Directors’ Duties under Corporation Act 2001
1. To find out whether or not the provisions of directors’ duties under the Corporation Act 2001 (Cth) have been violated.
2. To find out whether or not the company is binding by the lease which was formed by Rick.
To find out whether or not the provisions of directors’ duties under the Corporation Act 2001 (Cth) have been violated
The individual who has absolute control over managing the operation in the organization in which they work is said to be a director (Coffee, Sale and Henderson 2015). The court stated that if the directors of a company are seen to be in relationship said to be fiduciary in accordance with the company they work in, then it is their responsibility to make sure that their work is said to be the best for the organization as any other fiduciary agent, as per the case of ASIC v Healey [2011] FCA 717. Several duties are imposed on the directors in regards to their position in the company they work in. The directors of the company are imposed such duties under the provisions mentioned in the CA and also the common law. According to the application of the CA, the first duty which the director holds while operating the business in Australia is duty of observing diligence and reasonable care. The s. 180 of the CA, describes exactly what the duty is made up of. This section is then separated in two sub parts. The first portion of the section states the rules by which it is determined that when can the duty of diligence and sensible care, is contradicted by the director. In the second portion of the section, includes the business judgment under the common law into the legislation. These rules are also said to be a type of defense, upon which the directors have their confidence in taking risky decisions regarding business (Mann and Roberts 2015).
This section exactly signifies that any director of the company or any officer of the organization who have been given the authority to manage the matters in their work requires to make note of due care and diligence while working for the company. They need to work as a sensible person, that is the powers needs to be put into action and duties need to be released by the director or the officer in the similar situation in the same company or they have occupied similar responsibility in the same office as of the director. Thus, the conclusion of this section in regards to the corporate law states that a director of the company needs to express extraordinary skills in the process of managing company operations, rather the director requires to follow similar skills which any sensible director would have done being in an identical situation and similar position. According to ASIC v Hellicar [2012] HCA 17, the director is expected to violate the section if it is determined that director was not notified himself in regards to the matters of the company decisions which were made by them, the director was not able to be present in the meetings of the discussion which was required to carry out the business activities properly, and therefore they failed to manage the operations of the company properly (Du Plessis 2017).
Duty of Observing Diligence and Reasonable Care
The director did not abide by the duties which were provided by s. 180(1), because they violated the s. 1041H of the CA, as their behaviour was deceptive and misleading in regards to the prospectus document, as per the case of Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited [2016] FCA 42. The court stated that when the directors do not abide by the lawful requirements they could have acted more carefully and diligently in regards to manage the business affairs as a sensible director would do in similar situation, he would not have taken any actions that would lead towards lawful obligations.
In case the director of a company is unable to abide by the provisions under s. 189 which states that the director who wants to have a confidence in the advice given by other individual, requires to have a sensible assumption that the advice he is getting is correct and competent, as per AWA Ltd v Daniels t/a Deloitte Haskins & Sells & Ors (1992) 10 ACLC 933; (1992) 7 ACSR 759 They require to make self-analysis into the company matters themselves for the purpose of fulfilling their thoughts in regards to the advice and its quality. If such requirements are not followed properly, then the director is held for not acting carefully and diligently in regards to the company operation and therefore, the director has violated the provisions under the s. 180 of the corporation act.
Meanwhile the s. 180(2) of the corporation act, brings up a scenario in which the directors of the company are able to skip the allegations of violating the duty of diligence and care. If the role of the business judgement is fulfilled by the directors of that company, then the court states the requirements of s. 180(1) to be met, for the purpose of satisfying this business judgement rule the decision which was made by the directors requires to be in the company’s proper purpose and good faith. It was also added that directors of the company must not have any sort of interest in setting such an order to match with the mentioned requirements under the rule. The directors are required to notify themselves for the purpose of fulfilling what the rule requires. Realistic belief is required to see whether the decisions taken by the director are for the benefit of the company. The term belief in this scenario is regarded as realistic unless no such director would indulge in such a thing. As per the case of ASIC v Rich the business judgement rule was used.
Violation of Provisions under Corporation Act 2001
According to the s. 9 of the CA, a director is an individual who seriously take part in the decision making of the company and then influences such a process is said to be a director.
The purpose for analysing whether or not the provisions of s. 180 of the Corporation act are violated depends on how the directors have followed the duties and how they have use their powers. There is the given scenario in which it is said that Patel and Rick are the directors of a company. Meanwhile Lana also participated in the process of decision making such a process makes the person a director under s. 9.
In the scenario stated it is analysed that the Company had the business of selling fruit but as it was not going well, Rick decided to change the location of the business. While searching for places to run the business came across the premises which were owned by Watel private limited, this premises meanwhile suited the best for Rick. Even though the rent of the premises Is high, there is no such competition of any similar business nearby. There was a thought in the mind of Rick, that they could even start serving coffee in their fruit shop. Meanwhile, the lease papers were signed by Rick, even though they did not consulted with the directors of the company. According to the provisions mentioned in the s. 180(1) it is stated that Rick requires to display similar skills as any sensible director being in the similar company identical position might have realized. But it was said that no sensible director will ever get involved into any sort of work of the company without having to consult the board. Therefore, as the provisions of s. 180(2) will not be appropriate for this case, Rick is said to have violated the s. 180(1) of corporation act. Rick Introduced a meeting, in which he was making the other directors of the company understand that how his actions would turn out to be for the betterment of the company. Both Lana and Patel agreed with the decision which Rick made, Patel did not protest against it and Lana thought it would have been better if he consulted the board before making the decision. It was stated that the directors require making self judgments and showing personal connection towards the company affairs, and having sensible belief before having confidence in the advice of other individual that it is informed and correct, as per the case of AWA Ltd v Daniels t /a Deloitte Haskins and Sells and Ors. As no personal judgments were made in this scenario, the section might also be said to be violated by Patel and Lana.
Enforcement of Provisions under Corporation Act 2001
In this scene the provisions under s. 180(2) requires to be enforced for the purpose of determining whether or not the duty of s. 180(1) have been complied. The directors according to the test of s. 180(2) require to notify other directors about the matter before taking any decision in regards to the company. In this case, Rick was seen to be informing himself that the business will be running properly as there were no such competitors nearby. But, later unspecified events lead to the failure of business. No material interest was seen on by Rick in regards to the subject matter of the transactions, therefore he had abide by the s. 180(2). The actions made by him will said to be stubborn if the sensible director might not have taken any such decision after seeing the risk which was involved in it. But, in this scenario no such risk was present, therefore is said to have abide by the provisions under s. 180(2) corporation act. Patel had also abide by the s. 180(2) of corporation act, as he had no personal interest in dealing and had complete confidence in the advice given by Rick. Meanwhile, Lana had a feeling that Rick required to consult the board before making any such decision, as she would have personally made the judgment and made a research before agreeing to the decision of Rick. Therefore in this scenario, she did not take care of notifying others regarding the business decision making and hence does not abide by the provisions under s. 180(2).
Conclusion
Therefore from the above mentioned discussion it can be said that on the basis of the initial impression Patel and Rick the directors of the company are seen to have violated the provisions under s. 180(2), but they have the right under the business judgement rule to claim a defence for the following. Though, Lana wanted to be informed before the decision was made as she could not carry out a research or any judgement then she might not abide by the provisions under s. 180(2).
To find out whether or not the company is binding by the lease which was formed by Rick.
A person might exercise the power provided by the company to vary, discharge or rectify and make a contract with the person performing as an expressed or implied authority which is given by company, according to s. 126 of the corporation act. Even without using the company’s common seal these powers could be operated. It was also stated that the specific procedure which was required in regards to the contract, the sections mentioned above do not have any impact on it (Twomey, Jennings and Greene 2016).
Conclusion
There are certain circumstances which are provided through the legislation by the provisions of s. 129, which states that a deed or any such document might be executed through the company even without using the common seal. The circumstance in which the documents are executed even without the common seal, is when the document is properly signed by at least two directors, one being the director and the other one being the company secretary. As per s. 127(2), this document is considered to be executed through the company, in which the common seal has been attached with the following document which is witnessed as according to subsection 1. It is made clear by the provisions under s. 127(4) that no restriction is present in regards to how the execution of the document might be done by the company (Chen, Ramsay and Welsh 2016).
When any individual and a company are in a contract, it has been provided the power of assuming that the Agent who is representing the company in the contract has acted according to the regulations as well as internal rules which are present in the organization, according to the case of Royal British Bank v Turquand (1856) 6 E&B 327 (Miller 2015)
The court stated in regards to the dissimilarity among the documents which were executed by s. 127, and also the contract which made by the agent on the behalf of the company by s. 126, as per the case of In Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103. The court stated that the contract was made under the provisions of s. 127 as there was only the signature of the director present but the signature of the second person was missing. It was also stated that when the company gets into a contract by s. 126 the other party in the contract must not have confidence on the expectations on s. 129.
In the given case it has been stated that Rick was involved in a transaction of renting property with Watel Pty Ltd. Only Rick had signed the transaction, and according to the provisions under s. 127(1) that the documents required to be signed by two directors, that is the directors and the company secretary but in this case only Rick had signed the deal. The documents are considered to be executed through the company and its common seal is attached to documents and is discussed in the subsection 1. If under s. 127 the documents are unable to be executed then the party does not have the power of having the confidence on the expectations by the s. 129, as per the case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd. Meanwhile, no such provisions are mentioned in the law which would block Rick from getting into a contract with the Watel Pty Ltd. The provisions also remain unaffected through which an individual could get into a contract representing the company.
It has been stated in the s. 126 of the corporation act, that a person has the right to exercise the power of the company to vary, discharge, rectify or make the contract with who is performing in accordance with the expressed or implied authority, which is been given by the company. Such powers do not require the common seal of the company to be put to use. Therefore, according to this section there is a valid contract which is formed between Rick and the company under the provisions under s. 126, as he was the agent representing the company. If any person is involved in a transaction with the company, then he has the right to find out whether or not all the rules and regulations are being followed, as per Royal British Bank v Turquand. In this scenario, it is said that this company Watel Pty Ltd is present is in a valid contract according to the provisions under s. 126 of corporation act.
Conclusion
Therefore, the transaction which took place between The Watel Pty Ltd and Rick is said to be binding lawfully upon the company, under the provisions of the s. 126. Even if it was not performed as according to the provisions of s. 127.
References
ASIC v Healey [2011] FCA 717
ASIC v Hellicar [2012] HCA 17
Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited [2016] FCA 42
AWA Ltd v Daniels t/a Deloitte Haskins & Sells & Ors (1992) 10 ACLC 933; (1992) 7 ACSR 759
Chen, V., Ramsay, I. and Welsh, M., 2016. Corporate law reform in Australia: An analysis of the influence of ownership structures and corporate failure.
Coffee Jr, J.C., Sale, H. and Henderson, M.T., 2015. Securities regulation: Cases and materials.
Du Plessis, J.J., 2017. Disqualification of Company Directors: A Comparative Analysis of the Law in the UK, Australia, South Africa, the US and Germany. Taylor & Francis.
Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103
Mann, R.A. and Roberts, B.S., 2015. Business law and the regulation of business. Nelson Education.
Miller, R.L., 2015. Business Law Today, Standard: Text & Summarized Cases. Nelson Education.
Royal British Bank v Turquand (1856) 6 E&B 327
Twomey, D.P., Jennings, M.M. and Greene, S.M., 2016. Anderson’s Business Law and the Legal Environment, Comprehensive Volume. Nelson Education.
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