Queensland Nickel v Palmer - Assignment Example

Queensland Nickel v Palmer Name Institutional affiliation Queensland Nickel v Palmer Introduction Having been the director of Queensland Nickel, Mr. Palmer is required to manage the company’s affairs through the fiduciary relationship that he stands with the individual shareholders and the present or future creditors.1 He was prospectively entitled to displace the power of the directors and shareholders in managing the assets of the company through the liquidation mechanism. Companies provide a medium in the practical sense for the directors to manage their own assets and not the shareholders’ assets through appropriate management.2 When a company is insolvent, the duties are owed to the creditors because they are entitled to hold the company’s ultimate financial interest it loses its accounts capital. Has Mr. Palmar discharged his legal responsibilities to ‘act in good faith’ as a director? The fiduciary and general law specifies the duties of the directors to act in good faith. Sections 184 (1) (a) and 184 (1) (b) of the Corporations Act codifies the duties by stating that directors must not be reckless and intentionally dishonesty. Directors must as well discharge their duties and utilize the provisions of their powers in observing the best interests of their respective corporations in good faith,3 and for a proper purpose. 4 The fiduciary nature of the office of the director gives rise to the general law’s basic proposition. The standards of behavior of a director being a fiduciary and his/her is subjectively higher than the cases for arm’s length relationships. The market place morals hold less strict requirements than those held by a director. The most sensitive aspects are based on the punctilio of an honor and not just on honesty. The judicial obligations of the director are reflected by the remedies applicable to the overstepping redness behavior.5 As such, a director who engages a company in carrying out transactions with another company with the knowledge that the transaction would be detrimental to the company to which he owes legal responsibility would be guilty of failing to act in good faith. Still, Mr. Mensink is solely given the role of being the director of Queensland Nickel while his uncle Mr. Palmer directs two other separate companies. In my opinion, the Australian Securities and Investments Commission (ASIC), is not legally mandated under the 2001 Corporations act’s s184 (1) to investigate Mr. Palmer for failure to act in favor for the best interests of the company through good faith. The relationship between Mr. Mensink and Mr. Palmer is of no significance and would be rejected because the duty of confidentiality owed to Mr. Mensink’s company was not subject to disclosure to Mr. Palmer’s companies.6 Has Mr. Palmer dishonestly discharged his duties to the other officers and employees? The directors, employees and other officers under the fiduciary and general law as well must comply with their duties’ requirements. Section 184 (2) (a) of the Corporations Act defines the offence of using the directors’ position intentionally to gain their own selfish advantages, or the other parties interests, or to lead the corporation into detriment directly or indirectly. The officers, including the directors, must avoid dishonesty by objecting the recklessness that would result in the direct or indirect gains to any individual including themselves, or that which would detrimentally affect the organization.7 The whole company constitutes the general body of the corporation and not just the commercial entity segment. The proprietors of the company must be considered by the directors because they hope to gain from the capital that they have risked. A company is established by the joint action of the shareholders to contribute their capital to the directors. The shareholders as well agreed to confer the directors’ various powers by agreeing to do so in order to manage the business. The constitution of a company has the interests of the shareholders to be exercised by the directors accepting to take office. In return, the directors receive the confidence and trust reposed by the shareholders.8 As such, the director of Queensland Nickel is prohibited from causing detriment to the corporation, or improperly and indirectly or directly gaining and advantage for themselves or for the other parties. The breach of the prohibition does not necessarily depend on the detriment of the intent obtaining an advantage. The Corporations Act 2001 (Cth) specifies the civil penalty provision for the prohibition. A person who disregards section 182 (2) of the corporations Act 2001 through the contravention of the prohibition is subject to a civil penalty provision. In my opinion, Mr. Palmer has not disregarded section 184 (2) of the Corporations Act and, on such grounds, should not be investigated by ASIC. The argument of investigating him would be dismissed because the sole responsibility of the use of position lies with the current director of Queensland Nickel Mr. Mensink. Has Mr. Palmer dishonestly used information dishonestly as a director? The directors, officers, and other employees of corporations and companies must use information honestly as described by the fiduciary and general law. Section 184 (3) (a) of the Corporations Act codifies the dishonest use of information by specifying the prerequisites of having the intentions to directly or indirectly gain an advantage for themselves, or for other individuals, or lead the corporation into detriment. A director as well must not use the information recklessly as to result in gaining an advantage for themselves or for someone else directly or indirectly or to lead the corporation into detriment.9 Part 9.4B of the Corporations Act describes the civil penalty procedure.10 Various pecuniary orders may be made by a court,11 or the person may be required to compensate the company for contravening a civil penalty provision.12 The defendant’s consciousness of impropriety is not a factor in determining an improper use of position accusation such as disclosing company information. Impropriety would consist of failure to observe the standards expected from the person holding a given position while having the knowledge of his/her authority, powers, and duties.13 The Corporations Act describes the civil obligations for the persons who have been directors or are directors requiring them not to use information improperly to gain advantage for themselves or other persons as to cause detriment to the corporation.14 In my opinion, Mr. Palmer should not be investigated by ASIC because of the lack of supporting evidence that he had used the information he obtained when he was the director for personal gain and to the detriment of the company. Has Mr. Palmer failed in his duty to prevent the Queensland Nickel Company from insolvent trading? Section 558G of the Corporations Act codifies a director’s duty to prevent his/her company from engaging in insolvent trading. The section only applies when the person is a current director,15 and at the same time the company is insolvent, or would become insolvent, or incurs overwhelming debts,16 and the company is suspected of being insolvent, or would be insolvent, regardless of the case,17 and the act has been commenced.18 However, Section 558 is not applicable whenever the debts are aimed at regaining solvency, and reasonable and honest believes are evident for the company’s and creditor’s best interests.19 Still, section 558G of the Corporations Act has the statutory purpose of providing a remedy for commercial irresponsibility and dishonestly. In the situation, all directors with a company’s knowledge of insolvency are subject to the liability of repaying the loans, property, or services obtained.20 In my opinion, Mr. Palmer should be investigated by ASIC for contravening the requirements of S558G of the Corporations Act by requesting and accepting loans from Queensland Nickel while he was aware that the company was, or was going to be, insolvent. BIBLIOGRAPHY Legislation Corporations Act (2001) (Cth) s 184(1) (c). Corporations Act (2001) (Cth) s 184(1) (d). Corporations Act (2001) (Cth) s 184(2) (b). Corporations Act (2001) (Cth) s 184(3) (b). Corporations Act (2001) (Cth), ss 1317DA, 1317E. Corporations Act (2001) (Cth), s 1317G. Corporations Act (2001) (Cth), ss 1317H, 1317HA. Corporations Act (2001) (Cth) s 183. Corporations Act (2001) (Cth) s 558G (1) (a). Corporations Act (2001) (Cth) s 558G (1) (b). Corporations Act (2001) (Cth) s 558G (1) (c). Corporations Act (2001) (Cth) s 558G (1) (d). Cases Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258 (Dillon LJ). Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722, 730. Fitzsimmons v The Queen (1997) 23 ACSR 355. Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286, 291; Ngurli v McCann [1953] HCA 39; (1953) 90 CLR 425, 438. Edwards v Australian Securities and Investments Commission (2009) 235 FLR 207. Books Harold Ford, A director must act honestly in good faith in furthering the interests of the company as a whole. (TLA [4.2.1870], 1993). Harold Ford, The Corporations Act 2001 (Cth) provides that an officer or employee must not make improper use, first, of information acquired by virtue of his or her position, [1] or, second, of his or her position, [2] to gain an advantage directly or indirectly for anyone, or to cause detriment to the corporation. (TLA [4.2.1960], 1993). Journals The Baxt Report, Safe Harbour for Directors in Insolvency Scenarios: Will This Come About? (Robert Baxt, 2016). Read More