Corporation Law by Ainslie Chandler - Article Example

Running Head: Corporation law reflective journal Corporation law reflective journal Customer’s Name: Customer’s Course Tutor’s Name October 3rd, 2012. Introduction The title of the articles about to be discussed is called property briefs which have been written by Ainslie Chandler and Ben Wilmot. The date of publication is 28th September 2012 and the name of the newspaper is financial review. Both articles seek to find the duties of directors and their replacement in relation to corporate governance in the companies discussed. The article written by Chandler is of a CEO who has breached his duties as a director by giving false information and documents to legal authorities in Australia and is also involved in not disclosing information that lead to his financial gain due to sales he made without the knowledge of the shareholders. Wilmot’s article is about the retirement of a managing director and the then executive chairman is to take up the managing director’s position. The interest in this article is to know if there are any procedures in filling in the managing director’s position if one was placed as an executive chairman. Legal issues According to the general duties that a director has in the Corporations Act 2001(Ctth), a director has duties to make decisions on behalf of the company when taking the following considerations in mind. That they should make the judgment in good faith and for the right company purpose. That they do not have any personal interest while undertaking their duties but consider the company’s interest. That they should do their duties while taking into consideration that what they do will not lead the company to a loss. The directors hence would have committed a criminal offence if they do not make true and full disclosures of information that will have an impact on the shareholders decisions. This would lead to a breach of contract that would be liable to the director being sued for any damages suffered. Directors have a duty to make full disclosure of any action that they are about to take. This is because all their actions are for the best interest of the company hence all information or action to be done should be fully disclosed to the shareholders. A director will be deemed to be acting with improper purpose if for example they sell part of the company property without the consent of the shareholders. Directors also have a duty to avoid any personal interest in the company such as engaging in activities that will make him profitable. In case of any personal interest, the director should declare the interest to the shareholders beforehand. A director will be held liable for any injuries or losses suffered if they carry out duties without the consent of the shareholders. Law In the article, Chandler has tried to support the case where the CEO of the hotel group is deemed to have committed a breach of contract by giving false document about the company and by not disclosing any information and selling company property with personal interest at hand. He also breaches his duty as a director when he used his position for financial interest (Heath, 2010). By engaging in a similar business, he breaches contractual duties because it is against contractual terms that one should not engage in similar businesses as the company. In the article of Wilmot, the current managing director, John Potter who is about to retire and the then executive chairman, Craig Treasurer is to take up the position. The argument in this case is it is right for a chairman to take up the position. Interpretation Basing the above arguments by the authors, Wilmot has made a correct interpretation on the laws regarding duties of directors. The writer argues that there is breach of contract when proper information is not given to the shareholders and by making profit and engaging in another similar business makes the contract to be breached (Giordano, 2011). In the second argument, the author claims that with the retirement of the managing director, the executive chairman should fill in the position. I tend to differ with the second author’s interpretation which states that the chairman should fill in the position of the director. The executive chairman should not fill in the position hence an extra ordinary general meeting should be organized in order to choose another director (Sheehan and Fenwick, 2008) Criminal offences Due to the breach that has been committed this leads to criminal offences in the first case where there is: The director does not submit proper documentation to the legal authorities. There is no proper use of the position given by the director. The director is involved in another business similar to the company. Article 2 Introduction The Australian article on 14th September 2012 by Chris Merrit entitled “Simplicity Key to Piper’s Global Growth” shows that Sir Nigel Power has a lot of experience in running law firms, having risen from a trainee to become the Chief executive and managing partner of the Law firm, DLA piper. Mr. Knowles now runs one of the biggest law firms in the World; it operates in over 31 countries. During his tenure, the law firm has expanded too many regions across the world. In Australia, the firm took over Phillips Fox and thus its Australian operation is known as DLA Philip Fox. Mr. Knowles owes the success of his firm to a business model that considers the firm part of the wider economy. However, he remains skeptical about the chances of the firm changing its ownership structure from a partnership to a public company alleging it is wrong to sell off a family business. It is clear from the articles, DLA piper law firm is not a family business owned by Sir Nigel Knowles. Therefore, it is in doubt whether Sir Knowles as the managing partner of the firm has the power to prevent the firm from converting to a limited company. Although, the Author of the article shows that Sir Knowles is a partner in the firm, he singles him as the most important factor in the success of the company. The author thus leaves out the other partners of the firm who may have played a role in the success of the company. Partnership law Under the Partnership Act 1890 which forms the basis of the Australian partnership law, the decision of a partner in a firm is binding on the other partners of the firm. However, the firm is not bound by a partner’s decision on behalf of the firm, if he does not have the authority of the firm to make that decision. In the article, Sir. Knowles assertion that DLA piper is not ready to list its shares on the market because he does not know how to explain to his family why he has sold their family silver represents his own views. However, sir Knowles ignores the opinion of other partners in regard to whether they should change their ownership structure to reflect modern business trends. Interpretation Sir. Knowles assertion that DLA piper does need not to change its ownership structure is wrong according to Armour and Simon (2001) who view the diffusion of ownership as inevitable for firms as large as DLA Piper. Although Sir. Knowles alleges that small firms are the one who need extra capital from listing on share markets; it is in fact his firm due to its size that requires additional capital for its expansionist policy. Armour and Simon (2001) divide corporate governance system into two; the United States system and the Rival Germany/Japan system. The characteristic of DLA Piper ownership structure place it under the Germany/Japan system which does not separate the ownership of a company and its control. According to Roe (1993) it would be impossible for the group of partners who own DLA piper to continue providing the capital needs of the alleged world’s largest law firm. In contrast, the Article’s author does not critique Mr. Knowles views that the firm does not need any additional shareholders to survive the competition that is brought about by regulatory changes. Most scholars on the issues of corporate governance view the separation of ownership of firms with their management as desirable (Armour, Chiffins and Skeel, 2002). Roe (1993) asserts that separation of ownership and control in firms allows them to higher executive on basis of credentials as opposed to family connections and percentage shareholding as in Corporations Act 2001 section 53AC. In contrast, it is not clear whether Mr. Knowles was appointed managing partners of DLA Piper because of his dominant shareholding or his management Credentials. Moreover, he disregards regulatory changes that favor listing on the stock market due to consideration of family succession politics. This is evidence of the lack separation of ownership and control in the affairs of DLA piper. Wessel (2001) notes that consideration like those Mr. Knowles makes in regard to listing on Capital markets are the reason why “insider/Control oriented” Corporate governance system have persisted although it has been shown they are less inefficient. According to the Economist (2000) the failure of the insider/Control oriented systems necessitated the regulatory changes referred to in the article. References Armour, J. & Simon, D. (2001). Norms in Private Insolvency: The “London Approach” to the Resolution of Financial Distress. Journal of Corporate law Studies, 21 (1) Economist (3 April 2000). Lean, Mean & European: Survey of European Business’, The Economist Giordano, F. (2011). Financial reporting duties of directors -- ten corporate governance lessons from Centro for non-executive directors of listed public companies. Keeping Good Companies, 63(7), 390-396. Heath, W. (2010). Rich insight into director's statutory duty of care and business judgment rule. Keeping Good Companies, (1), 9-11. Merrit, C. (14 September 2012). Simplicity Key to Piper’s Global Growth, the Australian Partnership Act 1890 Roe, M. J. (1993). Some Differences in Corporate Structure in Germany, Japan, and the United States. Yale Law Journal 102 (1927) Sheeen, K., & Fenwick, C. (2008). SEVEN: THE CORPORATIONS ACT 2001 (CTH), CORPORATE GOVERNANCE AND TERMINATION PAYMENTS TO SENIOR EMPLOYEES. Melbourne University Law Review, 32(1), 199-241. Wessel, D. (6 September 2001).The Legal DNA of Good Economies, Wall Street Journal (internet edition). Read More