The Australian Corporations Act - Assignment Example

Corporation law By Question a) The Australian corporation’s act imposes various duties toward theofficers of corporation and directors. Section nine gives direction on corporation officers including executives who are holding positions below the board levels. A director of any company has a duty to act in the best interest of the company and in good faith. Section 181 of the corporations act presents the duties of a director of a corporation. The views and interest of the director has brought challenges in the Australia’s policy description. Companies and corporate organization present independent interests to the various people that are affected by it. A director is therefore required to mediate a set of interest that will always remain constant. A company should be able to advance owner’s interest (Burrows, 2010). The owners of the company entail the many shareholders who have invested in the company. The director is required to take care of the financial interest of the company, having in mind that the company belongs to its shareholder. Rose being the director of Growfast Pty Ltd should be in a position to handle and advance the financial interest of the company’s shareholders. Though she is a non executive director and does not take part in most of the company activities, rose is one of the share holders and should be well informed on issues pertaining to the company operation. Sam being the manager of the company should have consulted both Rose and peter before going out to purchase the large premise in a new area. The situation has made it difficult for all the shareholders and Rose being the director should come up with strategies to advance the financial interest of the shareholders. Rose should be able to question Sam regarding his previous decisions and its impact toward the company. Question 1b) According to corporations act 2001 section 180 subsection 2, an officer of a corporation or a director who takes part in making business decision is assumed to meet the requirement presented by subsection one in equity and their equivalent duty at common law. Subsection one of the Australia’s statutory law stipulates that an officer of any corporation or a director in this case should discharge their duties and exercise their powers with diligence and degree of care if they were the director of the organization in question. Rose being the director of the Grow fast company has a mandate of ensuring the judgement he makes is for the best interest of the company. Although Rose was doubtful about Sam’s decision, she did not question it and submitted to it at the end. Directors of a corporate body are said to exercise their powers if they make judgments that are considered of good faith. The judgement that Rose made was not for the good faith of the company. Rose was not supposed to agree without making her own assessment of the situation (Gilligan et al, 2010). Her agreement has impacted negatively to the outcome of the business since the profits have remained low despite Sam’s thoughts that the approach could have boosted the profits of the company due to lack of competition. Directors should not have to pass judgement that is only meant to serve their interests. Section 180 of the corporation law permits the director to be well versed about the judgement they make and its subject matter and should have a belief that it is appropriate. They should work to ensure that the judgement they make is for the best interest of the company. The director has to believe that the judgement they make is for the best interest of the company. Directors are supposed to believe that the judgement they make is right. Rose however, is doubtful of whether to agree with Sam on the issue of moving the business premise to a new area. Her decision to support Sam’s idea cannot be protected by section 180, subsection two of the statutory laws. She agrees to support the idea of moving to a new premise even though she doubts it. She does not take care of the interests of the company and her judgement is not of good faith. 1c) One of the most controversial duties on the director of any company is to avoid insolvency trading. The move is among the controversial provisions present in the corporate law. The move calls for directors to be risk averse and may push them to put the company into liquidation or voluntary administration. Insolvency trading prevention is contained in section 588G of the corporate laws. The directors should work to avoid breaching of section 588G. The section imposes liability upon a director of a company in cases where a debt is incurred. A company becomes insolvent in events where it incurs the debts (Grantham, 2007). A company director can be able to tell when the company is in debt and is becoming insolvent. The law gives duty to the director to prevent insolvent trading and be in a position to prevent the company from making losses. Section 588G applies to both shadow and de factor directors. A company is insolvent in situations where it fails to pay its debts. Section 588G of the corporation law demands that Rose should be liable in situations of insolvency. Despite Rose being convinced towards moving to the new premise, she is liable in situations where the company fails to pay its debts. Her decisions and judgement are meant to protect the interest of the company. Growfast Company just like any other company is at risk of becoming insolvent and Rose should work hard to protect the interests and change the trend of the company. It is considered a defense in cases where the director is aware that the company will encounter a debt. It often requires reasonable ground pertaining to insolvency. Sections 588G require grounds that are reasonable to suspect insolvency. In a case targeting MILLER v METROPOLITAN FIRE SYSTEM PTY LTD the judge said; the directors of companies were to have reasonable grounds toward insolvency and should be aware of when the company should settle debts. Rose should only be liable if she failed to take appropriate steps to prevent the company from incurring losses. 1d) Peter is one of the company shareholders and should be permitted to take part in the decision making process of the company. Although he was convinced by Sam on the decision to move to the new and larger premise, he agreed and is accountable for any losses that the company will be able to make. It’s the mandate of the shareholder especially the majority shareholder to move and avert certain situations that can lead to insolvency. Some shareholders in many companies may however allow the mangers to deal with the mess (Lowry, 2012). Personal liability risk in many occasions may outweigh the shareholder’s prospects of taking care of their investment. Peter being one of the shareholders in the Grofast Company will be liable for any loss since it will be shared among them with regard to share amount. Question 2a) The laws governing the duties and responsibilities of a director comes from company’s constitution, the common laws and the corporation act of 2011. The laws allow the directors to put the company’s interests ahead of them and are aimed at promoting good governance. Although Roger is working for both BHT Pty and Rubicon Pty Ltd, his business trip to the United States is associated with Rubicon Pty Ltd and therefore should protect the interest of the company and focus on the issue concerning the company. He has breached his duties as a director of Rubicon Pty Ltd. Section 180, subsection 2 of the corporate laws provides the duties of a director (Grantham, 2007). The director has to act in good faith and for the interest of the company; he has a duty to avoid conflict of interest, he has a duty of diligence and care and should not use his duties improperly. A direct should not use his duties to pass certain issues that give them an advantage. In a case of KIMSELA v RUSSELL KINSELA PTY LTD (1986), the judge affirmed that the interests of the company ought to be given a priority and the Director should not misuse his powers for his own benefits. Being on a Rubicon Pty Ltd, Roger should focus on the interest of the company and not the ones associated with the BHT Pty Ltd. 2b) Roger will not be able to succeed in his defenses pertaining to his action. Both companies are in property development business. Being in the same business makes them competitors. The action of Roger favored Rubicon Pty Ltd and not BHT Pty Ltd. Roger was expected to focus on the interest of Rubicon Company and his decisions were to be of good faith toward the company. His decision to indicate the contract of sale that the Purchaser is BHT Pty Ltd while on another company’s business trip is against the section 180 subsection one and two of the corporate laws. He therefore does not possess any arguable defense to support his action. His justification that Rubicon Company was unable to afford the site and could not be able to invest overseas is based on personal ideas. He could have consulted other executive members before making such a decision. 2c) Roger should be able to prevent further repercussion focusing on the interest of the company that has sent him out on a business trip. He should be able to consult before making general decisions that are targeting the company. Directors of companies should place themselves in a position that will make them able to protect the interests of the company. Roger should have a duty of utmost faith and trust toward both companies (Khan, 2013). Roger should be aware of the financial affairs of the company and should be able to consult in events where he encounters an opportunity for the company. Roger has a duty as per the corporation act section 180 to act for the proper purpose of the company. Most often the company’s interests may not be in line with the interest of the director and this call for Roger to consult higher management and come up with an inclusive idea that will place the interests of the company concerned ahead. 2d) The Australian securities and investment commission should not take action against Roger because he acted honestly and should therefore be excused by the company. His action was based on his knowledge on the financial capability pertaining to Rubicon Company. The court, the investment commission and the Australian security should focus on the purpose of his actions and advice accordingly. Roger can only be warned not to use companies toward the interest of the other (Lowry, 2012). His actions are justified as a director even though the interests were associated on another company instead of Rubicon Pty Ltd. In case concerning ASIC v VIZARD, Mr. Vizard was charged for improper use of company’s confidential information to help in purchase of share for his own interest. Roger’s action was appropriate though they targeted a different company. References Burrows, S. (2010). Directors Duties (1st edition)20102Andrew Keay. Directors Duties (1st edition) . Jordan Publishing Limited, 2009. 476pp. Int Jnl Law Management, 52(6), pp.482-483. Gilligan, G., Bird, H. and Ramsay, I. (2010). Regulating Directors Duties: How Effective are the Civil Penalty Sanctions in the Australian Corporations Law?. SSRN Journal. Grantham, R. (2007). Directors Duties and Insolvent Companies. The Modern Law Review, 54(4), pp.576-581. Khan, W. (2013). Towards Context-Specific Directors Duties and Enforcement Mechanisms in the Banking Sector?. Erasmus Law Review. Lowry, J. (2012). The Irreducible Core of the Duty of Care, Skill and Diligence of Company Directors: Australian Securities and Investments Commission v Healey. The Modern Law Review, 75(2), pp.249-260. Read More