Directors Duties under the Corporations Act 2001 - Essay Example

?Company Law Table of Contents Company Law Table of Contents 2 Question 3 Step 3 Step 2 3 Step 3 7 Step 4 7 Question 2 8 Step 8 Step 2 8 Step3 10 Step 4 10 References 11 Bibliography 13 Question 1 Step 1 The case discussed in the paper of SamTrax Pty Ltd and the Compact Bank related to the Corporations Act 2001 (CTH) specifically pertains to the duties of the directors under the specified Corporations Act. Step 2 A company is considered to subsist in a non-physical form and so, requires carrying out its activities with the assistance of other individuals. The individuals include the directors, employees or rather the agents and the secretary who are supposed to be approved by the company and its related law to enter or initiate agreements that are associated and involved with the company (Commonwealth of Australia 2005). The duties as well as the obligations of the directors, workers and the other officers are encompassed in Sec 179 of the Corporations Act 2001 (Australian Company Incorporation Services 2012). The Corporations Act 2001 (CTH) is regarded as the company law that exists in Australia. The responsibilities as well as the duties of the directors are specifically mentioned under the law which needs to be abided by the directors of the companies. The laws that are believed to preside over the duties as well as responsibilities of the directors are considered to source or originate from three different areas. The stated areas have been identified as the statute law that is encompassed by the Corporations Act 2001 (CTH), the law made by the judges or common law and the constitution of a particular company (Australian Company Incorporation Services 2012). The duties of the directors in Australia are developed or formulated with the intention to encourage good or superior degree of governance along with making certain that the directors carry out their respective conducts in accordance with the best possible interests in relation to their respective company. This particular explanation implies that the directors require to fundamentally taking into deliberation the interests of the company in contrast to their own. The obligations along with the duties of the directors with regard to the statutory responsibilities as well as the common law entail that they need to primarily carry out their activities in relation or compliance with the best possible interests concerning the company. The directors should not indulge themselves in any kind of activities that does not represent a proper or appropriate intention. The behavior of the director needs to be performed with care as well as adequate meticulousness. The directors are stated by the law to act in certain ways with the intention to keep away from any kind of disagreements relating to interests. It is also considered quite imperative for the directors to avoid or not get engaged in an activity that involves taking inappropriate advantage of their respective positions as well as information. Finally, it is expected from them to refrain from entering into any kind of business dealings while they are considered to be insolvent (Australian Company Incorporation Services 2012). Qualifying as a director under the Corporations Act 2001 (CTH) implies that few definite obligations as well as duties need to mandatorily perform by the directors. The violation of the mentioned obligations under the law would lead to strict legal actions against the directors. The directors are also required to discharge few fiduciary duties that are stated under the mentioned law. These kinds of duties that need to be carried out by the directors of the companies entail the rule out of misusing the position of the directors in order to attain any kind of an advantage with regard to their personal interests or even for some other individual. They need to take enough precaution while performing their activities in order to avoid any damage or loss with respect to the related corporation (Australian Company Incorporation Services 2012). The fiduciary duties prohibit the misuse of information obtained by the directors for the reason of their respective positions in the company with the intention to attain personal benefits or to cause harm or loss to the intended corporation. The directors are needed to use the authority or powers provided to them for their positions with the reason of acting in accordance with the best possible interests with regard to the concerned corporation and also for the fulfillment of a suitable intention or objective (Australian Company Incorporation Services 2012). The directors are also expected as per their fiduciary duties to inform the other concerned officers regarding any kind of material individual interest in the instances of a disagreement. The notion of material individual interest is considered to be a subject or issue that is supposed to be pertinent to the matters in relation to the company. The other present or existing directors require to be informed regarding the material individual interest of a particular director concerning a specific disagreement. However, there are certain exemptions provided with regard to the usual responsibility of revealing the information. The exemptions are provided only in instances when no severe harm or damage is expected to be caused to the company (Australian Company Incorporation Services 2012). The above mentioned duties as well as obligations of the directors are included in Sections 180, 181, 182, 183, 184 and also in Sec 191(1) (Australian Company Incorporation Services 2012). The Corporations Act 2001 (CTH) also states under its Sec 126 and 127 that an individual who has been officially recognized with certain authorities by the company is considered to be legally eligible person to discharge, sign or even deal in terms of agreements on behalf of the particular company. A document of a particular agreement is considered to be valid in case it has been signed either by two of the directors of the company or a single director and a secretary of the company or even by a particular director who is supposed to be the sole director as well as secretary of the company. It also requires to be mentioned in this regard that if a particular document or agreement is found to contain the impression of the common seal of the company then such a document is considered to be valid and prove the consent of the company as the common seal is measured equal to the signature of that specific company under Sec 123 and 127 (2). Therefore, any mortgage documents with the common seal of the company are considered to be valid and binding on the company (Lucy 2006). The directors of the companies are eligible of appointing secretary but the company needs to inform Australian Securities and Investment Commission (ASIC) regarding such an appointment within a stipulated time period which has been specified as 28 days under Sec 204D (Lucy 2006). Step 3 It has been found after analyzing the case in contrast to the conditions specifications under Corporations Act 2001 (CTH) that the managing director of SamTrax Pty Ltd, Anthony, has been found to violate the duties as well as obligations that are considered to be complied with by director of a company. Therefore, Anthony has been observed to violate the duties under Sec 181, 1821 183 and 184. Under Sec 191 (1) (iii) has also been violated by Anthony which calls for taking legal measures in relation to the violation. Civil penalties would be applicable on Anthony which can be exercised by the ASIC which is regarded to be the responsible national body concerning the securities as well as the registration rules prevailing in Australia. The civil penalties might entail fines which could amount to AUS$200,000 along with disqualification as a director from the company and liable for paying compensation to the company for the reason of the loss caused owing to breach of the duties as well as the obligations (PWC 2008). Step 4 The managing director of the company, Anthony, was found to initiate or rather enter into a mortgage agreement with the Compact Bank against a sum of $1.5 million. Anthony had mortgaged his personal property that is his house which is worth $2 million against the sum obtained from the bank. The document was found to have the common seal of the company which proves the validity of the document and thus makes it mandatory for SamTrax Pty Ltd to be liable for the loan amount that has been borrowed by Anthony and his son who was claimed to be the secretary of the company to the bank manager. Question 2 Step 1 The case of Adam with regard to this research paper has been found to relate with the area of duties of the directors and phoenix companies under the Corporations Act 2001 (CTH). Step 2 The activity discussed that was indulged in by Adam refers to a phoenix activity. This particular activity has been stated as characteristically related or concerned with those directors who are believed to initiate transfer of their respective assets in relation to a company that is supposed to be indebted. The assets of that definite indebted company have been further learnt to be transferred to a freshly formed company which involves the directors of the previous company in the same position. Once the assets of the old indebted company are transferred to the fresh company, the previous company is either placed into administration or even into liquidation. Liquidation implies that the company rules out any kind of holding or possession of assets with the help of which the payment of the creditors could be met. However, the nature of business of the old company is found to be continued with the application and implementation of the structure of the freshly formed company (Commonwealth of Australia 2005). The specific term ‘phoenix activity’ cannot be found in the Corporations Act 2001 (CTH) as it is commonly made use of or referred to by other professionals and lawyers. In other words ‘phoenix company’ is regarded to be the company that is believed to entail limited liability. Therefore, phoenix activities has been explained by ASIC to be those activities which gets initiated by a company which remains unsuccessful in clearing its debts or even engages in certain behaviors or actions which proves to deliberately rule out the accessibility of the existing unsecured creditors in relation to the presently available assets for the purpose of meeting upto or clearing the payments related to its debts. A company that is found to commence a fresh business within a period of 12 months from the closure of the previous business often tends to make use of some or the entire assets in relation to the previous business. The newly formed company or the business is even to be managed and presided over by the individuals connected either to the directors or the management of the former company. Thus, the involvement of a company in such kind of activities is known as ‘phoenix activities’ (Martin 2007). The director who is believed to be engaged with such kind of mentioned activities is considered to violate the duties as well as obligations that are supposed to originate from the usual statute or law. Stating precisely, the directors involved with these kinds of activities are observed to violate the obligations and duties of skill, diligence and care with regard to the Corporations Act 2001 (CTH). It also needs to be mentioned in this context that the fiduciary as well as the statutory duties and obligations related to good faith are also believed to be violated in case of phoenix activities. The directors engaged with these activities are also considered to violate or rather misuse their respective positions as directors and information which is usually obtained by them owing to their respective positions. The violations of these would lead to civil penalties and even criminal offenses in case the violation of good faith is regarded as dishonest and irresponsible. The misuse of information as well as position can prove to be criminal offenses in case the contravener does so with the intention of attaining benefits for someone else or even themselves or even causing severe damage to the concerned company. The violation of the statutory duties as well as obligations concerning insolvent trading are also considered to be criminal offenses in instances when it is found to engage factual knowledge or information regarding the insolvency or even the dishonesty with regard to the company (Australian Legal Information Institute 2012). Step 3 The breach or violation of the duties as well as obligations of the directors would relate to the violation of Sec 180, 181, 182 and 183 of the Corporations Act 2001 (CTH). The ASIC holds authority or power to undertake strict measures against the director under Sec 206D and 206F. The involvement of the directors with phoenix activities would also lead to the breach of Sec 588G (2) or (3) under certain specified conditions relevant to this particular sections. In case of breach of these sections, the directors are held as liable for paying the creditors, or even compensating them in terms of equivalent amount of damage or loss arising out of the violation of 588M (3) (Australian Legal Information Institute 2012). Step 4 The discussion of the pertinent laws and the sections in relation to the Corporations Act 2001 (CTH) implies that the director, Adam, is liable to pay the unsecured creditors ahead of attaining the amount of $100,000. References Australian Company Incorporation Services 2012. “Directors Duties under the Corporations Act 2001”. Redchip Lawyers 1-14. Australian Legal Information Institute. 2012. Commonwealth Consolidated Acts. http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ (Accessed May 17, 2012). Commonwealth of Australia. 2005. Corporations Act 2001. http://www.comlaw.gov.au/Details/C2005C00486/Html/Volume_1#para2.6486 (Accessed May 17, 2012). Lucy, Jeffrey 2006. “Directors’ Responsibilities: The reality vs the myths”. Australian Securities & Investments Commission 1-13. Martin, A. 2007. “Directors' Duties and Phoenix Companies”. Allens Arthur Robinson 1-12. PWC. 2008. A Guide to Directors’ Duties and Responsibilities for Non-Listed Public Companies and Proprietary Companies in Australia. Guide Directors 1-15. Bibliography Australian Government. No Date. Insolvency and Phoenix Activities. http://www.abcc.gov.au/insolvency/Pages/default.aspx (Accessed May 17, 2012). Dickfos, Jennifer. 2009. “Corporate Groups: A Case for Protection of Unsecured Creditors Do unsecured Creditors of Corporate Group Members Require Additional Contractual or Statutory Protection?” Corporate Law Teachers Association 1-16. Freehills. 2009. Solicitors and Advisors to Face Liability for Directors’ Breach. http://www.freehills.com/5514.aspx (Accessed May 17, 2012). Renaud, Pauline. 2010. Insolvency Law Reform in Australia. http://www.financierworldwide.com/article.php?id=6351 (Accessed May 17, 2012). Read More