Fiduciary Duty to Avoid Conflict of Interest - Assignment Example

Name: Lecturer: Course name: Course code: Date Q1).Breach of fiduciary duty Company law confers a broad and implied power to corporation managers in which they are suppose to exercise the powers during the normal course of business so as to guarantee achievement of goals and objective laid down. Under the common law and corporation Act 2001, it imposes some safeguards regarding the duties of the directors because other executives will not act in accordance with powers conferred to them and hence would lead to misuse of powers by fraudulent directors who want to gain from the company without consent of the board or other directors by way of consultation. (Seddon, 2009) A fiduciary association is depicted between the directors and the corporation and consequently equity enforce responsibility on executives. The issue in this case is whether semra as breached any contract by entering into an agreement with West Pty limited Company in which semra and her daughter controls the company. Fiduciary duty to avoid conflict of interest The directors of the company under this provision are averted from making a business arrangement from the company devoid of constructing a clear disclosure of their interest in the contract to the consent of other directors or board members, or where the director is making an undisclosed income arising from the position of a director in the company. ((Seddon, 2009)Semra should make a clear intention of interest on the contract to other directors.this provision is governed under the corporation act 191. The provision of section 181(2) excludes the directors from using their position inappropriately to take benefit of the business either directly or indirectly so as to profit themselves or intentionally making company run at a loss. (Roman Tomasic, 2002) Therefore Semra ought to have communicated to Suzan and Dilara of the intention to enter into a binding a contract with West Pty limited in which semra and her daughter controls the company. Semra has breached the fiduciary duty of acting with utmost good faith because he did not make any disclosure to Suzan and Dilara who are directors as well because they all have 1/3 voting rights in the company. Also a clear interest of semra in the contract is envisaged because she and her daughter controls west pty limited Q2). Dilara has not breached any fiduciary duty be because she entered into a contract personally with second hand fabric Pty limited. The word personally denotes that dilara do not have any association with west Pty at the time of entering into the contract with second Pty limited and consequently, the contract between them is binding. Also, dilara did not have any conflict of interest in entering the contract since the contract was created after Samra, Dilara and Suzan agreed together not to enter into a contract because to capital inadequacy on the side of west Pty limited and hence second Pty limited created a binding contract to produce garment not take advantage of West Pty limited. (Roman Tomasic, 2002) This consequently implies that West Pty limited will not be entitled to profit Dilara earned from Second hand Pty limited due to the fact there is no conflict of interest between dilara and West Pty limited. The law prescribe that a conflict of interest will arose where one of the officers of the company entered into a binding agreement so as to benefit him or herself out of the contract and deprive the company of its profit leading to insolvency. For this case, a contract between Dilara and Second hand Pty limited is not an indenture to advantage itself from West Pty limited but an agreement to expand their business territory together with dilara a n associate. (Roman Tomasic, 2002. ) Q3) .private Company’s charter provides restriction on transfer of shares. Under the cooperation act 2001, private companies are mandated to incorporate statutes in their article of association governing transfer of shares because shares transferability is a fundamental feature of a corporation, shareholders have a free right t to transfer shares to whom they prefer (Roman Tomasic, 2002) Consequently, Suzan is entitled to transfer shares to her daughter who is not a minor because she is at the age of 18 years in which she is regarded as an adult. Suzan is not authorized to request powers in the article in order to reassign her shares since the act itself provides the power to transfer the shares and therefore Dilara and Samtra do not have any right to restrict shares transfer by Suzan to her daughter. (Seddon, 2009) Directors of the company should act with utmost good faith and hence refusal to transfer shares of Suzan is not fiduciary because Samra and Dilara do not give a valid reason of their rejection. Suzan should therefore seek legal remedy in court concerning refusal of share transmittal by other directors with no comprehensible explanation of their decline. The law provide that shares are unreservedly transferable to other party on the ground that the party is a beneficiary to shareholder or in the event of death of a shareholder. (Professor Bob Baxt, 2005. ) B). Indoor management rule This rule is aimed at providing security to naive parties who does business with the corporation and their position do not allow them to have access to the internal information of the company and consequently will not be able to asses whether this internal rule are being adhered to. This rule is more applicable in case study on Royal British bank Vs Turquand. The corporation law state that companies are bound by the attaching of their legal seal to the manuscript where the corporation has power under their memorandum or article of association to enter into a business and as well the company seal is affixed in the existence of a person authorized by the company and to sign as well. It is not mandatory that the third party having a business deal with the company to place reliance on the memorandum and article of association of the company but nonexistence of duress, errors or legislative motives, this law is created on the rule that, the company charter was bounding by affixing of its seal to a manuscript where the business deal was transacted within the powers of the company. (Anon., n.d.) Exception to this rule This rule cannot be appealed to where as party did not comprehend the company’s memorandum and article of association and as a result did not act in accordance to this charter, also where an executives in the company act in a comportment that is deemed Ultra vires, any third party dealing with him in the transaction ought to find out and gratify himself that the executive is acting within the realm of his power but where the party fall short of making such inquiries, then he cannot place reliance on this rule. Any document that is found to be a counterfeit, the indoor management rule will not be relevant since nothing can be legitimate which is falsified. (H.K, n.d.) Protection provided by indoor management rule In my opinion, indoor management rule do not provide an adequate protection to third parties doing business with the company. The rule provides that any person can place reliance on the memorandum and article of association and the powers of the directors placed upon them. This action is deemed difficult because a person will find it complicated to assess the magnitude to which an officer serving him is authorized to transact business. Consequently third parties might suffer loss due to placing reliance on this rule. A proper mechanism need to put in place so as third parties can fully place reliance on the indoor management rule due to effect of globalization that has brought many changes on how the company is managed as well as the trading of shares in the security market. (Griffiths, 2005) Reference Anon., n.d. Griffiths, A.., 2005. In Contracting with Companies.. p.p.ppg 287. H.K., S., 2008. In Company Law (textbook) 5th Edn. p.ppg 150. H.K, S..2., n.d. In Company Law (textbook) 5th Edn. p. p.308. L. Sealy, ‎.W., 2007. In Cases and Materials in Company Law. p.ppg 136. Professor Bob Baxt, ‎.B., 2005.. In Duties and Responsibilities of Directors and Officers.. p.p.ppg 57. Roman Tomasic, ‎.B.‎.M., 2002.. In In Corporations Law in Australia. p.p.ppg 328. Roman Tomasic, ‎.B.‎.M., 2002. In Corporations Law in Australia. p.ppg 295. Roman Tomasic, ‎.B.‎.M., 2002. In Corporations Law in Australia -. p.ppg 234. Seddon, N., 2009. In Government Contracts: Federal, State and Local. p.ppg 129. Turley, I., 2001. In Principles of Commercial Law. p.ppg 31. Read More