Facts of the case
Discuss about the Responsibilities Of Directors And Officers.
In the given case, the chairman of the NRMA Nicholas Whitlam breached his duties in the capacity of the director. On the basis of evidences the court found that Nicholas Whitlam failed to cast votes against a resolution as a proxy. Whitlam did not sign the poll paper to increase director’s remuneration at the annual general meeting on 28 October, 1998. Honourable judge Gzell J also found that Whitlam altered the minutes of the board of directors meeting of NRMA on 11 August, 2000. But court found that Whitlam performed his function with honesty in respect of the alteration of board minutes. The Australian Securities and Investments Commission (ASIC) commenced the civil proceeding against Mr Whitlam blaming him of breaching his duty in the capacity of the director. The judge imposed a penalty on Nicholas Whitlam and banned him from the management of company. In this report what are the duties of the director and how Whitlam breached the duties in the capacity of director is discussed and examined (Allens Linklaters, 2018).
As per this case, the members of company had appointed the chairman of the company, Mr Whitlam as a proxy to vote on the resolution in the specified manner. In the meeting, Whitlam had voted on the resolution but he did not sign on the poll paper for the 3973 votes against resolution 6. This failure resulted as resolution 6 passed as special resolution. The Australian Securities and Investments Commission (ASIC) commenced the case on the director of the company. The allegations arose due to two resolutions. First was resolution 6 and other was resolution 7. These resolutions was about to increase the director’s remuneration. The resolution 6 was special resolution. On the other hand, resolution 7 was conditional. It was depend on the passing of resolution 6. The resolutions like resolution 6 and resolution 7 had been laid to the members of the company in the annual general meeting in 1997. But they were not accepted. In 1997, Whitlam agreed both the resolutions. Further in 1998, Whitlam again gave support to resolutions. The returning officer made 3 separate poll papers in the context of casted proxy votes to him in the chairman’s capacity. The poll paper separated in respect of-
- Which to be exercised in the support of a resolution.
- Which to be exercised in not in favour of the resolution.
- Votes which not to be directed.
The Australian Securities and Investments Commission (ASIC) gave reasons that Whitlam had proper knowledge that if poll paper would not be signed by him then resolution would have failed. It would have not passed as special resolution. So Whitlam decided to not sign the poll paper as a proxy (Mayor, 2018).
Breach of the director’s duties
The other contention made by the Australian securities and investment commission was that Mr Whitlam had changed the minutes of board of 11 August, 2000 in the capacity of member. The information about the director’s remuneration proposed to Mr Whitlam was included in the minutes of the board. ASIC claimed that there was a word ‘then noted’ in the minutes of board but Mr Whitlam had changed this word to the ‘recommended by the board committee’. Further a sentence was added by him specifying that board had agreed on the recommendation in respect of the remuneration proposed to the director. So the Australian securities and investments commission suspected that Mr Whitlam had broken the requirements which are to be fulfilled by directors (Neylam, Mir and Sato, 2017).
The court believed that Whitlam had breached the requirements of the section 232(2), section 232(6) and section 250A of The Corporation Law. Whitlam voted on the resolution of director’s remuneration but did not sign the poll paper in the annual general meeting in the capacity of a proxy. On the second allegation, Court also believed that Mr Whitlam had altered the board minutes containing the details of the director’s remuneration payable to Whitlam so that it being accepted by the board of directors in the next meeting of board that Whitlam contravened the section 180(1) of The Corporate Act.
As Whitlam had not acted in the revising minutes of board, Honourable judge Gzell J exercised the discretion decided to relieve Whitlam absolutely from the obligation for the violation of section 180(1) of The Corporate Act. The court gave decision that Whitlam be barred to manage a company for time duration of five years and Whitlam has to pay a penalty of $20,000 as a punishment. Later Whitlam made an appeal to the court.
There are some duties defined for the directors under The Corporation Act. The following are the duties which are required to be fulfilled by the directors at the time of performing the functions-
- As per the section 232(2) of The Corporation Law, the officers of the company are required to perform with honesty at the time of discharge their duty and at the time of exercise of their powers.
- As per the section 232(4) of The Corporation Law, the officers of the company shall exercise due care and diligence.
- As per the section 232(6) of The Corporation Law, the officers should not misuse his position just to gain a benefit for himself or for the any other person or to the reason of disadvantage to the company (Tomasic, Bottomley and Mcqueen, 2018).
- As per the section 250A (4) of The Corporation Law, as a chairman to give vote in the manner specified by the members.
- As per the section 180(1) of The Corporation Act, the directors should exercise their powers and discharge their duties with due care and the diligence like other one in that position would exercise his power and discharge the duties.
- As per the section 181(1) of The Corporation Act, it is a duty of director to exercise his powers and to discharge his duties in the good faith which is in best interest of the company and for the specific purpose (Hawes, 2017).
- As per the section 182(1) of The Corporation Act, the director should not misuse his position to get a benefit for himself and should not be a reason to harm to the company.
As per the first allegation by ASIC, Nicholas Whitlam did not sign on the poll paper against the resolution 6. The failure of the sign was the failure of casting vote. Nicholas Whitlam also altered the minutes of the board meeting of the company. These failures are considered as breach of the above discussed duties of director (Baxt, 2013).
The Australian Securities and Investment Commission claimed the civil proceedings against Nicholas Whitlam for breach the director’s duties as Whitlam had violate-
- Section 232 of The Corporation Law, by the failure of vote cast in the capacity of proxy as per the instructions provided by the members against the resolution 6 in the annual general meeting of the company in 1998 to get the increased director’s remuneration (Ligertwood and Edmond, 2017).
- Section 180, 181, and 182 of The Corporation Act in revising the minutes of the meeting of the board of directors of the company (Brown, 2018).
Decision of the Court
Honourable judge Gzell J found on the given proof that Whitlam had the knowledge about votes of members who had appointed proxies to vote on resolution 6. It would result in failure of the resolution 6. All the directors along with Whitlam had intention to gain individually or collectively from increased fee. It means that Whitlam did not want to sign the poll paper as proxy (Rubinson, 2017).
In the defence, Whitlam argued that it was the failure of sign, not the failure of vote. But this ground was not accepted by the court. In the answer Court said that this is the rule of meeting that the sign on the poll paper is required to make a valid vote. Further Whitlam argued that the requirements of writing were fulfilled by filling in his name and initial on the poll paper. In this regard Whitlam had given various examples of the related cases but Gzell J had not accepted these grounds of the cases. The court gave the reason that these cases were decided in the respect of the written instrument. It was not about the sign just like this case in which sign is required to validate vote (Saunders and Stone, 2018).
Further Whitlam challenged that the act of the chairman in the general meeting is quite different from the powers and duties to be performed by the director. As a chairman it could not be possible to act as a director in the general meeting. This breach was not the breach of director’s obligation to perform. Whitlam argued that the obligation to be performed by chairman could not be same as the powers and duties to be perform the directors. In the point of view of the judge, the duties of the chairman and the director are not mutually exclusive and violate the section 250A could not form breach of director’s duty. Whitlam was under a compulsion that the position of director should not use in the improper manner to have benefit for himself or others (Schwarcz, Jones and Yan, 2018).
Furthermore Whitlam said in the court in his defence that the charter of corporation did not make available for relaxation from the requirement of section 250A. As per section 82A of the act, the chairman cannot be officer. It was not valid appointment of chairman as a proxy (Zimmermann, 2016). This ground was also not accepted by the court. Gzell J answered that proxy from for the annual general meeting had approved and as per the constitution if only some requirements of section 250A (1) are fulfilled then appointment to be valid appointment as proxy (Talbot, 2018).
The court decided that there was the violation of section 180(1) of The Corporation Act because Whitlam had not exercised with due care and diligence. Gzell said that Whitlam did not contravene the section 181(1) of The Corporation Act and the section 182(1) of The Corporation Act because it was not the duty of him to check accuracy of board minutes of company. Whitlam did not take any additional director’s remuneration. The judge gave the judgment under section 1317S (2) of The Corporation Act to relive Whitlam from the liability of breach. The court imposed civil penalty on Whitlam. Gzell J gave order to not to manage company for time duration of five years and to give civil penalty of $ 20,000 (Hobbs, Lynch and Williams, 2018).
Conclusion
This case concludes that as per The Corporation Act, the directors of the company are required to fulfil the duties at the time of perform their functions. According to this, it is necessary to sign the poll paper to cast the vote and validate the vote. As per the rule of meeting the failure of signing the poll paper is the failure of casting the validate vote.
It is clear that it is essential for the directors of the company to perform with due care and diligence. A director should perform his powers and discharge his obligations with honesty. They should not misuse their position or harm to company. In respect of violation of these sections there is a provision of penalty or any other punishment.
References
Allens Linklaters. (2018) Our experienced legal system regularly publishes articles and updates on a wide range of legal topics. [online] Available from: https://www.allens.com.au/pubs/index.htm [Accessed 14/05/2018].
Baxt, R. (2013) Duties and Responsibilities of directors and officers. Australia: Australian institute of company directors.
Brown, J. (2018) The duty to lead by example. Journal of minimally invasive genecology, 25(3), pp.347-351.
Hawes, C. (2017) Myth busting Chinese corporations in Australia. Australia: Australian corporation.
Hobbs, H., Lynch, A. and Williams, G., (2018) The High Court Under Chief Justice Robert French. Australian Law Journal, 53(10), pp.12-24.
Ligertwood, A. and Edmond G. (2017) Australian evidence: A principal approach to the Corporation law and uniform acts. Australia: LexisNexis Butterworths
Mayor, A. (2018) The Conflict Duty Position. Melbourne. The decto press.
Neylam, M., Mir, S. and Sato, K. (2017) Duty free director proxis [online] available from: https://www.findlaw.com.au/articles/486/8216duty-free8217-director-proxies-whitlam-v-asic.aspx [accessed 12/05/2018].
Rubinson, R. (2017) Realising dispute resolution. Melbourne: The news corp Australia.
Saunders, C. and Stone, A. eds., (2018) The Oxford Handbook of the Australian Constitution. Oxford: Oxford university press.
Schwarcz, S. L., Jones, A. and Yan, J. (2018) Responsibility of directors of financial responsibility. Melbourne: New Corp Australia.
Talbot, A. (2018) The use of secret evidence in civil and criminal proceedings [online] Available from: https://www.allens.com.au/pubs/index.htm [Accessed14/05/2018].
Tomasic. R., Bottomley, S. and Mcqueen R. (2018) Corporation law in Australia. Australia: Australian associated press.
Zimmermann A. (2016) Western Legal Theory: History, Concepts and Perspectives. Australia: LexisNexis Butterworths.
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