Responsibility to Act in the Best Interest of the Corporation - Report Example

Name: Lecturer: Course name: Course code: Date Introduction The director ought to observe duty of care as well as being diligent in their duty so as to escape liability that might arise out of their action. This provision is governed under section 184(1) a, 184(2) c as well as 191 of the common statute and cooperation act 2001.Any individual in the company who fill he is oppressed by the action of the directors are required to seek legal redress in court and the court will consider the existing powers of directors and take the necessary corrective action where it is of he opinion that actually the members of the company are being treated harshly and mistreated by the director. The company and the managers do have a fiduciary relationship and hence the director’s duty is put into effect by the equity. Therefore, from the above case study, the concern arose whether Don will be liable for the contract he entered with Myco Pty limited in which Don owns 20% shares in this company and he never disclosed such contract in the board meeting or to Bryan in the course of business transactions. Also the issue is whether the action of Don in which Bryan feels as being oppressed is deemed ultra vires and consequence that may arise out of this rule. A).The director’s Fiduciary duty to escape disagreement of interest in the contract The director ought to make a comprehensible objective of concern on the treaty to other directors .this terms is presided over under the corporation act 191 and act as relief on ultra vires rule to directors of the company. The provision of section 181(2) prohibit the directors from using their position unsuitably to seize advantage of the dealing both directly or indirectly so as to profit themselves or deliberately and hence loss will realised in the company The corporation managers are indebted under the permissible and fiduciary duty from escaping the secret conflict connecting the company’s interest and those of the directors. under this provision ,The directors of the company are prevented from making a contract t from the corporation devoid of creating a clear confession of their importance in the contract to the approval of other directors or panel of members, or where the manager is making an private profits arising from the position of an executive in the corporation. (Anon., 2006 - ‎Preview) As of the discussed case study, it means that Don should encompass contact with his assistant director of the objective to create a binding a agreement with Myco Pty limited in which Don has a 20 % shareholding. Don has infringed the fiduciary obligation of acting with extreme good faith since he did not make whichever confession to Bryan who is a manager assistant in which under any circumstance the assistant director ought to be aware of the company plans. in addition, a comprehensible importance of Don in the indenture is predicted since he have possession of 20% of the shareholding and as a consequence Don is acting merely for individual interest. B).Responsibility to act in the best interest of the corporation Don entered into an agreement with Myco Corporation in which he have possession of 20% of the shares. Consequently, the court may perhaps set aside the convention since Don did not unveiled in board meeting, neither did he exchange a few words with Bryan who is the subordinate manager of his progress to create an indenture with Myco Pty limited. for that reason, Don is obtaining undisclosed profit out of this contract and as a result this would amount to individual concern and not interest to advantage the shareholders of the corporation. Don as also violated the law of due care and to observe diligence in his duty and accordingly an oppressed party must seek redress in court for deeds of Don alongside the corporation charter. (Griffiths, 2005) Where the executives are found that the y are not acting in utmost good faith and in the best interest of the company, the court will implement legal responsibility as fiduciaries on executives due to of negligence on their part as company directors because the corporation bestow them with powers to the execute their task and responsibilities in the company as if they were theirs. Where the action of the director is not in concurrence with best interest to persuade the necessities to the shareholders, the indenture can be set aside by the court. Where the court provide reservation any contract completed by the company’s executives as far the indenture will bring in profit and build an outstanding image to the company, the court may set aside the indenture. In summary, amid the present globalisation and rising antagonism, the answerability of company’s administrators is getting higher since various courts at the present time assume the Australian and those of American jurisprudence .Australian administrators are subject to indictment each day for infringement of their constitutional duty as a consequence of the disgruntled shareholders and upset member of the company such as the subordinate executive. To avoid the escalating legal responsibility being forced on them, the principal are permissible to put up with the statute and directives provided under corporation act 2001 section 184(1, 2) as well as section 191. A subjugated person by the action of the directors, he has a remedy of seeking legal rectify from the court in which the court may judge the enormity of the case and provide the essential action on the administrator .the corporation’s executive ought to be competent to embrace in writing his concern in the indenture during the conference of committee or board meeting to circumvent the cost of intensifying disagreement of interest since this might make the court to set aside the contract in which case the corporation will not be party to the indenture and consequently the executive will be legally responsible. (Anon., 2012) C).Comprehensible objective of the executive interest on the indenture The act provide that the manager is presumed to reveal in correspondence the nature and magnitude of his interest in the convention and to have it put in the minutes of meeting of directors or during the convention of committee of members where the party has an interest in the convention. Consequently the rule lay down that whichever administrator who has curiosity in the material convention is not permissible to take part in an voting for whichever verdict on the treaty except on the contract that consent his imbursement as a director or is by way of an associate of the company Fiduciary obligation orders administrators to unveil individual curiosity on the material contract or whichever dealing in which the company is party to the indenture. Also, if the manager and any officers in the corporation who approves the corporation to be party to material convention where the executives have an interest should pledge that the contract is equitable and reasonable to the corporation. In this situation, Material interest means any person linked with a party to a material contract. Where the manager as much as he does not have monetary consideration independently but the commerce bonds a close family member or friend of him, the agreement ought to be hesitated. as a result the company’s executive encompass a legislative responsibility to act candidly and with utmost good faith . (Hirani, 1997) The directors of the corporation have a responsibility to make it clear the objectives of their curiosity in the indenture created by the corporation and other third party. since, the corporation guiding principle will confer the director’s powers to carry out their contractual obligation on behalf of the corporation and with utmost good faith that the contractual obligation will serve to gratify the importance of the company’s shareholders. Deceitful administrators will utilize the powers conferred upon them to make undisclosed profit out of the business name and this will therefore make the business to fail and consequently could lead to wounding up. Where the managers refuse to discuss their interest in the indenture, the company’s shareholders ought to file a lobby in court setting aside the convention for personal and company not party to contract .however, to be granted a relief by the court, the circumstance of the indenture should be reasonable to the corporation at the time the indenture was established. (Keay, 2007) As a result, if Don complied with the safeguards that were put in place in the company and those of the corporation act 2001, it is uncertain that he can later be call upon to make available reasons to the corporation for the profit arising from the indenture. Additionally, business will be in a hard situation to implement the common rule laid in its memorandum of association to annulled the contract between the business and the Myco Pty limited D).responsibility to examine care, diligence and skills The entire executives of the corporation are compulsory to exercise the responsibility of care, skills, assignment and trust as well as to examine attentiveness in their duty. This act is presided over under the common statute of tort of carelessness, just duty of care as well as the company act 180(1).The provision of common statute state that all administrators of the corporation are presumed to examine the duty of care and in compliance with explicit set of laws lay down. responsibility of care is a set of performance beside which the dealings of the administrators and any senior officers in the company will be ascertained. This act provides that any person acting as a director or senior officer should exercise due care, skills and diligence that are sensibly cautious an individual would otherwise apply in the similar situation. An executive will be examining duty of care where is obliged to attend the entire board conference except where the exemption such as illness or not present in the country allows. From the above case analysis, it be depicted that don is limiting time for Bryan to speak as well as he attend s board meeting without full members and pass a resolution. (Rider, 1998) This act is deemed as undue care on the side of Don because he is not observing the duty of diligence and skill as a director. A manager is also mandated to delegate the responsibility to his assistant but in the case, Don is infringing the obligation of assignment and trusts since he demoralizes Bryan as a subordinate manager and consequently prolongs to seize on the dealing of the corporation like a sole an administrator. This consequently means that Don is not adhering to the laid down guiding principle and consequently he has infringed the duty of care, skills and diligence in which he is authorised to examine under the corporation act 2001 as well as the coco company limited guiding principle set in their memorandum of understanding and article of association. E).The principle of ultra vires rule The principle of ultra vires law affirms that the company’s administrators are mandated from acting outside the control which they are bestowed to them by the company’s charter. Any act that is regarded ultra vires will make the corporation’s administrator legally responsible. Corporation act provides that the company’s director will not be legally responsible to any act done during the ordinary course of dealing and if the act was within the powers granted to him by the company’s charter. The duty emancipated by the directors should to enclose jointly the characteristic of purpose and subjective as made clear by Owen J in the Bell Group Ltd v Westpac Banking Corporation. Where the action of executives is considered for individual profit as well as do not please the responsibility to act with utmost good faith and with best interest of the corporation, the director’s action is judged ultra vires and the responsibility of the director is violated. The consequence of this is that the executive will be legally responsible for any lose suffered by the company. It is repulsive where the executive act negligent or intentionally fraudulent and be unproductive to put into practice their powers and discharge their duty with utmost good faith .this action is provided in detail under Section 184(1) c. Under the cooperation act 184(1) c and 184(1) a, directors are presumed to act with utmost good faith and in the company’s best interest. Don entered into a 3 year contract with Myco pty a resident company to supply coco. Though the agreement is binding, it is considered ultra vires because the director did not disclose the intention to create a contract with Myco Pty limited. The law provides that the director must act in good faith and in the best interest of the company but Don Action is doubtful. Don has s 20% shareholding in Myco Pty and hence the mode of contacting is for personal gain. (Loos, 2012) Don did not communicate with Bryn of the necessities to create a binding convention with Myco to supply coco and as a result the administrator is acting in disagreement with provision of section 181(1) a of the corporation 2001 act. And hence Don as disregards the fiduciary accountability of acting with utmost good faith and in the best interest of the company F).Remedy for oppression To avoid legal responsibility, the directors should to be conscious of the common law as well as the legislative responsibilities conferred upon them in addition to the liabilities they will be bearing and for this reason Don should understand the way to put up with such rules as well as mitigating such liabilities Bryan has an alternative of filling a petition to court against the act of oppression from Don and to remedy the essential matter. Individual liability may be forced To Don by calling upon this provision where the court deemed indispensable. The court may issue an order where it is of the opinion that the powers of the directors have been exercised in a conduct that is unfair or harsh to assistant director. Therefore, for this regulation to be endorsed Don should have acted in a way either directly or indirectly that would amount to oppression on Bryan. Moreover, the circumstances of the case should make it pertinent for Don to essentially compensate Bryan. as of this scrutiny, Don is treating Brain unjustly .it is apparent that Don is restraining the time for Bryan as well as he is dictating the conference leading to solemn difference between them. as a result, Bryan has a remedy of going to court to file against oppression from Don and to look for suitable relief on the subject matter. In conclusion, Bryan is supposed to report to the board meeting of such act made by Don. Directors of the corporation are authorized to hand over power and duty to the assistant as well as examine the responsibility of care .as of the above case study, Bryan is not taking pleasure of the productive corporation from Don and this would lead to violation of confidence among mutually party. (Rider, 1998) Reference Roman Tomasic, ‎.B.‎.M., 2002. In Corporations Law in Australia. p.ppg 328. Professor Bob Baxt, ‎.B., 2005. In Duties and Responsibilities of Directors and Officers. p.ppg 57. Loos, A., 2012. In Directors' Liability: A Worldwide Review. p.270. Keay, A., 2007. In Company Directors' Responsibilities to Creditors. Rider, B.A.K., 1998. In The Realm of Company Law: A Collection of Papers in Honour. Read More