Section 248b corporations act

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LAW00004 Company Law

SCHOOL OF LAW & JUSTICE

Session 2, 2018

TOPIC 5.2

Management (cont)

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Topic 5: Part 2 This lecture includes: • Directors’ disclosure requirements • Exoneration and relief for breach of duty • Insolvent trading • Company secretaries • Roles and responsibilities of executive officers; meetings and procedures

© John ORR

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DIRECTORS’ DISCLOSURE REQUIREMENTS

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Directors’ disclosure requirements. •  Directors’ disclosure and voting obligations reinforce the

general law and statutory duties concerning conflicts of interest

•  They arise under:

•  general law •  Corporations Act and •  ? Under company’s constitution

•  The general law requires directors involved directly or indirectly in a contract with the company, to disclose that interest to the general meeting. If this requirement is breached, the contract is voidable at the option of the company.

Directors’ disclosure requirements • Apply to directors of both public and private

companies. • Directors with a “material personal interest” must

disclose that interest to the board. • Unless the interest is exempt under section 191(2) • Does not apply to directors of single director

proprietary companies section 191(5) • Directors of public companies - additional disclosure

and voting obligations: if have a material personal interest, not entitled to vote or be present during a board meeting at which that matter is being considered section 195

Grand Enterprises Pty Ltd v Aurium Resources Ltd (2009) 72 ACSR 75

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Directors’ disclosure requirements (cont.) Chapter 2E - related party transactions. Applies when: • a public company or an “entity” controlled by it

(includes an individual, partnership or an incorporated body) gives;

• a “financial benefit” (eg, a loan, a guarantee, forgiving a debt, buying or selling an asset, giving money or property) to;

• a “related party” (eg, a director, a director of a controlling entity, a director’s relative or a company controlled by a director or a director’s relative).

Some transactions are exempted from related party rules. For example, arm’s length commercial transactions.

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EXONERATION AND RELIEF FOR BREACH OF DUTY

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Exoneration and Relief for Breach of Duty

• Director may be excused from civil liability arising from the breach of a director’s general law duty either by:

•  the members, in general meeting (ratification); •  the company’s internal rules; •  the court. •  Breaches of statutory duties can only be excused by

the court.

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1. Relief for directors’ liability for breach of duty – GENERAL LAW DOCTRINE OF RATIFICATION

= Director – breached duty, but general meeting of members ‘ratifies’ actions eg Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 Bamford v Bamford [1970] Ch 212 Hogg v Cramphorn Ltd [1967] Ch 254 Winthrop Investments Ltd v Winns Ltd [1975] 2NSWLR 666

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GENERAL LAW DOCTRINE OF RATIFICATION

Ratification is not available where: •  it would constitute a fraud on the minority • company is nearing insolvency and it would prejudice

creditors •  it would defeat a member’s personal rights •  it would be oppressive (see also sections 232-234) •  statutory duties have been breached

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2. Relief for directors’ liability for breach of duty – THE COMPANY’S INTERNAL RULES

Company constitution may contain provisions relieving directors - but subject to •  section 199A – company must not exempt a person

from liability to the company incurred as an officer or auditor

•  section 199B – company must not pay a premium for insurance re officer’s liability re wilful breach of duty or contravention of section 182 or section 183

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3. Relief for directors’ liability for breach of duty – THE COURT Courts empowered to excuse directors from liability: •  if it appears to the court that the person acted

honestly and •  having regard to all the circumstances the person

ought fairly be excused for the breach or contravention

section 1318 civil proceedings - negligence, default, breach of duty or breach of trust section 1317S contraventions to civil penalty provisions

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INSOLVENT TRADING

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Duty to Prevent Insolvent Trading When does the duty to prevent insolvent trading arise?

Section 588G (1),(2) • Who owes the duty? Also section 588V • What types of debts are relevant for the purposes of the duty?