Applied company law revision class

Mary
What did mary do wrong?
issue
S180(1) duty of care and diligent laws (general law)
=
- voted on sale asset undervalue
- didn’t disclose her husband interest in a fee and deal
- put forward deal – didn’t abstain votes, was present to discuss
- disclose confidential company to her husband
- Did not disclose all info sale, didn’t give option to ask question or seek independent
advice
rules
objective test AWA (case) =
APPLICATION
Ask Would reasonable director in
- Company circumstance = small mining, public listed company, looking to expand
- Director/ officer responsibilities + duties = NED, HUSBAND owns 20% stake
No, the reasonable director would not have done as above
conclusion = mary breaches S180(1) + general law

are there any defenses?

- S180(2) BJR = the defense will be used in respect of disclosing confidential info to her
husband
- (a) GF (Good Faith) for (PP) proper purpose = company had difficulty securing these
funds
- (b) MPI (material personal interest) = her husband will receive a large fee for deal
- (c) fully inform= mary knew debt and share bank issue didn’t proceed
- (d) rational objective director = unlikely rational director would find the decision was
rational
conclusion
so S180(2) fails on b and d
Second issUE
Has mary brecahes S181(1)(a) + GL duty to act the best interest of the company
(parke v daily news)
HD
NO the sale of the asset for undervalue was not in the best interest of the company because
shareholders made loss – no dividends or profit by the company

Conclusions
Breaches S180(1)(a) + general law

SS 182, 183, 191, 195, + GL

Has mary breached S182 and the general law?

Duty to not misuse position
R+A Mary is non-executive director S (9)
- cause company determent = COMPANY COULD HAVE SOLD ASSER AT OR ABOVE
MARKET VALUE BY ENTERING INTO CONTRACT WITH ANOTHER COMPANY
- she or someone else gain an advantage = yes, her husband made a large fee
(BONUS)
Conslusion there a breach in S182 + GL

Has mary breached S183 and the general law?

Duty to not misuse information
Mary knew company could not get alternative finance
“as above”
conclude she breached S183+GL
Has mary breached S191 in general law (duty to disclose a (MPI) material personal interest
(Mcgellins case)
her husband reviving a Large fee for the deal would influeLtdnce her vote
MPI Which mary did not disclose
Conclusion
There for BREACH S191 + GL

Has mary breached S 195?

Would only apply to a public company (alliance mining LTD)
R + A = Mary presented the information (present at meeting)
- we assume mary voted
- therefore, this breached S195

Has mary breached the general law duty to avoid conflict of interest (COI)?

Step 1 (identify the case)

The case think apply is imperial mercantile v coleman
Step 2 (identify the similar or different fact)
= mr coleman is negotiating a deal between his company + company he had MPI
- He made a secret profit for the deal
- - distinguish this case (mary’s husband made the profit)
- there was a MPI which was not disclose
step 3 (identify the outcome of that case)
in that case the court found COI + ordered account of profit
Step 4 (apply or distinguish the outcome of the case)
Applying coleman, mary has breaches her duty to avoid a conflict

As she breaches S 181,182,183 (reckelessly and dishonestly) the S 184 will apply (criminal
___)

Andrew
S 180 (1) + GL
What has andrew done wrong?
- Voted to sell asset for undervalue
- Motivated by his cash bonus
 - He Did not disclose the MPI = cash bonus + deal
- 3 hours meeting = did he ask question ‘read document?’ wasn’t fully informed od
decision
R “as above”
A
company CIR = “As above”
Andrew is the CEO
C
NO, THE REASONABLE CEO would not do as above. Therefore, breaches S180(1) + GL

Defences – no BJR (business judgement rule) available due to cash bonus of $189,190

S 180(1)(a)
As above

S 182,183,191,195 + GL

S 182 = Andrew is CEO

Advantage for himself = large cash bonus
Determent to company = he voted on a sale undervalue key asset company loss profit
Therefore, breached S182 + GL
S 183 = the info he misused was:
- “ Won’t meet market expectation”
- he would receive the cash bonus
as above”
breaches S183 + GL
S 191 = Yes, receiving a large cash bonus would influence Andrew’s vote
Therefore, it is an MPI and he should disclose, but he did not so he breached S 191 + GL

Bart and Eric

What did they do wrong?
- Voted on sale asset undervalue
- Didn’t ask question at meeting was not fully informed about join venture (JV) and
sale
S 180 (1) + GL
Company CIR = as above
- Eric – chair “officer”
- Bart – NED (AWA)
No reasonable director would not have done “above”
Therefore, breaches S180(1) + GL

Defences : N/A
S 180(1)(a) “as above”

Legal consequences (remedies)

Shareholders = statutory derivative action
S 236 – 237
S 236 = the member on behalf of the company
- Therefore, any benefit goes to company
Orders S 241
GL + S 132 (4) + S 241 = injunction preventing the sale and join venture (JV) from proceeding
- Rescission of contract id entry into contract
- Constructive trust on proceeds
- If entry into contract and work started
- Compensation from the directors for difference of sale price vs market price would
have been if properly sold in market
What ASIC can do?
S 206 C
S 206 E
S 131 (7)(e)