Australia's Corporations Act - Case Study Example

Australia’s Corporations Act Questions Word Count: 1425 Customer Inserts Name of Group Members Customer Inserts Grade Course Customer Inserts Tutor’s Name 18, 08, 2010 Introduction The Corporations Act 2001 is a law that is used within commonwealth of Australia; it is a large set of laws dealing with corporations and companies. This law has been operational since the year 2001; it is used in regulating, formation and operations of companies. This law also governs on partnerships and private companies, while private companies which decide to adopt this law can also be governed by this law. Legal Issues raised in the Scenario The Australian Corporations Act of 2001 was formed to govern companies and businesses conducted by the different companies within Australia. In the case of South Australian Shandon Ltd and its directors, a case is seen where the directors violated their positions in the company to benefit themselves. According to the Corporation Act of 2001, it explains that a director should discharge his/her duties in good faith and in the interest of the company1. In this scenario we see that Adam discharged and acted in a manner that was not in good faith in relation to purchase of corks from another firm in which he is a major shareholder. In the case of Adam, we will examine the issue of duties and obligations of the directors as governed by Corporations Act 2001 (Cth). Adam breached his duties and responsibilities and thus certain legal issues have been raised, the issues include; breach of good faith, care and diligence, use of his position and use of information wrongfully2. In accordance with section 180 of the Corporations Act 2001 (Cth), a director has a duty of carrying out a business decision with care and diligence and not putting the corporation in jeopardy. But in this case, Adam together with Brendan made a decision of contracting wine corks from Tight Caps Pty; in doing so Adam did not disclose to the other directors that he was a major shareholder in Tight Caps. The actions of Adam were in contravention of the Corporations Act 2001 (Cth), thus raising a legal concern3. Another legal concern in this case, is that Adam had no intention of acting in good faith, in this scenario Adam acted in a way that put his company at a disadvantage. Section 181 of the Corporations Act 2001 (Cth), clarifies that a director must act in good faith at the company he/she is employed. According to 4 Adam did not act in good faith and his actions did not meet the purpose of the company since it put the company’s product at a compromised position. His actions amount to breach of legal provisions that need to be looked against the Corporations Act 2001 (Cth) by the company directors. In section 182 of the Corporations Act 2001 (Cth), it elucidates that a company’s director cannot use his position to gain advantage to themselves or other third parties. He/she cannot also use his position on decisions that could be detrimental to the company. Adam as a director used his position to influence other directors to award a contract to Tight Caps Pty, a third party firm in which he is a major shareholder5. His dealings were an infringement of Corporations Act 2001. Adam being a director of South Australian Shandon Ltd failed to inform his other colleague’s directors of his interest in Tight Caps Pty, a company which conducted business with South Australian Shandon Ltd. According to the Corporations Act 2001, a director should give notice to the board of his interest in other businesses which might interfere with company’s operations or put company in jeopardy; thus his actions amount to breach of the Corporation Act 2001 (Cth)6. Finally the legal issue that could be raised in this scenario is evident in section 183 of the Corporations Act 2001 (Cth). This section touches on the use of information by the director of a company; it clarifies that a director cannot unacceptably use information to gain advantage or cause loss to a company. In the case of South Australian Shandon Ltd, it is clear that Adam had information that screw caps were popular in Europe where his company sold its wine. But he instead did not disclose this information, this lead to the contract that was created with Tight Caps Pty for bottle corks7. In this situation, Adam’s actions are thus raised serious legal issues which need to be examined further against the laws and to find out the breaches that he will be liable for. Resolution of legal Issues When we are resolving a legal case or issues related to certain laws we have to look at the sections and provisions of that law that guide on determining these issues. In the Corporations Act 2001 (Cth), issues concerning duties of directors are established in sections 206 and 137 of this law. In case Adam is found guilty of contravening sections of the Corporations Act 2001 (Cth), he will liable to pay fines of up to $ 200,000 or compensate the company for any loss incurred as result of the contravention. Other actions that could be taken by the court of law include disqualification from the company’s board for a period the court sees fit. In resolving the legal issues discussed in this case, the Corporations Act 2001 (Cth) section 206A stipulates that; a director can be disqualified from participating in a company’s activities if he/she is found to have participated in decisions which affected the business. In the activities that occurred we witness that Adam was involved in making a decision which was in contravention the Corporations Act 2001 (Cth) and it affected the company in a major way8. Thus the laws could be used to suspend Adam from the board of the company and in addition he could be fined $ 200,000 for contravening the laws. In the scenario where Adam deceived other directors into contracting Tight Cap Pty for a period of ten years, this amounts to contravention of the Corporations Act 2001 (Cth). Thus Adam is liable to any loss that will be incurred by his company since he failed to disclose information he knew about his shareholding in Tight Cap Pty. According to 9Section 137E of the Corporations Act 2001 (Cth) guides on acts of company directors and it stipulates on penalties to be levied upon directors who contravene the Corporations Act 2001 (Cth). Adam could be made to pay all losses incurred by South Australian Shandon Ltd in its contract with Tight Caps Pty as set by section 137E. According to section 191 of the Corporations Act 2001 (Cth), it clarifies that a director with interest in issues that relate to the company, he/she should disclose the interest before other directors. Omitting the interest question from other directors is a violation of the laws and for this purpose the director will be held liable to all losses the company is exposed to as a result of the interest. In this case Adam will be held liable to all losses incurred by South Australian Shandon Ltd in relation to its contract with Tight Caps Pty, this because Adam failed to give notice of his interest in Tight Caps Pty10. Thus in relation to this law, Adam will be liable to all losses incurred by his company in its contract with Tight Caps Pty. In this case we note that Adam actions were out to benefit him rather than for the benefit of South Australian Shandon Ltd and in this relation we conclude that his actions were not in good faith. Using this argument, section 137E of the Corporations Act 200, stipulates a penalty to be handed to directors who act in a manner that could put their company in jeopardy11. Adam if found guilty by courts of law will be liable to a penalty and other sentences for his torts against his company in contravention of the laws. Finally the Corporations Act 2001 is meant to guide on commercial activities of companies and their employees. The Act guides on criminal offences conducted by employees or directors in relation to their civil duties. If a director or employee is found guilty of any tort against his company a hefty $ 200,000 fine is usually handed out; in the scenario above we observe a case where a director of a company used his position and went against his duties to put his company at a disadvantaged position12. In my opinion and using the Corporations Act 2001, Adam needs to be fined and stripped his directorship position as a result of his actions. Read More