ report must be made in accordance with a resolution of the directors, and therefore the Act “imposes ultimate responsibility for those matters upon the directors in a way that they cannot delegate”.

Duty of Due Care and Diligence ASIC v Healey & Ors Held: (per Middleton J) “Directors cannot substitute reliance upon the advice of management for their own attention and examination of an important matter that falls specifically within the Board ‟ s responsibilities as with the reporting obligations. The Act places upon the Board and each director the specific task of approving the financial statements. Consequently, each member of the board was charged with the responsibility of attending to and focusing on these accounts and, under these circumstances, could not delegate or, abdicate ‟ that responsibility to others.”

Duty of Due Care and Diligence ASIC v Hellicar & Ors [2012] HCA 17 Facts In 2001 the James Hardie Group restructured its business to “ring fence” its asbestos liabilities. Two subsidiaries with the greatest exposure to asbestos claims were separated from the Group and the Medical Research and Compensation Foundation (MRCF) established to fund compensation to asbestos claimants. At a James Hardie Board meeting on 15 February 2001 (the Board Meeting) the separation proposal was approved. The minutes of the Board Meeting (the Minutes) record that the Board also approved a draft announcement to the ASX (draft ASX announcement) outlining the separation proposal which importantly provided that the MRCF would have sufficient funds to meet all legitimate asbestos claims and was therefore “fully funded”. The next day a finalised ASX announcement was made (in similar form to the draft ASX announcement, including the reference to “fully funded”) which was ultimately shown to be incorrect as there were not sufficient funds to meet all claims.

Duty of Due Care and Diligence ASIC v Hellicar & Ors [2012] HCA 17 Gzel J: Ruled that the directors had approved the misleading ASX announcement by reason of their approval of the draft ASX announcement. Justice Gzell held that: the draft ASX announcement was approved at the Board Meeting; the draft ASX announcement was false and misleading because of the reference to the MRCF having sufficient funds to meet all legitimate asbestos claims and being fully funded; Mr Shafron failed to advise the Board about the limitations of the economic model supporting the funding of the MRCF and also failed to consider whether JHIL was required to disclose to the ASX a deed of covenant and indemnity between JHIL and its 2 subsidiaries (DOCI); and the 9 directors and one officer had breached s180(1) of the Corporations Act 2001 (Cth). The 7 non-executive directors argued that at the Board Meeting they did not approve, and would not have approved, the draft ASX announcement, however Gzell J found that the draft ASX announcement was discussed and approved at that meeting because the Minutes referred to that as having occurred and the Minutes were subsequently approved by all of the directors.

Duty of Due Care and Diligence ASIC v Hellicar & Ors [2012] HCA 17 Court of Appeal: The Court of Appeal overturned J Gzell’s findings against 7 non-executive directors on the basis that ASIC had failed to discharge its onus of proof and establish that the draft ASX announcement had been approved at the Board Meeting. The Court of Appeal relied on: no witnesses having been called who could specifically recall the approval of the draft ASX statement; ASIC failing to call JHIL’s principal legal adviser, Mr Robb, who was present at the Board Meeting; and mistakes in the Minutes which indicated that they may not be a reliable record of what had occurred. However, the Court of Appeal upheld the finding that Mr Shafron had failed to advise the Board about both the limitations in the economic models projecting future asbestos liabilities and of the Board’s duty to disclose the DOCI.

Duty of Due Care and Diligence ASIC v Hellicar & Ors [2012] HCA 17 High Court: It was not disputed that the draft ASX statement was false and misleading or that, if it had been approved by the directors as alleged by ASIC, that would have amounted to a breach of the directors’ duties. The issues before the High Court were: was the Court of Appeal correct in determining that the directors did not approve the draft ASX statement at the Board Meeting; and should ASIC have called Mr Robb to give evidence as part of its duty to conduct litigation fairly and, if it should have done so, what was the effect of that failure?

Duty of Due Care and Diligence ASIC v Hellicar & Ors [2012] HCA 17 High Court: In relation to 1, the High Court held that the ultimate issue was “... having regard to the nature of ASIC’s claims and the respondents’ defences, the nature of the subject matter of the proceeding and the gravity of the matters which ASIC alleged, did ASIC establish, on the balance of probabilities, that (as the minutes recorded) the [draft ASX announcement] was tabled and approved by the board...”.

Duty of Due Care and Diligence ASIC v Hellicar & Ors [2012] HCA 17 High Court: In rejecting the directors’ argument that they did not approve the draft ASX statement, the High Court relied heavily on the Minutes which were a formal and near contemporaneous business record and which importantly had been approved by each director as being correct. Along with the evidence of Mr Baxter about his taking the draft ASX announcement to the Board Meeting, the force of the Minutes was that the draft had been approved. Accordingly, without evidence to the contrary, ASIC had proved its case by tendering the Minutes. In addition, all the directors maintained that they would not have approved the draft ASX announcement if it had been put before them. However, each director had ultimately been provided with a copy of the finalised ASX announcement (which referred to “fully funded”) and not one of them had objected to its content.

Duty of Due Care and Diligence ASIC v Hellicar & Ors [2012] HCA 17 High Court: The directors advanced 3 specific arguments which they maintained inferred that the draft ASX announcement was not approved. Firstly, the fact that the draft ASX announcement was amended after the Board Meeting implied that it had not been tabled or approved by the Board at the Meeting. The High Court disagreed, noting that the amendments were textual rather than substantive and that both versions of the announcement conveyed identical misrepresentations regarding adequacy of funding.

Duty of Due Care and Diligence ASIC v Hellicar & Ors [2012] HCA 17 High Court: Secondly, the Minutes were an unreliable record because they were demonstrably inaccurate in some respects. As none of the inaccuracies related to the separation proposal or the draft ASX statement, the High Court ruled that merely because some parts of the Minutes were inaccurate did not necessarily imply that other parts were also inaccurate.

Duty of Due Care and Diligence ASIC v Hellicar & Ors [2012] HCA 17 High Court: Thirdly, because ASIC did not call Mr Robb to give evidence the Court of Appeal was correct to conclude that ASIC had not proved its case. The High Court agreed that ASIC was under a duty to conduct litigation fairly, however the relevant issue was the nature of the evidence Mr Robb was likely to have given, rather than the evidence he might theoretically have given. Further the High Court considered the notion of unfairness required either the denial of an advantage to the directors or subjecting them to a disadvantage.The former had not been identified and the latter had not been established.

Duty of Due Care and Diligence ASIC v Hellicar & Ors [2012] HCA 17 Effect: Endorsement of J Gzell’s findings. Reinforces the importance of non-executive directors’ duties to independently and properly assess information put before them, particularly regarding critical strategic announcements. They cannot blindly rely on advice from management which was also a central theme of the ASIC prosecution of the Centro directors. Unless there is something more than inferential evidence to the contrary, approved board minutes will have substantial probative value as a business record of events occurring at that board meeting. As such, prior to approving minutes, directors have to ensure that they accurately reflect and record events, which may necessitate directors taking their own notes or at some stage requesting that board meetings be recorded so as to resolve any disputes.

Duty of Due Care and Diligence General Law Remedies Here, [director] has breached the common law duty of care and may be liable for equitable compensation: AWA Ltd v Daniels. Breach under Corporations Act Section 180(1) contains the statutory duty of care and diligence. The duty mirrors the general law: Re HIH Insurance Ltd; ASIC v Adler; Daniels v Anderson. Examples of a breach of this duty include: Where the director allowed the company to enter into transactions that produce no benefits for it: ASIC v Adler (2002) (on appeal Adler v ASIC (2003). Where the director fails to take part in active supervision of the company’s management, or fails to supervise the company’s accounts: Daniels v Anderson.

Duty of Due Care and Diligence Defences to Breach Here, [director] may be able to raise a defence to the duty. [Director] would argue that the decision was a business judgement. A director or other officer who makes a business judgement is taken to meet the obligations of the duty of due care and diligence under the common law, equity and statute if: The judgement was made in good faith and for a proper purpose: s180(2)(a) CA. They do not have a material personal interest in the subject matter of the judgement: s180(2)(b) CA. They inform themselves about the subject matter of the judgement to the extent they reasonably believe to be appropriate: s180(2)(c) CA. They rationally believe that the judgement is in the best interests of the company: s180(2)(d) CA. A business judgement is any decision to take or not to take action in respect of a matter relevant to the business operations of the company: s180(3) CA. There is next to no case law interpreting the decision, and it has not been used as a successful defence. IF director takes no interest in board of directors Here, [director] may argue that as they took no part in the decisions of the board, and were not allocated specific tasks, then they can raise the defence, as they meet the requirements. However, in Gold Ribbon (Accountants) Pty Ltd v Sheers, it was held that such a situation does not give rise to the defence as it is outside its scope.

Duty of Due Care and Diligence Statutory Remedies Section 180(1) and (2) are civil penalty provision: s1317E(1) CA. Therefore the court may: Make a declaration of contravention, then Impose a pecuniary penalty: s1317G CA. Disqualify director from bearing office: s206C CA Make a compensation order: s1317H CA IF Plaintiff is a shareholder Here, even if there is a breach of duty it does not appear that [plaintiff] would have standing to bring an action

*Duty to Retain Discretionary Powers 1.Issue Has [director] breached their duty to retain discretionary powers. 2.Duty Directors have a duty to retain their discretionary powers. Here, [director] [has/has not] breached this duty by entering an agreement with [outsider] that they will vote in a certain way at future board meetings. IF Breach duty Here, the duty has been breached. The result is that the contract is ineffective, even if [directors] are not otherwise in breach of their duties, such as acting for a proper purpose. IF enter into agreement in the best interest of company Here, [director] has entered into an agreement to vote in a particular way. However this will not be a breach where [director] has properly considered the act and it is in the best interests of [company] at the time of the agreement: Thorby v Goldberg. IF nominee director appointed Here, [director] has nominated [nominee director] to represent their interests and act on their instructions. Here, [nominee director’s] power may be fettered where the constitution allows the appointor to remove the nominee 3.Consequences If there is a breach, the contract will be ineffective.

Duty to Retain Discretionary Powers Directors Relief from Liability for Breach of Duty 1.Ratification at General Law Generally the duties are owed by directors to the company. The company in general meeting may condone a breach of duty by directors either prospectively or retrospectively where there is full and frank disclosure of all material facts to the company in general meeting: Regal (Hastings) Ltd v Gulliver 2.Limitations on Ratification There can be no ratification where: director’s act is illegal; director’s act amounts to a fraud by majority on minority: eg Cook v Deeks personal rights: Residues Treatment and Trading Co Ltd & Anor v Southern Resources Ltd & Ors Intrusion of creditors’ interests: Kinsela v Russell Kinsela Ratification will not have properly occurred when both majority of directors & shareholders are involved in the breach: Hannes v MJH

Duty to Retain Discretionary Powers Under the Corporations Act (i)Where honest and ought fairly be excused Where honest and ought fairly be excused: s1317S only for civil penalty provisions not offences: s1317S(1) court has discretion to relieve person if it is believed that person acted honestly and having regard to all the circumstances they should be excused: s1317S(2) can excuse wholly or partly: s1317(2) for contravention of s588G, consider whether person took any steps toward appointing administrator: s1317(3) person has to apply to court: s1317S(4) court can grant relief: s1317S(5) (ii)General Discretion to Grant Relief General discretion to grant relief: s1318(1) applies to any civil proceeding court must be satisfied they acted honestly and in all the circumstances ought fairly be excused can be relieved in whole or in part can apply to court for relief in anticipation of proceedings: s1318(2) Company cannot restrict liability of directors in constitution or by contract cannot exempt director from liability to the company: s199A(1) cannot give indemnity to director for liability to the coy or liability under s1317G, H or HA: s199A(2) cannot give indemnity for legal costs arising out of defending suits in 199A(2): s199A(3) Company cannot pay insurance premiums coy cannot pay or agree to pay insurance premium for insurance against liability from wilful breach of duty or breach of ss182, 183: 199B(1) Anything that purports to indemnify or exempt or insure in violation of s199A and s199B is void: s199C(2)

*Defences: Directors relief from liability for breach 1. Ratification at General Law Generally the duties are owed by directors to the company. The company in general meeting may condone a breach of duty by directors either prospectively or retrospectively where there is full and frank disclosure of all material facts to the company in general meeting: Regal (Hastings) Ltd v Gulliver 2.Limitations on Ratification There can be no ratification where: director’s act is illegal; director’s act amounts to a fraud by majority on minority: eg Cook v Deeks personal rights: Residues Treatment and Trading Co Ltd & Anor v Southern Resources Ltd & Ors Intrusion of creditors’ interests: Kinsela v Russell Kinsela Ratification will not have properly occurred when both majority of directors & shareholders are involved in the breach: Hannes v MJH

Defences: Directors relief from liability for breach Under the Corporations Act (i)Where honest and ought fairly be excused Where honest and ought fairly be excused: s1317S only for civil penalty provisions not offences: s1317S(1) court has discretion to relieve person if it is believed that person acted honestly and having regard to all the circumstances they should be excused: s1317S(2) can excuse wholly or partly: s1317(2) for contravention of s588G, consider whether person took any steps toward appointing administrator: s1317(3) person has to apply to court: s1317S(4) court can grant relief: s1317S(5) (ii)General Discretion to Grant Relief General discretion to grant relief: s1318(1) applies to any civil proceeding court must be satisfied they acted honestly and in all the circumstances ought fairly be excused can be relieved in whole or in part can apply to court for relief in anticipation of proceedings: s1318(2) Company cannot restrict liability of directors in constitution or by contract cannot exempt director from liability to the company: s199A(1) cannot give indemnity to director for liability to the coy or liability under s1317G, H or HA: s199A(2) cannot give indemnity for legal costs arising out of defending suits in 199A(2): s199A(3) Company cannot pay insurance premiums coy cannot pay or agree to pay insurance premium for insurance against liability from wilful breach of duty or breach of ss182, 183: 199B(1) Anything that purports to indemnify or exempt or insure in violation of s199A and s199B is void: s199C(2)

John-Paul Redmond Barrister Blackstone Chambers. Law of Associations Types of Business Organisations: Sole Trader UnincorporatedAssociations Corporations.

Similar presentations

Presentation on theme: "John-Paul Redmond Barrister Blackstone Chambers. Law of Associations Types of Business Organisations: Sole Trader UnincorporatedAssociations Corporations."— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

John-Paul Redmond Barrister Blackstone Chambers. Law of Associations Types of Business Organisations: Sole Trader UnincorporatedAssociations Corporations.

Similar presentations

Presentation on theme: "John-Paul Redmond Barrister Blackstone Chambers. Law of Associations Types of Business Organisations: Sole Trader UnincorporatedAssociations Corporations."— Presentation transcript:

Similar presentations

About project

Feedback