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This Commercial Corporations Law Assignment Help discuss duties act bona fide in the interest of the company, confidential information, avoid conflicts of interest, care and diligence etc.
(a). What duties have been breached by Judy under the Corporations Act 2001 (C’th) and under the general law? Your Answer should include relevant sections of the Corporations Act 2001 (C’th) and should include relevant court cases.
Issue 1: Duty to act bona fide in the interest of the company as a whole
- Issue: Judy for the lack of interest in the issues of the company did not pay attention in the meeting and this reflected on her decision that she voiced at the end of the meeting. As a common knowledge of being right most of the time she was given a nod at the meeting.
- Law: Under the general law, the directors are required to act in the best interest of the company. The same may be checked with the test of honesty and good faith. Such a breach takes place when the director fails to consider the company’s interest and puts personal interests ahead. Such attest may be laid down to analyze the purpose and objectivity of the intelligence of the person as a director. It shall be ensured that the authenticity of the transactions is judged after testing the intentions and the understanding of the same. As a director of the company it shall be focused that the interest of the company as well as the shareholders is protected after the attached risks and investments are assessed.
- Application: Judy was not acting in the best interest of the company, as she paid no attention to the topics being discussed yet took a side on the projects without giving much thought and analysis.
- Conclusion: It is concluded that Judy is in breach of duties of acting bona fide in the best interests of the company as she paid no attention to the topics yet presented a viewpoint without a thorough study as discussed in Commonwealth Bank of Australia v Friedrich.
Issue 2: Duty not to disclose confidential information
- Issue: The survey undertaken by the company in regards with the profitability of the two projects regarding the outdoor home furniture and the indoor replica would be regarded as a confidential information to the company. The same is to be protected by the directors of the company.
- Law: According to the general law, the directors are under the obligation of not disclosing the private confidential information of the company. It is so because the information may affect the shareholder’s interests and prove to be detrimental to the industry or the trade. The protection of such information is elemental and requires to be that way for the well being of the company and shareholders. Such an information may be related to the client base or suppliers information for the purposes of insider trading.
- Application: Judy protected the information as long as she was at the job. She only used the information once she switched jobs.
- Conclusion: Judy used the confidential information but only after she left the job. Therefore, she may use the survey findings at the new company as she had the knowledge and applied the same towards the best interests of her new company as discussed under the case R v Rivkin.
Issue 3: Duty to avoid conflicts of interest
- Issue: The company undertook the survey to find out the profitability of the projects and that the directors opinions are analysed in order to undertake a certain project. Judy had interests for neither of the projects but made a compelling case for the second project.
- Law: Under the general law, the duty to avoid conflicts of interest refers to the maintaining a unity of interests within the company between the personal as well as the company’s interest. It is a fiduciary duty of the director to acknowledge the company’s interests ahead of his own. It is so because a transaction may be profitable to him in particular but detrimental to the company as a whole. It is required to avoid such situations as far as possible. A direct or indirect conflict may take place towards a transaction. The conflict may be either personal or professional. However, if the company’s constitution provides that the full disclosure at the time of transacting may render the conflict invalid and would not affect the company or the director. The consequences for the conflict are void of contract and proceedings may be instituted by the fellow directors for the same.
- Application: Judy was found to be playing on tablet and the phone disregarding the interests of the company in the meeting so being held. It was essential to analyse the projects to reach a conclusion. Judy preferred to put her personal interests ahead of the company’s interests in the situation as she had interest in neither of the projects.
- Conclusion: Judy is said t to have breached the duty of avoiding conflicts of interest as her mind was already made up on personal preferences without considering the possible consequences of either of the projects being discussed at the meeting.
Issue 4: Duty of good faith
- Issue: The directors after the meeting were required to present their viewpoints in good faith for the company’s interest. The same is to be done by giving a close thought to the discussions undertaken in the meeting.
- Law: Under section 181 of the Corporations Act 2001, the directors are required o exercise the powers and duties in good faith for the benefit of the company and its financial situation. The same is required to be done as the relationship origins from a fiduciary relationship and the conflict of the interests may amount to a dishonest behaviour.
- Application: Judy was found to be playing on the phone and the tablet during the meeting. She failed to consider the survey and proceeded with the personal viewpoint not acknowledging the best interests of the company.
- Conclusion: Judy is in breach of her duty of acting under good faith as she did not present a carefully analysed findings of her views and did not consider the arguments taking place in the meeting.
Issue 5: Duty not to make improper use of information
- Issue: The survey being used at the board meeting was confidential and private to the company. It was the duty of the directors present at the meeting to protect the information and only use it for the benefit of the company.
- Law: According to Section 183 of the Corporations Act 2001, the directors shall observe a conduct whereby the decisions so made shall not drive the company into solvency or bankruptcy. The information to be used shall be in the interests of the company and not detriment the corporations’ image or profits. Such access to the information is attached with the position that he holds in the company and is confidential in its elements.
- Application: Judy did not use the information during the time she was employed as a director of the company. She only used the information when she was not the director of the company.
- Conclusion: Judy is not in breach of the disclosure of confidential information as she did not take advantage of the information during her role as the director of the company. She used the same after she had left the company.
Issue 6: Duty of care and diligence
- Issue: As a part of the board meeting the directors so present were required to carefully understand and analyse the risks and profitability attached to the projects in question. The directors were suppose to diligently reach a conclusion.
- Law: Under Section 180(2) of the Corporations Act 2001, the directors of the company are required to comply with due diligence towards the functioning of the company in order to assess the potential risks and profits so attached. The judgment towards the transactions shall be made in good faith and the reasonability shall be timely informed in the best interests of the company. It is required to be maintained in order to construct order in the business decisions.
- Application: Judy did not pay attention in the entire meeting as she was busy on her phone or the tablet. She also had a reserved point of view that did not change for the lack of consideration and personal opinion.
- Conclusion: Therefore, Judy has breached the duty of care and diligence in order to provide a well thought view of the projects being undertaken. She was not diligent in discussing or presenting her views as a director as discussed under Vines v ASIC.
(b).Some shareholders of Country Living Ltd. are threatening to initiate a statutory derivative action against the board of directors for failing to take on the outdoor home furniture project. In the alternative, they want to bring an oppression action against the board of directors. Can they initiate either of these actions in court? Explain fully.
Issue 1: Duty not to abuse corporate opportunities
- Issue: The corporate opportunities at the hands of the directors was that of, two projects such as the outdoor furniture and the indoor replica. The directors chose indoor replica and drove into losses.
- Law: According to the general law, it is the duty of the directors to not mix up the personal biases with professional biases for the sake of the company. The directors are required to consider the viewpoints at the meeting while considering individual professional view points and not merely the personal opinions. The directors if have a special knowledge on the subject shall use the same for the benefit of the company and keep it safe. It is required to identify the opportunity and utilise the same to the best interest of the company.
- Application: The directors abuse the corporate opportunities while ignoring the data collected from the survey and relying on the less analysed decision of Judy. The directors had the duty to rely on facts and not personal opinions because a director has been mostly right.
- Conclusion: The abuse of corporate opportunities by the directors was an unfair decision at the board meeting as the facts were ignored. Therefore, as a result of the breach of duty the interests of the shareholders were affected and the same could be claimed by the shareholders.
Issue 2: Duty not to make improper use of information
- Issue: The information was collected by the company in regards with the projects to assess the risks involved and the profitability factors. The survey was a guide to taking the decision for the projects.
- Law: According to the section 183 of the Corporations Act, 2001, the directors are required to not to make improper use of information that is derived for the interests of the company. The same is required to be done in order to leave the financial position of the company unaffected. In case improper use is made the company may drive into losses to the extent of being insolvent.
- Application: The directors made an improper use of the information by not using it at all and blindly relying on the opinion of Judy presented towards the end of the board meeting. The same decision proved to be a loss.
- Conclusion: As the directors in relation with the new projects did not carefully, use the information the wrong project was picked resulting in grave losses. This affected the profitability of shareholders for which the directors may be sued for the breach of such a duty as discussed under The Bell Group Ltd. (in liquidation) v Westpac Banking Corporation (N0 9).
Issue 3: Duty to act with due diligence
- Issue: As the director of the company, it is the duty to take into account the pros and cons of the possible projects to be undertaken. The analysis is to be undertaken with due diligence.
- Law: Under section 180 of the Corporations Act, 2001, it is the duty of the directors to install due diligence while assessing the profitability of the decisions being undertaken at the meeting. The points taken up at a meeting are to be carefully understood and analysed in order to avoid possible losses and risks so associated. Such a analysis originates from the fiduciary relationship that exists between the directors towards the company.
- Application: The directors of the company did not perform diligently as they did not consider the possible outcomes if they ignored the statistics and preferred to rely on the word of Judy.
- Conclusion: The decision so taken by the board was in breach of duty of due diligence and resulted in incurring losses for the company. The same affected the interests of the shareholders and a claim may be made against the losses by the shareholders as discussed in ASIC v Rich cases (2009).
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