Concise Corporation Law - Essay Example

? Word count 2039 words (excluding list of references) Answer to question (a) (i) Under Australian Corporation Act, a director may escape from the accountability of conflict of interest by the following ways. To inform the conflict of interest to all interested parties To abstain from involving or participation in making decision that may be or be seen to be, impacted by the conflict. Avoidance of conflict of interest Thus , directors of an Australian public company or a proprietary company , whether or not if there is provision in the company’s constitution to permit material personal interest , must give notice of such conflict of interest no sooner they become aware of it. Non observance of this provision will attract both fine and imprisonment. (Walton & Henderson 2005:17). Under s 195(2), an interested director of a public company may vote and even present in the board meeting provided if the board passes a resolution before such matter is voted upon The nature and magnitude of the director’s interest in that business are taken into recognition by the board The board resolution should mention that director’s voting for the interested resolution are satisfied that the director’s interest should not bar the director from voting or considering on the business matter. Directors of public company are now accountable by s 191. The Australian Securities and Investment Commission (ASIC) can under s 196 may order that a director with a material personal interest as defined in s 195(1) can present and vote on such interested matters if there is no proper quorum is available and due to urgency of the issue or due to some other compelling reason, that board can approve the same despite the fact of board’s conflict of interest instead of passing in Annual General Meeting. (Cassidy 2005:244). Since, the company has no constitution, replaceable rule in the Act will be applicable. In The Queen v District Council of Victor Harbour , Ex Parte Costain Australia Ltd [1983] 54 SASR 188 at 190, it was held that when a director’s interest is both material and personal ,such director is prohibited from attending and voting at the board meeting. In the Bell Group Limited (in liq) v Westpac Banking Corporation (2008) 70 ACSR I, it was held that an interest which has the potential to sway the voting by a director would be regarded as material interest. In Grand Enterprises Pty Ltd v Aurium Resources Ltd (2009) 256 ALR I , it was observed that the term “ material “ implied that kind of interest that requires to be of some value or substance instead of just a slight interest. (ASIC 2011:10). It is advisable that Betty should inform her interest in the business to the all the directors and should desist from attending the board meeting and voting on the resolution in which she is interested as held in Queen v District Council of Victor Harbour except where her participation will be of more advantageous to the company due to her expert knowledge on the subject. Answer to question B (a) (ii) As regards to an interested matter by a director that is being considered by the board, directors who do not have a material personal interest in such transaction will be known as “ non-interested directors.” A non-interested director should, when making a decision to offer financial advantages to a related party; To conduct proper investigation of management and should get proper advise, to the magnitude needed about the interested proposal. He should appraise the information provided to him independently As held in HIH Insurance Ltd and HIH Casualty and General Insurance Ltd , ASIC v Adler and others (2002) 41 ACSR , non-interested director should exercise “ special caution “ with conscientious concern to make sure that required corporate approval are received . For passing a resolution in which a director is interested, there should be adequate quorum of non-interested directors as stipulated in the constitution of the company or Corporation Act. In the absence of any valid quorum of non-interested directors, a general meeting can be called for voting such material personal interest resolution. Under section 210, if the benefit is to be granted, it should be given on an arm’s length, then no need to get the approval of members for such related-party transaction. In deciding whether exception is applicable, the non-interested directors should give consideration to the following: If the non-interested directors do not have the expertise knowledge to evaluate whether the particular transaction is at arm’s length, then, they should get a report from an independent specialist. In case of high uncertainty, the non-interested director may refer the material personal interest resolution for the approval of the members in general meeting. The non-interested may add the information about the value of the financial benefit in the notice calling the general meeting. Answer to question 1 (b) In case of a proprietary company, the Australian Corporation Act does not bar a director to vote at a meeting of the board and to participate in the meeting where the discussion about a contract in which such director is interested. Therefore, interested director participation and voting in such resolution may be detailed in the company’s constitution, if there is one, and in the absence of such constitution, the proprietary company replaceable regulation as contained in s 194 will be applicable. According to s 194, if the interested director makes revelation to the board of directors under s 191 of the Australian Corporation Act, then, the director is entitled to cast his vote on such resolution and the interested transaction may be proceeded, and the director is authorised to retain any benefits under such business transaction, and the company cannot shun such transaction just because of director’s interest in such transaction. s 194 of Australian Corporation Act, which deal with replaceable rule, which prescribes a procedure to be followed by the directors of proprietary companies who have a material private interest in a particular business transaction. This section states that if a director serves an advance notice as per the details given in the s191, in such cases , the company cannot shun such transaction just because the presence of the such interest. Thus, in a proprietary company, such director is empowered to retain those fiscal benefits under the interested business transaction and can even cast his vote for that resolution in the board meeting. The notice to be given by such an interested director under s 191 should offer particulars of the magnitude and nature of interest and the relation of such interest to the business affairs of the company. Under section 191(1), notwithstanding of a sole director of a proprietary company, a director of a proprietary company who has a material, personal interest in a business transaction must offer the other directors the notice of his interest . However, in case of a proprietary company, the notice need not to be given if the other directors who are aware of the magnitude of such interest and its relation to the interest of the business. The South Australian Supreme court unanimously viewed in Centofanti v Decimator Pty Ltd (1995) 13 ACLC 315 that there should be proper disclose about the interested transaction. In “Wambo Mining Corporation Pty Ltd v. Wall Street (Holding) Pty Ltd (1998)”, the Court of Appeal of New South Wales upheld the decision, though the directors were in a situation of conflict of interest. However, they had made full dissemination of their interest to the independent shareholders and had received informed approval to permit them from them to proceed with that interested contract. (Baxt & Baxt 2005:252). In R v Byrnes, it was held by the Australian High Court that respondent directors failed to divulge their interest and did not abstain from voting and hence, they were liable. (Tomasic, Bottomley & McQueen 2002:316). An interested director can issue a standing notice to the other directors of his material persona interest under s 192 of the Corporation Act. If an interested director has given a notice of his material personal interest notice to the other directors under section 191 or 192, then, the Corporation Act authorises the directors of a proprietary company who has a material personal interest even to vote on issues that pertain to that interest. Since, as this provision comes under replaceable rule, then, it may be altered by the company constitution. Hence, the non-interested director of a proprietary company should see what the company constitution says about the voting by a director in an interested contract. Answer to QUESTION 2 Members resolution not to sell facility To sell a facility, a special resolution is to be passed by members of the company. At least, 75% of the votes cast by members who are authorised to vote on a special resolution should vote for it. A notice of the meeting dated 21 days before the meeting should be served, which should contain place, time, date of the meeting, the details of the special resolution to be moved are to be given. However, a shorter notice can be given with the consent of 95% of the members. (ASIC 2013). As in this case, all the shareholders were present in the meeting venue, they may give shorter notice to the company for the resolution specifying not to dispose of company’s facilities and since 80% are against the move of sell the facility, it can be passed as a special resolution by the members present in the meeting. Directors present cannot ignore the member’s resolution if all the formalities like notice by short notice, percentage of votes casted in favour of resolution etc. “Removal of director” As the company has no constitution, the provisions of s 203 D will be applicable. Members of a company can remove a director by an ordinary resolution. A director can be removed by members only. Under section 249 D of the Corporation Act 2001 (Cth), requisition for convening a general meeting for removal or replacement of a director should be received from at least 5% of the members of the company at least two months before such a meeting. The requisition should specify whether it is a removal or removal and replacement of MD well before two months of the meeting. The director against whom a removal notice is received is entitled to make an announcement explaining his position and reason for voting against such a resolution. According to s 249H (3), short notice cannot be given for the removal of director resolution. Under s 203 D (3) , a director needs to be informed as the company has to give the copy of the notice received from the members for his removal. Under section 203D (4), the director is empowered to put their cases to the other members either by asking the company to circulate to other members his written statement or at the meeting, he can argue for his case. In Scottish & Colonial Ltd v Australian Power and Gas Co Ltd, it was held that compliances of section 203 D (2) to (7) is mandatory. (Jaque and Golchin 2008).Thus, shareholders of Kelvin-Decline Ltd should adopt the above procedure to remove a director and director cannot say that will refuse to carry out the member’s resolution. “Replacement of MD” Under section 203 D, at least 21-days notice must be offered for conducting member’s meeting of a public company for the removal of a director and to appoint a director in place of a director so removed. The requisition should specify whether it is a removal or removal and replacement of MD well before two months of the meeting. It is to be noted that shorter notice is not permitted for removal of director or appointment of a director. According to s 203 F, if a person is removed from directorship, then he also ceases to be managing director if he occupied that position earlier. Thus, members of the Kelvin-Decline Ltd with at least 95% of members present at the meeting can remove Kelvin from the directorship by giving shorter notice to the company and Kelvin can be replaced as the above members have the right to appoint another person in the place Kelvin. List of References ASIC. (2011). Regulatory Guide 76. Related Party Transactions. [online] available from < http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rg76-300311.pdf/$file/rg76-300311.pdf> [accessed 4 July 2013] ASIC. (2013) Special Resolutions. [online] available from < http://www.asic.gov.au/asic/asic.nsf/byheadline/Company%20resolutions?openDocument> [accessed 4 July 2013] Baxt, B & Baxt, R. (2005) Duties and Responsibilities of Directors and Officers. Sydney: AICD. Cassidy, J. (2005). Concise Corporation Law. Sydney: Federation Press. Jaque, A & Goichin, L. (2008). Australia: You are Fired – Dealing with the Removal of Directors from the Board. [online] available from < http://www.mondaq.com/australia/x/71638/Directors+Officers/Youre+Fired+Dealing+With+The+Removal+Of+Directors+From+The+Board> [accessed 4 July 2013] Tomasic R, Bottomley S & McQueen R (2002). Corporations Law in Australia. Sydney: Federation Press. Walton, J & Henderson, K. (2005). How to Identify & to Manage Conflicts of Interest. Sydney: AICD. Walton, J & Henderson, K. (2005). How to Identify & to Manage Conflict of Interest. Sydney: Australian Institute of Company Directors. Read More