1.

COMPANIES AND THE REGULATORY SCHEME

The Incorporation Process

 S 117: applying for registration
(1) must lodge an application with ASIC
(2) application must state
o The type of company (proprietary/public) (s 112)
o Proposed name
o Name and details of members, directors and secretary
 directors must be at least 18 (s 201B(1))
 secretary necessary for public companies (s 204A(2))
 secretary unnecessary for proprietary companies (s 204A(1))
o Address of the company’s registered office
o Details of the shares guarantee
o Details of the HC (if relevant)
o State or territory company is registered in
 S 118(1): on application for registration ASIC may
(a) Give the company a CAN; and
(b) Register the company; and
(c) Issue a certificate that states name, CAN, type, that it is registered under the CA, jurisdiction,
date
(2) ASIC must keep a record of the registration
 S 119: company comes into existence as a body corporation on registration
 S 201A: minimum number of directors
(a) Proprietary company: at least 1 director that must ordinarily reside in Australia
(b) Public company: at least 3 directors, with at least 2 ordinarily residing in Australia
 S 119A: company is incorporated in the jurisdiction it is registered in
 S 114: A company needs to have at least 1 member
 S 120(1): a person becomes a member, director or company secretary of a company if specified in the
application with their consent
 S 121: address specified in application becomes the address of the office
 S 112: expenses incurred before registration may be paid out of company assets
 S 123: company may have a common seal
 S 124(1): company has the legal capacity and powers of an individual and a body corporate

Types of Company

Public Company
 Can choose to be listed on the stock exchange
 No limit on the number of SH’s
 Greater statutory protections for SH’s
o Restrictions on self-dealing (Ch 2E)
o SH’s can remove management

Proprietary Company
 Must have more than 50 SH’s (s 45A)
 S 45A(2) Small proprietary company – satisfies at least 2 of the following
o Consolidated revenue < $50mill
o Consolidated gross assets < $25mill
o < 100 employees
 S 45A(3) Large proprietary company – satisfies at least 2 of the following
o Consolidated revenue is $50mill
o Consolidated gross assets is $25mill
o Has 100 employees
 Less onerous obligations, but cannot raise funds from the public
 Public Companies (Ltd)
S 112
 Limited by shares
 Unlimited with share capital
 Limited by guarantee
 No liability company
S 201A(2): 3 directors. At least 2 must reside in AU
S 203D(1): Shareholders have a statutory right to
remove directors by resolution in GM
S 203E: Directors cannot be removed by other
directors
S 195(1): Directors cannot attend or vote on matters
in which they have a personal interest
Related party transactions must comply with Ch 2E
s 254W: Dividends must be equal for each class of
share
s 292: Must prepare annual financial and directors
reports
Ch 6D: Public fundraising using disclosure document
permitted
Proprietary Companies (Pty Ltd)
S 112
 Limited by shares
 Unlimited with share capital
S 201A: Minimum 1 director, who must reside in AU
S 203C RR: Shareholders can remove directors but
this right can be excluded by constitution
Directors can be removed by other directors
S 194RR: Directors can attend meetings and vote on
matters in which they have a material personal
interest (after disclosure)
No formal restrictions on related party transactions
S 254W: Dividends may be paid as directors see fit
S 45A: Only large Pty Ltd companies must prepare
annual financial/directors reports
S 113(3): Public fundraising using disclosure
document not permitted

No Liability Company / Limited by Guarantee

A company may be registered only if the company’s constitution states that its sole objects are mining
purposes, and it must not engage in activities outside of its mining purposes (s 112)

2. INCORPORATION AND ITS CONSEQUENCES

Consequences of Incorporation

 S 119 company comes into existence on registration

 s 118 ASIC will give CAN, register and issue certificate
 Company’s details recorded on ASCOT and searchable by members of the public

The corporation has a separate legal identity (s 124)

A company can perform all the functions of a body corporate with the powers and capacity of an individual
(enter contracts, hold property, sue and be sued).
 Salomon: it is distinct from its members and from those who work for it
 Rule: SH’s have no proprietary rights in company assets, but a bundle of rights against the company
(Macaura)
 Rule: A person can act in multiple capacities at the same time e.g. employee and director (Lee)
 Perpetual succession

The corporation has limited liability

SH’s and directors are not liable for the debts of the corporation, except for special circumstances in which the
corporate veil will be pierced.
 This is a benefit to SH’s
o Decreases the need for them to monitor directors of companies etc
o Provides incentives to companies to act more efficiently, in the interests of SH’s
o Assists in the efficient operation of the securities market
o Permits efficient diversification of SH’s by allowing them to reduce individual risk
o Facilitates optimal investment decisions by managers
 3. MANAGING COMPANIES

Internal Governance Rules

Replaceable Rules
S 141 table of replaceable rules – see print out.
 S 134: a company’s internal management rules are governed by the the RRs, a consti, or a combination of
both
 S 135(1)(b): RRs are replaceable only for proprietary companies. They are mandatory for public
companies
o Apply only to companies that was registered after 1 July 1998; or a company that was registered
before 1 July 1998 that repeals its Consti after that date (s 135(1)(a))
 S 135: RRs do not apply to a proprietary company with a sole SH who is a sole director
 S 135(2): a company’s constitution can displace or modify RRs
 S 135(3): failure to comply with a RR is not a contravention

Corporate Constitution
 A constitution is adopted when (S 136(1):
(a) Members agree in writing to the Consti before registering with ASIC; or
(b) Members pass a special resolution to that effect thereafter
 Rule: public companies must lodge an adopted Consti with ASIC within 14 days (s 136(5))
 Rule: all companies must send the Consti to a member if requested (s 139)
 How is a constitution MODIFIED?
o By special resolution (75% of eligible voters at the GM) (s 136(2); (s 9))
o Subject to any further constitutional requirements (s 136(3)-(4))
o Limitations
 Cannot bind a member to take up more shares, increase liability, increased restrictions
on share transfer – unless agreed in writing (s 140(2))
 The change cannot be ‘oppressive’ (Part 2F.1)
 Where important membership rights are involved
 How is a constitution ENFORCED?
o Rule: to enforce compliance with the Consti, the party must establish that the breach would
adversely affect them in their capacity as members (Hickman v Kent)
 Rights of members include the right to: vote, attend meetings, receive info and
dividends
o Remedy is usually general law injunction or declaration (not damages)
 How is a constitution INTERPRETED? Objectively, as a commercial document designed to promote
business efficacy (i.e. like a contract) (Lion Nathan Australia v Coopers Brewery)

Contractual Effect of the RRs and Constitution

 S 140(1): A company’s constitution and any RRs that apply to the company have effect as a contract
(a) Between the company and each member; and
(b) Between the company and each director and company secretary; and
(c) Between a member and each other member

Decision-Making Organs

Decision-making power is divided between:

 The board of directors;
o Proprietary: at least 1 director (s 201A(1))
o Public: at least 3 directors s 201A(2))
 The general meeting of members (SH’s)
o A minimum of 1 member (s 114)
Division of Power Between SH’s and Directors

Division of power
Rule: Members in a GM cannot issue binding directions to the board of directors. The majority of members
cannot usurp the management power given exclusively to directors by the terms of the constitution.
(Automatic Self-Cleaning)
 NRMA v Parker: ‘a power vested by the Consti of a company exclusively in the directors cannot be
effectively exercised, not can its exercise by the directors be effectively controlled or interfered with by a
resolution of members in the GM.’
 Re Winlyn Developments: ‘unless a contrary intention is shown, functions assigned to the company in GM
are not exercisable by the board of directors and likewise those given to the board of directors are not
exercisable by the company in GM
 Capricornia Credit Union v ASIC: proposal to change Consti to require directors to take directions from
members regarding a proposed takeover held invalid because this could involve following directions that
constitute a breach of directors’ duties if not in the best interests of the company.
Rule: members cannot use the statutory powers to requisition member’s meetings or demand that a motion
be put to a member’s meeting if the subject is a matter of management exclusively vested in the directors
(NRMA v Parker) (s 249Q)
 Directors owe director’s duties. Binding directions from SH’s could interfere with the proper discharge of
these duties.

Management of the Business of Companies

Management decisions
S 198A: (1) the business of a company is to be managed by or under the direction of the directors (2) they
exercise all powers except any required to be exercised in a GM by the Consti / this Act.
Scope: day-to-day running + business operations
 Staffing, finance, trading
 How to use surplus funds e.g. purchasing new assets, investing, dividends

Control decisions
 Members in GMs have power to appoint and remove directors from position on the board
 Can be given control decisions by the Consti or CA or listing rules of a financial market
o E.g. Consti could require member approval for particular decisions (CA already does this)

Given the division of powers, when can SH’s in a GM intervene in the management of the company?
 Deadlock: where the directors are in conflict and incapable of exercising power, at least where SH’s have
the ordinary powers of appointing directors (Barron v Potter)
o Massey v Wales: suggests that the deadlocks should not confer general management powers on
SH’s. It should be resolved by appointing/removing directors instead.
 Where there are not enough directors to form a quorum
o Rule: where the no. of directors has fallen below the number for a quorum and the power of
appointing new directors is given by the Consti to the board, the GM can act in place of the board
(Isle of Wight Railway)
 Reserve power of GM to commence and prosecute legal proceedings
o General rule: the board begins proceedings for the company and SH’s cannot interfere (Shaw)
o However: if the board neglects its power under the Consti to initiate proceedings, members can
bring derivative proceedings in certain circumstances although the company is the proper
plaintiff (Foss v Harbottle)
 The court allows a suit on the company’s behalf to ensure the director’s wrongdoing is
addressed
o Rule: members in a GM can condone a breach of duty by directors as long as their decision does
not constitute fraud or oppression of the minority
o Rule: members in a GM can conclusively decide not to sue (Pavlides)
Decision-Making

COMPANY MEETINGS

 Ordinary meetings: usually scheduled at a regular time and is held to keep participants informed and
make decisions on particular matters. May be member or director meetings
 Extraordinary meetings: held to consider some urgent matter that cannot wait until the next ordinary
meeting. May be member or director meetings.
 General principles
o Meeting invalid unless called for proper purpose
o Meetings must only be held for proper purpose
o Chair must be unbiased and professional (e.g. failure to allow sufficient time for debate /
participants to vote on resolutions may constitute a breach of duty or minority oppression)
o Only property constituted if a quorum is present at all times (common minimum = 2)
o Resolutions can be passed via a circulating resolution

DECISION-MAKING BY THE BOARD OF DIRECTORS

The Appointment and Removal of Directors

 S 9: director includes
o a duly appointed director
o a de facto directly (not technically appointed)
o a shadow director (constructive director)
 Duly appointed directors
o Who can be appointed?
 At least 1 director (2 for public companies) must reside in Australia (s 201A)
 Over 18 (s 201B(1))
o How can they be appointed?
 Appointment by resolution in GM (s 201G(RR) – must be appointed individually if public
company (s 201E)
 Directors may appoint other directors (s 201H(RR))
 Defect in appointment does not invalidate act by director (s 201M)
o Removal of directors
 Proprietary company directors can be removed and replaced by member resolution (s
203C(RR))
 Public company directors can be removed by member resolution despite anything in the
constitution (s 203D)
 But must give 2 months notice to company before meeting is to be held (2)
 Director cannot be removed by other directors (s 203E)

Directors Meetings
 Notice
o Formal notice is not required – standing notice sufficient
o S 248C(RR): a director’s meeting may be called by any director giving reasonable notice
individually to each other
o Not necessary for notice to specify the business to be dealt with, as D’s expected to attend all
meetings that they reasonable can (Dhami v Martin)
 S 248D: director’s meetings may be held using technology provided all directors agree
 S 248B: where a prop company has only 1 director, that director cannot hold a meeting and may make
decisions by signing resolutions
 S 248G: each director will usually have one vote with resolutions passed by a majority
o Chair may have a casting vote depending on constitution (s 248G)
Decision-Making By The Board Of Directors
 S 248 Circulating resolutions of companies with more than 1 director: (1) the directors of a company may
pass a resolution without a directors’ meeting being held if all the directors entitled to vote on the
resolution sign a document containing a statement that they are in favour of the resolution (3) the
resolution s passed when the last director signs
 S 248G passing of director’s resolutions: (1) a resolution of the directors must be passed by a majority of
votes cast by directors entitled to vote on the resolution (2) chair has a casting vote if necessary

DECISION-MAKING BY SH’S IN GM

Types Of Members Meetings

 Ordinary meeting: AGM
 Extraordinary meeting: s 249D allows for members with at least 5% of votes in a GM to requisition the
company to convene a member’s meeting e.g. for an important transaction like a merger proposal (s 411)
 No meeting: can pass resolutions w/o a formal meeting by using a circulating resolution where all
members must sign in favour (s 249A for proprietary companies)

Who Can Convene?

 A director (s 249C(RR))
 Members with at least 5% of the votes that can be cast at a GM (s 249F)
o Members pay the expenses of calling and holding the meeting (2)
 Members with 5% of the vote may also requisition the company to call a member’s meeting (s 249D)
o Company pays the expenses and organises
o Must be in writing, state any resolution to be proposed, signed by members and given to
company (s 249D(2))
o Must be called within 21 days of receiving request, and held within 2 months of receipt (s
249D(5))
o If the directors do not call the meeting, members with > 50% of the votes of all members who
make a request may call and arrange to hold the meeting (s 249E(1)) and the company must pay
the expenses (s 249E(4))
 The meeting can be held at several venues with the use of technology (s 249S)
 Requirements
o The power to requisition a meeting must be exercised in good faith and for a proper purpose (s
249Q)
 E.g. NRMA: directors don’t need to convene if not for a proper purpose e.g. here
attempt to regulate how the directors exercise their powers to conduct a meeting
 Rule: Where a meeting has multiple purposes, including proper and improper purposes,
it may still be held in order to pursue the proper purpose (Dhami)
 Seeking to appoint or remove directors = proper purpose
o The meeting must be held at a reasonable time and place (s 249R) – must have regard to
convenience of members in being able to attend (Colbern Nominees)

Notice Requirements
 Rule: a meeting that has not been properly notified is invalid
 S 249J notice of members’ meetings must be given to each member and director individually and may be
sent by post or email
 S 249H minimum period of notice for a members’ meeting is 21 days, though the Consti may provide for a
longer period
o Shorter notice may be permitted, but this must be approved by member constituting 95% of
votes that may be cast in that meeting
 S 249HA Public companies must provide at least 28 days’ notice prior to a members meeting
 AGMs may only be called on less than 21 days’ notice if all eligible members agree in advance
 S 249H(3)-(4) shorter notice is not available for meetings to remove a director or auditor
 S 249L Contents
o (1) requirements for the contents of the notice of meeting
 time and location
 general nature of the business to be conducted
  special resolutions that will be voted on and copies of them
 details on proxy voting
o (3) the content of the notice must be worded and presented in a clear and concise and effective
manner
o Rule: director’s have a duty to ensure that notice fully and fairly informs and instructs SH about
the matter on which they will have to vote (Devereaux Holdings). But must not be a burden of
information – balance (Killen’s case)
 Sunraysia: D’s not obliged to give SH’s every piece of information that might conceivably
affect voting. Practical and realistic approach.

Voting at Members Meetings

 Votes per shareholder (s 250E(RR))
o Show of hands: each member has 1 vote
o Poll: each member has 1 vote for each share they hold
 Voting by a show of hands (s 250J)
o (1) resolution must be decided on a show of hands unless a poll is demanded
o (1A) chair must inform meeting about proxy votes before vote
o (2) declaration by chair is conclusive evidence of result, provided that it reflects the show of
hands and the votes of the proxies received
 Voting by a poll
o S 250 matters on which a poll may be demanded: by any resolution
o S 250L when a poll is effectively demanded: by at least 5 members entitled to vote on the
resolution or members with at least 5% of the votes that may be cast or the chair (1)
o S 250M when and how polls must be taken (RR): as and when the chair directs (1)
 Voting by proxy: where members are unable to physically attend, may appoint proxy
o Has the same rights as a member (s 249Y)
o May still participate if member revokes apt or becomes incapacitated if the company doesn’t
receive notice (s 250C)
o Proxy can be directed or undirected

SH’s can propose resolutions and distribute statements

 S 249N members’ resolutions: members can give a company notice of a resolution that they propose to
move at a GM if they have at least 5% of the votes that may be cast or at least 100 members who are
entitled to vote at a GM
 S 259P members’ statements to be distributed: members may request a company to give all its members
a statement provided by the members making the request about a resolution that is proposed to be
moved or any other matter that may be properly considered
o (2) request may be made by members with at least 5% of the vote or 100 members who are
entitled to vote

RESOLUTIONS
 Ordinary resolution: passed by the majority of those present and voting at a meeting
 Special resolution s 9: (a) a resolution
(i) Of which notice as set out in s 249L(1)(c) has been given; and
(ii) That has been passed by at least 75% of the votes cast by members entitled to vote on the
resolution

Certain matters that must be resolved by special resolution

 Adoption of consti after registration of company (s 136)
 Amendment or repeal of consti (s 136)
 Change of company name (s 157) or type (s 162)
 Variation of rights attached to shares in a class of shares where a company doesn't have a consti, or has a
consti that doesn't set out the procedure for varying those rights (s 246B)
 A selective capital reduction (s 256C)
 A selective buyback of shares (s 257D)
 The giving of financial assistance by a company for the acquisition of its shares
 A voluntary winding up
ANNUAL GENERAL MEETINGS
 S 250N: public company must hold AGM (2) once a year and within 5 months after EOFY (2A) it is an
offence if this is not done
 S 250R: business of AGM includes considering annual financial report, director’s report, auditor’s report;
election of directors; appointment of auditor
 S 250S: (1) chair of AGM must allow a reasonable opportunity for members to ask questions/make
comments (2) this offence is strict liability

CURING PROCEDURAL IRREGULARITIES

S 1322: statutory provision for validation following irregularity to prevent errors invalidating resolutions of
meetings etc
 (2) (automatic validation) a proceeding is not invalidated because of any procedural irregularity, unless
the Court is of the opinion that it has caused substantial injustice that cannot be remedied by any court
order and declares it invalid
o (1)(b) a procedural irregularity includes the absence of a quorum, a defect, irregularity or
deficiency of notice or time
o (3)-(3B) this also applies to situations where there
I. Was accidental omission to give notice of the meeting
II. Was a lack of reasonable opp for a member to participate in a meeting held at 2+ venues
III. Where voting rights are exercised in contravention of s 259D(3)
 (4) (curing declaration) the court may, on application by any interested person, make an order that a
proceeding is not invalid
(6) a court must not make this order unless
i. It is procedural in nature
ii. The person acted honestly
iii. It is just and equitable to make the order
iv. No substantial injustice (e.g. outcome of procedure would have been different)
 4. DUTIES AND LIABILITIES OF DIRECTORS AND OFFICERS
The duties of directors and officers are owed to the company. Not owed to individual SH’s bu they have stat
derivative actions I granted leave by court (s 237)
1. IS THE PERSON SUBJECT TO DUTIES?

Director

S 9 Definitions - director of a company / other body

(a) a person who
i. is appointed to the position of a director; or
ii. is appointed to the position of an alternate director and is acting in that capacity regardless of the
name that is given to their position; and

 Is the person a de facto director? they act in the position of a director (s 9(b)(i))
Depends on the nature and extent of functions and constraints imposed. Summary of factors considered
(BCI Finances v Binetter)
o The duties that would be expected to be performed by a director in the relevant company - this
will vary according to size of company and allocation of responsibilities. Subject to the
requirement that the person performs 'top level management functions' (Deputy Commissioner
of Taxation v Austin).
o The duties actually performed by the person (Grimaldi v Chameleon Mining; Chameleon Mining
v Murchison; Deputy Commissioner of Taxation v Austin)
o Whether others in the company considered the person a director (Smithton v Naggar)
o Whether the company held out the person as a director (Grimaldi)
o Whether the person held themselves out as a director (Forkserve v Jack and Aussie Forklift
Reparis)
o Whether those outside the company considered the person to be a director (Grimaldi;
Chameleon Mining)
 Objective test: person’s honest belief that they aren’t acting as director will not prevent
an interpretation that they are where the objective evidence supports this (Smithton)
 Rule: the exercise of ‘top level management functions’ = necessary condition (Austin)
 Is the person a shadow director? the directors of the company or body are accustomed to act in
accordance with the person’s instructions or wishes (s 9(b)(ii)
o Buzzle test: must establish:
 Who the directors are
 That the D directed those directors how to act in relation to the company
 That those directors acted in accordance with such directions; and
 That they were accustomed so to act
o Rule: There must be a causal connection between shadow director instructions and other
director acting on them (Buzzle)
o Rule: being accustomed to act in accordance with insturctions requires a pattern of behaviour
and habitual compliance over a period of time (Buzzle)
 Not sufficient that they use their own judgement to decide to do the act regardless of
advice
 The fact that the board tend to act on advice of someone with a genuine interest in
giving advice doesn’t make them a shadow director
o Rule: must have potential to control and this must be put into practice (Buzzle)
o Sufficient to show that director cast themselves in a subservient role / surrendered discretions
(Deverell)
o Antico: Had effective control due to size of SHs, imposed conditions demonstrated a willingness
and ability to exercise control. Actuality of control over management and finance
Officer

S 9 Definitions - officer
a) a partner in a partnership (b) an office holder of an unincorporated association or
(c) a person
i. who makes, or participates in making, decisions that affect the whole, or a substantial part, of the
business of the entity; or
ii. who has the capacity to affect significantly the entity’s financial standing

 Makes or participates in making decisions (s 9(c)(i)

o Inquiry: directed to the role that the person plays in the corp (Shafron)
o Participation directs attention to the role that a person has in the ultimate act of making a
decision, even if the final decision is made by someone else (Shafron)
o Citigroup: person not an officer just because he had a large daily trading limit. No evidence that
anyone reported to him or he had any other (management) responsibilities.

 Has the capacity to affect significantly the corporation’s financial standing (s 9(c)(ii))
o Citigroup: Insufficient to substantially affect financial standing – propotional to company’s overall
finances.
o Buzzle: apple had capacity to significantly affect financial standing, but was a 3 rd party not part of
company management
o Hodgson v Amcor: officer – reported to upper tier management but he was the senior manager
of the largest division, oversaw high level GMs, direct control over own budget etc.
o Adler: director of HC = officer of subsidiary because he had the capacity to affect significantly its
financial standing

Employee
If they use their position / info to gain an advantage or cause detriment to the company (ss 182-3)

2. CONSEQUENCES OF BREACH

Where there has been a contravention of a civil penalty provision, ASIC may seek (per s 1317J):

 Declaration of contravention (DC): s 1317E: declaration of contravention can be made by Court upon ASIC
application. (1) Court must make DC if satisfied of contravention of civil penalty provision.

 Pecuniary penalty order (PO): s 1317G(1)

Where there is a DC, the court may make these orders (maximums)
 (3) Individuals: 5000 penalty units, and benefit derived + detriment avoided x 3
 (4) Companies: 50K penalty units, and benefit derived + detriment avoided x 3, an d 10% of
annual turnover capped at 2.5 million penalty units
 (6) Factors: nature and extent of contravention; nature and extent of loss/damage;
circumstances; prior similar conduct

 Compensation order (CO)

S 1317H(1): where a person has contravened a civil penalty provision and damage has resulted, the court
may order the person to compensate the company for damage suffered. Damages include
(2) profits made by the person resulting from the contravention; and
(3) diminution in property value
s 1317J: the company can seek a compensation order
 Disqualification order (DO)
S 206C ASIC can apply to the court for an order disqualifying the person from managing companies
(1)(a) must have a DC under s 1317E; and
(1)(b) court must be satisfied that the disqualification is justified, having regard to
(2)(a) person’s conduct; and
(2)(b) any other matters the court thinks appropriate (Adler)
 Character of offender
 Nature of breaches
 Structure of companies and nature of business
 Interests of SHs, creditors, employees
 Risks to others from continuation of offenders as company directors
 Honesty and competence of offenders
 Hardship to offenders and their personal and commercial interests
 Offenders appreciate that future breaches could result in future proceedings
s 206A(1): a person disqualified commits an offence if they (a) make decisions affecting business; (b)
exercise the capacity to affect financial standing; (c) instruct directors

Criminal penalties
S 184 A director/officer commits an offence if reckless/intentionally dishonest and fails to exercise
powers/discharge duties
S 209(3) a person commits an offence if they are involved in a contravention of s 208 (related party benefit)
dishonestly

Court can relieve a director from liability for breach of duty

S 1318: court can excuse person wholly or partly for liability if the person has acted honestly and ought fairly
to be excused

How else can a person be disqualified under Part 2D.6?

1. Automatic disqualification (s 206B)
o Convicted of an offence that S 206B(1)(a) Concerns making decisions/acts affecting company
business or financial standing; or
o S 206B(1)(b) (i) convicted of a CA offence punishable by 12+ months (ii) dishonesty offence
punishable 3+ months (iii) foreign offence punishable 12+ months
 S 206B(2) Lasts for: 5 years after (a) conviction; (b) if imprisonment, 5 years after release
o S 206B(3) bankrupt or (4) failed to comply with a personal insolvency agreement
2. ASIC application for DO where person involved with 2+ failed corporations in last 7 years s 206D
o Court will have regard to person’s conduct and any other matters (3)
1. ASIC application for DO where person has repeatedly contravened CA (s 206E)
o (1)(a)(i) been an officer of a corp that has 2x contravened CA, where the person (ii) failed to take
steps to prevent contravention and the court believes it is justified having regard to the person’s
conduct in relation to management and other matters;
1. ASIC can disqualify a person where a person has 2x been an officer of an insolvent company
Up to 5 years, subject to notice requirements and opp to put case (s 206F)
 5. DUTY TO ACT IN GOOD FAITH AND BEST INTERESTS OF THE CORPORATION

S 181 Good faith – civil obligations:

(1) A director or other officer of a corp must exercise their powers and discharge their duties (a) in good faith in
the best interests of the corporation.
TEST
objective and subjective elements (Bell Group)
 Subjective: did the director honestly consider that the exercise of power was in best interests?
o Don’t look at ‘best decision’: courts should not substitute their own views regarding commercial
merits of the decision for the director’s views (Bell Group)
 Objective: court may intervene to reject director’s assertions about their reasonable beliefs if the decision is
one that no reasonable board of directors could think is in the interests of the company
o Question: would a reasonable person believe they acted in the company’s best interests? (ASIC v
Adler)

WHICH INTERESTS?
 General principle: duties are owed to the company as a whole
 Individual SH’s: while duties are owed to the collective body of SH’s, duties are not owed to particular SH’s
individually (Percival v Wright)
o Exceptions: relate to whether there was a FD between director and individual SH based on their
particular relationship (but largely irrelevant bc Pt 2F.1A allows stat derivative actions)
 Employees: no duty to consider employees ahead of SH interests
o Parke v Daily News: bonuses to employees as compensation for dismissal was not a proper use of
company funds.
 Corporate groups: directors of subsidiaries are required to act in the best interests of those companies, and not
merely for the benefit of the larger corporation (Walker v Wimborne)
o Objective test: directors will not be in breach if an intelligent and honest person in the position of the
directors could have reasonably believed that the transaction was for the benefit of the entity –
applied in some courts(Charterbridge Corp v Lloyds Bank)
o Subjective test: directors must consider the interests of the separate entity and must consider its
interests alone – also applied in some courts (Wimborne)
o S 187: directors of wholly owned subsidiaries may act in the best interests of the HC where
 The subs constitution expressly authorises this
 The director acts in good faith
 The director acts in the best interest sof the HC; and
 The subsidiary remains solvent
 Creditors: the duty on directors to consider creditor interests arises when the company is insolvent or
approaching insolvency (Kinsela)
o But this doesn’t confer any general/independent enforceable duty. Outside of insolvent trading,
directors’ duties are owed to the company and not to the creditors (Spies v R)
o Rule: this duty is owed to the company as a whole, not to the creditors independently (Spies, Bell
Group)
o Rule: if directors of an insolvent company preference creditors whose debts they have guaranteed,
they are in breach of their duty to the company (West mercia)
o Kinsela: liquidator challenged the transfer of a lease on the basis that directors breached their FDs in
failing to consider creditor interests when transferring the lease to themselves at undervalue
 Principle: As the company approaches liquidation, the company assets are in a practical
sense the creditor’s assets
 Interests of existing members: directors must consider the interests of existing members because they are
proprietors of the company who have risked capital (Pilmer v Duke Group). Recognised by Pt 2F.1
 Interests of future members: Provident International Corp v International Leasing Corp suggested that the
duty of directors is more to act for the benefit of existing members having regard to their future interests as
well as existing interests
 Corporate social responsibility: to what extent is there a legal obligation on companies to act according to
subjective notions of responsible behaviour?
o Whether Australian businesses comply with their duty by being socially responsible is up to them
o Cf English CA – can take into account impact of operations on community and environment
o James Hardie: company agreed to provide further funds for claimants after public outcry and a special
judicial commission
 6. DUTY TO ACT FOR A PROPER PURPOSE

S 181 Good faith – civil obligations:

(1) A director or other officer of a corp must exercise their powers and discharge their duties (b) for a proper
purpose
Rule: fiduciary powers granted to directors are to be exercised for the purpose for which they were given, not collateral purposes.

1. ASCERTAIN THE NATURE OF THE POWER AND ITS PURPOSE (Howards Smith v Ampol)

What to consider
 Important factor: size and nature of the company. Directors of smaller companies may have more
extensive powers
 A) Look to the constitution: it may demonstrate the purpose of the power (Falkingham)
o Consti provision allowed the board to serve a notice inquiring into interests in shares and to
impose restrictions on voting and share transfer where that information was not provided or the
response was known to be false/incorrect. Use 2 days before AGM to prevent people from
voting.
o Held: using the power to influence the outcome of an AGM was an improper purpose. Its
purpose was to provide a sanction or incentive to remedy a failure to comply.
 B) Where the constitution does not provide guidance: court must make inferences from the type of
company, its activities, and its particular constitutional structure
o Australian Metropolitan Life Assurance: purpose of power to refuse registration of transfer of
shares was to ensure that insolvents / others whose business reps would damage the companies
should not be admitted as members

What type of power?

 Power to issue shares: impossible to determine purpose, but can point to purposes that are improper
unless permitted by the constitution:
o Shares issued with a substantial motive of defeating the voting power of existing SH’s by creating
a new majority
o Shares issued to defend a takeover may be a breach, but might be proper if motivated for
company’s benefit
 Powers which influence control
o Powers that could be used to influence control
 Private placements of shares for cash, or in consideration of the transfer of an asset
 Making a rights issue of shares rateably to existing SH’s
 Making new contracts with employees, contractors etc of IP where doing so will
discourage a bidder for control
 Using company assets to conduct a campaign for the election of directors
 Exercising powers under Pt 5.3A to perpetuate control by the directors
 The power exercised in Falkingham above
o What is an improper purpose in this context? A purpose perpetuating your own control e.g.
preserving or displacing an existing majority
o What is a proper purpose in this context?
 To ensure that where an unsatisfactory takeover off made, there is an alternative offer
at a better price (Darvall)
 Impending bidder who directors think is a competitor who would run down the
company (Cayne)
 Displacing majority in order to get best agreement while still in control (Teck)
 Refusing transfer registrations for a good reason (Re Bede)
 Rule: if a company needs capital and there’s only one avenue to get it, then even if the
person providing it has a dominant purpose in obtain control + is a director, no improper
purpose (Kirwan)
 Other improper purposes
o Directors have companies engage in a scheme to avoid the payment of income tax (BCI Finances)
o Co-managing director uses the IP and connections in the start-up of a rival company (Hurd v
Zomojo)
o Sole director + SH of 2 companies arranges to transfer valuable real estate owned by the
companies to the directors’ wife shortly before liquidators appointed (Kijuring v Taouk)
o Sole director arranges for the company to borrow $$$ and then transfers most to family’s super
fund (Australasian Annuities v Rowley Super Fund)

2. DETERMINE THE ACTUAL PURPOSE OF THE POWER

 Rule: this is a question of fact and the court should give credit to the bona fide opinion of the directors
and respect their judgment as to matters of management (Howard Smith)
o It is the perception of the directors that determines their purpose (subjective), and each
directors’ position must be analysed separately (Re Southern Resources)
 Rule: where there are dissenting directors, must find the substantial purpose of the majority
 Have regard to all surrounding circumstances (Hindle v John Cotton)
 Howard Smith: rejected the reason given by all majority directors in the face of evidence to the contrary.
 Was there a mixed purpose?
o Rule: a merely incidental effect following from pursuit of a permissible purpose doesn’t vitiate
the decision
o Rule: directors are not reduced to inertia when their SH’s have received a takeover offer, but
must consider whether undertaking a new commercial project will be in their interests
o Rule: must show that the substantial purpose was improper and that ‘but for’ the improper
purpose the directors would not have performed the act (Darvall, Haselhurst)
 7. DIRECTORS DUTY OF CARE

1. WHAT IS THE STANDARD OF CARE?

S 180 Care and Diligence – civil obligation only
(1) A director or other officer of a corporation must exercise their powers and discharge their duties with
the degree of care and diligence that a reasonable person would exercise if they
a. Were a director/officer of a corp in the corp’s circumstances; and
b. Occupied the office held by, and had the same responsibilities within the corp, as the person
Civl penalty provision

Minimum standard of care

 Minimum standard of care required of all directors, regardless of background, position or experience
(Daniels v Anderson). The same objective standard is applied to all D’s.
o Basic understanding of the business, familiar with fundamentals
o Cannot shut eyes to corporate misconduct
o Continuing obligation to keep informed about activities
o Duty to generally monitor affairs and policies; maintain familiarity with financial status
o Held: D’s failed to put in place effective internal systems to monitor conduct of audit
 ‘responsibilities’: those actually carried out by the director/officer (Morley)

Standard of skill
 Test: the standard of skill expected of a D is an objective standard measured by what a reasonable person
with the knowledge and experience of the director would do (Adler)
 Rule: D’s are required to take reasonable steps to place themselves in a position to guide and monitor the
management of the company
o Should become familiar with fundamentals of the business and financial status, keep informed
about activities, monitor affairs by regularly attending board meetings
o Relevant accounting principles and be able to make inquiries (ASIC v Healey)
 Rule: alleged breaches are tested by reference to an objective body of knowledge/expertise possessed by
persons in the same recognised calling (South Aus Marcus Clark)
 Financial competence: courts have inferred an objective standard of financial competence –

Raised standard?
 Is the standard raised?
o Rule: where a director/officer has a potential conflict between a personal interest and a duty in a
transaction, then the exercise of the duty of care requires special vigilance, calling for scrupulous
concern (ASIC v Adler)
o Chairperson: higher standard unless evidence to contrary (see below)

How does the standard apply to different people?

 Executive directors / officers
o Implied term that D would be taken to have promised company that they have the skills of a
reasonably competent person in their category + would act with reasonable care, diligence and
skill (Permanent Building Sociey)
o Morley: company secretary with legal background expected to raise w/ board potentially
misleading statements relating to announcement
 CEO/Managing director: may have a higher standard of care (Permanent Building Society))
 Non-executive directors: do they owe a lower standard?
o Weight of authority: in favour of same performance standard for all directors (Daniels)
o Tension: nature of obligations imposed – non-exec directors clearly have a lesser responsibility
o Rule: all directors owe the basic duty of monitoring the company’s affairs by maintaining an
awareness of its activities and financial status (Friedrich, AWA, Daniels)
 Rich: simply holding the title of non-exec director will not lower standard of care.
Expected to use knowledge and skills to a reasonable standard
 Chairman: may have additional responsibilities e.g. monitoring management, selecting matters to be
brought to board’s attention (Rich, AWA)
2. IS THE STANDARD OF CARE BREACHED?
 Question: is it what an ordinary person, with the knowledge and experience of the D, might be expected
to have done in the circumstances? (Overend & Gurney v Gibb)
o Measure against standard of care and standard of skill
 Rule: courts must balance the foreseeable risk of harm from the D’s actions against the potential benefits
to the company (Vrisakis v ASIC)
o Not confined to financial harm (Cassimatis)
o Consider magnitude of risk and degree of probability of its occurrence + the expense, difficulty
and inconvenience of taking alleviating action / any other responsibilities (Shirt)
 Circumstances to take into account: type of company + size, nature; Consti; composition of board;
position and responsibilities; experience/skills (ASIV v Maxwell); competence of management/advisers;
distribution of responsibilities (ASIC v Macdonald)
o Nature and scale of business: larger the business, less reasonable it is for D’s to have hands-on
involvement in company management

3. WAS THERE RELIANCE ON INFORMATION/ADVICE?

If D can show it was reasonable to rely in good faith on advice provided by others, then they have a statutory
defence to a breach of s 180(1).
 S 189 Reliance on info or advice: rebuttable presumption that reliance on info is reasonable if
a) The information was given by
i. An employee
ii. A professional adviser/ expert who D believed on reasonable grounds to be reliable and
competent
iii. Another director/officer regarding matters within their authority
iv. A committee on which the D didn’t serve in relation to matters within committee’s
authority; and
b) Reliance was made
i. In good faith; and
ii. After making an independent assessment of the advice
 Re Property Force Consultants: D was justified in placing reliance on another D who subsequently
committed fraud bc there was no reason for suspicion
 ASIC v Citrofresh: two ‘experts’ were not experts in relation to the subject matter and had no
technical/scientific qualifications or experience
 AWA: reliance would only be unreasonable where D was aware of circumstances of such character, so
plain, so manifest and so simple that no person, with any degree of prudence, acting on his behalf, would
have relied on one particular judgment info and advice of the officers (Equitable Fire Insurance)

4. WAS THERE DELEGATION?

If D can show that it was reasonable to believe that their delegate was reliable etc, then they have a stat
defence to a breach of s 180(1).
 S 198D Delegation: (1) unless the company’s Consti provides otherwise, the D’s of a company may
delegate any of their powers to a committee of directors, a director, an employee or any other person
(2) the exercise of the power by the delegate is as effective as if the directors had exercised it
 s 190 Responsibility for actions of delegate: (2) A director is not responsible if:
a) the director believed on reasonable grounds at all times that the delegate would exercise the
power in conformity with the duties imposed on directors
b) the director believed
i. on reasonable grounds; and
ii. in good faith; and
iii. after making proper inquiry if the circumstances indicated the need for inquiry, that the
delegate was reliable and competent in relation to the matter
 Rule: delegation does not mean that D no longer has to turn mind to issues – must probe and ask
questions (ASIC v Healey)
 Rule: where they knew or should have known facts that would deny reliance on others, may lead to
liability (Daniels v Anderson)
5. DOES THE BUSINESS JUDGMENT RULE APPLY?

S 180 Care and diligence – civil obligation only

Business judgment rule
(2) A director/officer who makes a business judgment is taken to meet the requirements of ss 1 and their
respective duties in respect of the judgment if they:
(a) make the judgment in good faith for a proper purpose; and
(b) do not have a material personal interest in the subject matter of the judgment
(c) inform themselves about the subject matter of the judgment to the extent that they reasonable
believe to be appropriate
(d) rationally believe that the judgment is in the best interests of the corp
Their belief is a rational one unless the belief is one that no reasonable person in their positon would hold
(3) Business judgment means any decision to take or not take action in respect of a matter relevant to the
business operations of the corp

Was there a business judgment?

 Business judgment: decisions to enter into transactions for financial purposes, as well as matters of
planning, budgeting and forecasting (Rich)
o ‘in respect of a matter relevant to the business operations’: broad; might be relevant even if not
a business operational matter
o ‘decision to take or not take action: must be consciously made and they must have turned their
mind to the matter i.e. monitoring duties not protected
 What is not a business judgment? failing to oversee/turn mind to something (Rich); to comply/not
comply with CA (Maxwell); to not participate in board decisions (Gold Ribbon)
 ASIC v Adler: couldn’t rely on BJR because he had a material personal interest in transaction that gave rise
to breach of duty

 S 180(2)(a) In good faith and for a proper purpose: must demonstrate that they acted with personal
honesty because they subjectively believed that they were acting in the interests of the company (Adler)

 S 180(2)(b) Must not have a material interest: must be nothing preventing an impartial decision from
being made (Adler)

 S 180(2)(c) Rationally believe that the judgement is in the best interests of the corp: this depends on
o The significance of the decision: the greater the significance, the greater effort required
o The practicality of gathering information: time and money etc (see below (Rich))

Was the director’s belief that they are properly informed reasonable?
ASIC v Rich
 Significance of decision
 Time available for obtaining info
 Costs related to obtaining info
 Director’s / officer’s confidence in those exploring the matter
 State of company’s business at the time
 Whether or not material info reasonably available
o ‘reasonably believe to be appropriate’: indicates that protection may be available even if D
wasn’t aware of info material to the judgment provided they reasonably believed they informed
themselves

6. CONSEQUENCES
S 180(1) is a civil penalty provision. A court must make a declaration of contravention if satisfied that a person
has contravened a civil penalty provision (s 1317E(1). Under this provision, ASIC may approach the court and
seek a PPO, CO or DO. Under s 1317(2), the company may apply for a CO (s 1317(2)). No criminal penalties.
 8. DISCLOSURE OF MATERIAL PERSONAL INTERESTS

1. STATUTE

S 191 Material personal interests – director’s duty to disclose

(1) A director who has a material interest in a matter that relates to the affairs of the company must give
the other directors notice of the interest unless ss 2 says otherwise.
 strict liability

A. Is there a material personal interest?

o Definition: an interest with the capability of influencing the director’s vote on the decision
(Mount King Mining)
 Gives rise to a real sensible possibility of conflict (Hospital products)
o Rule: duty applies in addition to, not in derogation of, the constitution + general law (s 193)
o Affairs of the company (see s 53)

B. EXCEPTIONS - What interests DO NOT need to be disclosed? (s 191(2))

(a) the interest
i. arises because of D’s membership of company and its in common with other Ds
ii. arises in relation to D’s remuneration as director of company
iii. relates to a contract company is proposing to enter into that is subject to approval by the
members
iv. arises bc director is guarantor/has given indemnity/security for loan to corp
v. arises bc D has right of subrogation in relation to guarantee/indemnity
vi. relates to a contract that insures D against liabilities as officer
vii. relates to any payment by the company in respect of indemnity
viii. is a proposed contract with a related body corp and it arises bc the director is a D of the
related body corp
(b) the company is a proprietary company and the other D’s are aware of the nature and extent of the
interest and its relation to the affairs of the company
(c) all the following conditions are satisfied
i. D has already given notice of nature and extent of the interest
ii. If a person who was not D of the company is appointed as D, notice is given to that person
iii. The nature / extent of the interest has not materially increased above that already disclosed
(d) the D has given standing notice of the nature and extent of the interest and the notice is still
effective (under s 192)
Duty does not apply to a single director proprietary company (s 191(5))

C. If there is no exception, what does the notice need to contain? (s 191(3))

o (a) give details of (i) the nature and extent of the interest; and(ii) the relation of the interest to
the affairs of the company
o (b) be given at a D’s meeting as soon as practicable after D becomes aware of their interest in the
matter
Standing notice? (s 192)
o Must contain same details as above, and must be given at a D’s meeting (orally or in writing) or to
the other D’s in writing (s 192(2)).
o If given individually: must be tabled at next D’s meeting (s 192(3))
o Must be recorded in minutes of meeting (s 192(4))
o Ceases to have effect if a person who was not a D at the time is appointed (s 192(5)(b)) or if the
nature/extent of the extent of the interest materially increases above that disclosed in the notice
(s 192(6))

D. Consequences: contravention does not affect validity (S 191(4); s 192(7)). Civil penalty provision. A court
must make a declaration of contravention if satisfied that a person has contravened a civil penalty
provision (s 1317E(1). Under this provision, ASIC may approach the court and seek a PPO, CO or DO. Under
s 1317(2), the company may apply for a CO (s 1317(2)
2. IF DISCLOSURE HAS OCCURRED, WERE VOTING RESTRICTIONS COMPLIED WITH?

A. Proprietary companies
S 194 (RR) If a director has a material personal interest and discloses it they can (a) vote on those matters
(b) proceed with transactions (ce retain benefit and (f) the company cannot avoid transactions merely
because of the interest

B. Public companies
S 195 (strict liability)
(1) a D must not (a) be present while the matter is being considered; or (b) vote on the matter
The director may vote if:
o S 195(2): D’s who do not have a material personal interest passed a resolution that (a) identifies the
D, nature and extent of the interest, relation to affairs of the company; (b) states that those Ds are
satisfied that the interest should not disqualify the D from voting or being present
o S 195(3) ASIC makes a declaration/order
o S 195(4) there is not enough for a quorum – D may call a GM to pass a resolution

C. Effect of contravention: does not affect validity. civil penalty provision. A court must make a declaration
of contravention if satisfied that a person has contravened a civil penalty provision (s 1317E(1). Under
this provision, ASIC may approach the court and seek a PPO, CO or DO. Under s 1317(2), the company
may apply for a CO (s 1317(2)).

3. GENERAL LAW

A. What does disclosure require?

Rule: requires at least disclosure of the conflict of interest / duty, its nature and extent (Fitzsimmons v R,
Woolworths v Kelly, Duke Group)

B. When is mere disclosure insufficient?

 WHEN is more required?
Rule: look to constitution and circumstances (Fitzsimmons v R)
o Degree to which D was involved in transactions
o Gravity of possible outcomes
o Awareness of how decision may be detrimental
o Whether D has been promoting cause
o Time pressures, commercial realities

 WHAT is required?
o Advise SH’s of risks and transactions
o Advise board of how to address conflict
o Positive actions to mitigate any harm to company you owe obligations to
o Resign
o Leave meeting during deliberation
o Not vote on decision
E.g. PBS v McGee: positive duty to protect company’s interests by taking steps to prevent transaction
E.g. PBS v Wheeler: D should have ensured other D’s appreciated potential harm in situation

4. DIFFERENCES BETWEEN STATUTORY AND GENERAL LAW

Statutory provisions are wider in the following ways
 Extra provisions re conflict – s 191, 195 criminal breaches; related party transactions
 Apply to any officer/employee (cf general law – fiduciaries)
 Liability arises if an advantage is gained for any other person
 Statutory provision civil penalties
 Apply to anyone involved in the contravention
Statutory provisions are narrower in the following ways
 Statutory only apply where use is made of D’s position/info acquired by virtue of that
o General law: move away from strict causality requirement
 9. CONFLICT OF INTEREST AND DUTY

1. WAS THERE A CONFLICT?

 Conflict of interest: would a reasonable person think that there was a real sensible possibility of conflict?
(Boardman v Phipps)
o Does not need to actually pursue or prefer their personal interest to breach the duty (Agricultural Land
Management v Jackson)
o Requires something that would actually sway the DM-ing f a D with a personal interest (Bell Group)

 Conflict of duty: D must avoid an actual or substantial possibility of a conflict between the D’s duty to the
company and the D’s duty to someone else (South Australia v Marcus Clark)

 Factors
o Nature of interest (pecuniary? Expectant or contingent? Direct or indirect? Grimaldi
 An indirect interest is not enough (Baker)
o Extent of interest: whether a reasonable person would think there was a real/substantial possibility to
sway the director (Bell Group)
o Nature of company, type of transaction
 Canberra Residential Development: former director not in breach as current company was
not in the same business as previous company
o Is the interest greater than that of a member of the public?
o Is there capacity to influence the decision?
 Rule: not necessary for there to be loss in order for the duty to be breached (Boardman v Phipps, Gemstone)
but cases usually involve loss caused by conflict
 Rule: doesn’t matter that the transaction is fair to the company or benefits the company (s 184(2A); s 184(4)
– benefit is not a defence)

2. HOW DO YOU PREVENT A CONFLICT?

 Permanent Building Society v Wheeler: abstaining not enough

 Bell: prevent company from entering transaction?
 Woolworths v Kelly: consent of board usually inadequate
 Queensland Mines v Hudson: SH approval via disclosure to board representing SH’s – exceptional case
 McGee: mere disclosure insufficient in some circumstances. May be positive duty to prevent transaction
going ahead
 Wheeler: there was a responsibility on the CEO and MD to ensure that other directors appreciated the
potential harm inherent in the transaction. Largely because PBS had no prior experience in land
development

3. CONSEQUENCES

 Statutory
o Failure to comply with s 191(1) is a strict liability offence, attracts a fine of up to 10 penalty units
or 3 months’ imprisonment. Not a civil penalty provision but it permits ASIC to disqualify the
person from being a director
o Contravention of s 191 does not affect validity
 General law
o Fiduciary must account for a profit/benefit if it was obtained when such a conflict existed or by
reason of the fiduciary taking advantage of an opportunity or knowledge derived from that
position
o The objective of these principles is to preclude fiduciaries from being swayed by consideration of
personal interest and from actually misusing their position for personal advantage
 10. NO PROFIT RULE

1. DID THE PERSON BREACH THE DUTY NOT TO MAKE IMPROPER USE OF POSITION?

S 182 Use of position – civil obligations

(1) A director, secretary, other officer or employee of a corp must not improperly use their position to
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation
 civil penalty provision
(2) A person who is involved in a contravention of ss (1) contravenes this ss

Four matters must be establishes

1. The person must have been a director, officer or employee of a corporation
2. The director must have made improper use of their position
 Impropriety: a breach of the standards of conduct that would be expected of a person in the position
of the director (Byrnes)
 An objective test but the D’s state of mind is relevant when the impropriety is said to consist of an
abuse of power (Byrnes)
3. The purpose must have been to gain an advantage or cause detriment to the corporation
 This requires a causal link between the misuse of position and the advantage or detriment (Adler)
 It doesn’t matter if the benefit isn’t realised (Chew)
 Examples
o Removing company safeguards to benefit another (Adler)
o Using company funds to buy shares in company to prop up share price (Adler)
o Taking out unsecured/undocumented loans that disadvantage company (Adler)
o Non-adherence to mandatory procedures is good evidence of misuse (Adler)
o Authorising bonus payment when company is struggling (Diakyne)
o Causing inter-company group loans where both are insolvent (Sydney Equities)
o Raising money via public offering and authorising payment to yourself (Warrenmang)
o Using position to establish competing business (Duggan)
o Causing company to issue shares to preserve their control (Forge)
o Causing company to make a loan without any prospect of benefit or security (Robins)
o Establishing a competing business and diverting clients to it (Digital Pulse)
o Diverting a corporate opportunity (Cooks)
4. The advantage must have been for the director, officer, employee or someone else

2. DID THE PERSON BREACH THE DUTY NOT TO MAKE IMPROPER USE OF INFORMATION?

S 183 Use of information – civil obligations

(1) A person who obtains information because they are, or have been, a director or other officer or
employee of a corporation must not improperly use the information to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation
 civil penalty provision
(2) A person who is involved in a contravention of ss (1) contravenes this ss

Five matters must be established

1. Person must have been a director, officer or employee
2. D must have acquired the relevant info by virtue of their position
3. D must have made improper use of the information
 Impropriety: a breach of the standards of conduct that would be expected of a person in the position
of the director (Byrnes)
 Examples
o Using information gained as D to trade in shares benefitting yourself (Vizard)
o Using info to set up competing business (Griffiths)
 o Using info relating to investment committee procedures and guidelines and the investment
portfolio to make less conservative investments (Adler)
4. The purpose must have been to gain an advantage or cause detriment to the corporation
 This requires a causal link between the misuse of position and the advantage or detriment (Adler)
 It doesn’t matter if the benefit isn’t realised (Chew)
5. The advantage must have been for the director, officer, employee or someone else

3. CONSEQUENCES

Civil penalty provision. A court must make a declaration of contravention if satisfied that a person has
contravened a civil penalty provision (s 1317E(1). Under this provision, ASIC may approach the court and seek
a PPO, CO or DO. Under s 1317(2), the company may apply for a CO (s 1317(2)).

RELATED PARTY TRANSACTIONS

1. Is there a financial benefit?

2. Is it being given by a public company / one of its controlled entities?
3. Is it given to a related party?
4. Do any exceptions apply?
5. If it’s a financial benefit to a related party – shareholder approval
6. Consequences of a breach
9. SHAREHOLDER ACTIONS
10. CORPORATE LIABILITY
11. SHARE CAPITAL