Directors' Duties and Corporate Liability

This assignment delves into the fiduciary responsibilities of directors towards corporations, examining how their actions impact the company's well-being. It focuses on the case of Superdry Holding Ltd., where directors allegedly breached their duties, potentially leading to financial distress for the holding and manufacturing companies. The analysis explores remedies available for such breaches, including equitable damages, statutory compensation, and personal guarantees from directors.

Assignment 614712

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CONTENTS
Q1(A): Advise Jana and Adrian as to whether SSA is bound to the contracts with Computer Supplies Pvt
Ltd:..............................................................................................................................................................3
Brief Case Study:.....................................................................................................................................3
Legal provisions which attract this Case Study:......................................................................................3
Case Summary:........................................................................................................................................5
Q1(B): Advise Jana and Adrian as to whether SSA is bound to the contracts with Plastica Pvt. Ltd:............5
Brief Case Study:.....................................................................................................................................5
Legal Provisions of misrepresentation:...................................................................................................5
Case Summary:........................................................................................................................................6
Q2: Advise Karen as to whether Jack, Alice and Francis have breached their equitable and statutory
duties to Superdry Stores Ltd (including any remedies or penalties that might be applicable)....................7
Brief Case Study:.....................................................................................................................................7
Has Francis, Jack and Alice have breached their equitable and statutory duties to Superdry Stores
Ltd?.........................................................................................................................................................7
Remedies for such breach of director’s duties:........................................................................................9
Case Summary:........................................................................................................................................9
BIBLIOGRAPHY...........................................................................................................................................10

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Q1(A): Advise Jana and Adrian as to whether SSA is bound to the contracts with Computer
Supplies Pvt Ltd:
Brief Case Study:
Sunshine Scooter Art Pvt. Ltd is a newly established company having three whole time
directors to manage the business of it namely: Jana Jones, Adrian Allport and Bob
Golding. The prime motive of the business was to produce custom designated art-work
for scooters. Bob Golding had prior experience of mass production of scooters with a
number of Australian companies which enabled him to be a director of the newly
constituted Sunshine Scooter Art Pvt. Ltd along with Jana and Adrian who were art
graduates of the same college. Jana and Adrian were the original founder of the
company and with a joint decision they recruited Bob who could help them in the
business as he was well acquainted in the same domain. Bob goes into a contract with
Computer Supplies Pvt. Ltd on behalf of Sunshine Scooter Art Pvt. Ltd and purchases
10 computers for office use, even before Sunshine Scooter Art Pvt. Ltd got registered
on pen and paper.
Legal provisions which attract this case study:
As Sunshine scooters Art Pvt. Ltd was not registered as a company till 10th of August,
so a contract entered before 10th August by anyone on behalf of the said company
would not be a valid contract because there was no existence of the company in the
eyes of law when the contract was entered into. Bob was not even the director of the
company when he signed such contract with Computer Supplies Pvt. Ltd. The
company Sunshine Scooters Art Pvt. Ltd itself got registered on 10th of August whereas
Bob being a director of the company entered into a contract by purchasing computers
on 4th of August which in itself is void because non existence of subject-matter.
Though the time of delivery of the said computers were 1st September it cannot be a
valid contract because the date when the agreement between SSA and CSP was signed
to become a contract was way before SSA was even a registered company under ASIC
(Australian Securities and Investment Commisson).

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Under section 4, a misrepresentation induces the representee to enter a contract providing false
representation of facts or law.1 Types of Misrepresentation are viz;
 Innocent Misrepresentation
 Negligent Misrepresentation
 Fraudulent Misrepresentation
Here, Bob’s statement was misleading and deceptive over the contract. He knew the
fact that SSA was not a registered company under ASIC when he entered into such a
contract with CSP on behalf of SSA. His intent was to deceive CSP by Fraudulent
misrepresentation and acquire financial products from them which satisfies the
requirements under this provision of the Corporation Act, 2001.2
Case Summary:
Bob misrepresented in the contract which he entered with CSP. He was silent about the
fact that SSA was not a company yet when he went into a contract with CSP on SSA’s
behalf just because he was anxious and ready to start things prior for the business. His
intent remains the same which was to conceal a fact and misrepresent CSP by entering
into a contract with it. The day in which he signed a contract on behalf of SSA with
CSP was six days before when SSA actually came into existence as a company. Under
the provisons of the contract law the contract is voidable at the option of CSP.
Q1(B): Advise Jana and Adrian as to whether SSA is bound to the contracts with Plastica Pvt.
Ltd:
1 Section 4 of The Misrepresentation Act, 1967.
2 Bisset v Wilkinson [1927] AC 17.

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Brief Case Study:
In the second half, we find that Bob again goes into a contract all by himself without
the knowledge of the other two directors for purchasing raw materials from Plastica
Pvt. Ltd worth $50,000 which are payable on installments. This time he enters into a
contract after the company got registered under ASIC though making it a legitimate
contract on this ground. While entering into the contract Bob represented himself as the
sole director of the company which was a misrepresentation on his part. Furthur, we
find from SSA’s constitution that to formally execute a valid contract for an amount of
more than $10,000, it needs to get ratified by a board resolution and then executed by
atleast two directors.
Legal provisions of misrepresentation:
Under Section 4, it is an offence to misrepresent another party and thereby inducing the other
party to enter into such contract.
It is a criminal offence.
Maximum penalty:
 Fine can be upto $100,000 (for bodies corporate)
 Fine can be upto $20,000 (for individuals)3
Under Section 294, It is an offence to make false or misleading representations about
goods or services under the Australian Consumer Law.
Maximum penalty:
 Fine can be up to $1,100,000 (for a body corporate)
 Fine can be up to $220,000 (for individuals)56
3 Section 4 of The Misrepresentation Act 1972.
4 Section 29, Schedule 2 of Competition and Consumer Act 2010.
5 Sec 151 of Competition and Consumer Act 2010.
6 ACCC v Cadbury Schweppes Pty Ltd [2004] FCA 516.

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Under Section 1041E, defines ‘False or statements which are misleading’.7
At the onset while the sales manager of Plastica had a meeting with Bob, the later
represented himself by offering a card which read as the Director of Sunshine Scooters
Arts Pvt. Ltd which on the face seemed misrepresentation because in reality there were
two more directors of the same company. Later, Bob misrepresented himself to be the
‘sole director’ of SSA while entering into the contract with Plastica Pvt. Ltd. Bob made
a false statement that he was the ‘sole director’ which prompted the sales manager of
Plastica Pvt. Ltd to enter into such contract. Elements of the above provisions of law
are satisfied as to the case study.8
Case Summary:
Bob impatiently and wanting to get things rolled of fast for the business took a hasty
decision of purchasing the raw materials from Plastica at his sole discretion worth
$50,000. The relevant provisions of law which attract this case study renders this
contract voidable at the option of Plastica Pvt. Ltd under the Misrepresentation Act,
1967.
Q2: Advise Karen as to whether Jack, Alice and Francis have breached their equitable and
statutory duties to Superdry Stores Ltd (including any remedies or penalties that might be
applicable).
Brief Case Study:
Superdry Holdings Ltd. was the parent company and subsidiaries were; Superdry
Manufacturing Ltd. and Superdry Retail Stores Ltd. Its prime motive was to
manufacture, distribute and sell various types of wet-weather gear products. There
were three independent non-executive directors each, for the two subsidiaries. Holding
comprised of three directors namely Francis Nice, Jack Roach and Alice Wendall who
7 Section 1041E of the Corporation Act, 2001.
8 Esso Petroleum v Mardon [1976] QB 801 .

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had 50%, 30% and 20% of share capital respectively. In Superdry Manufacturing and
Superdry Retail Stores Ltd. holding had 70% and 30% of the share capital respectively;
while remaining 30% and 70% were held by the public respectively. Stores was
financially sound and was doing great business. Holdings and Manufacturing started to
face financial crisis. Finance Bank Ltd. asked for more securities for the debts that they
had procured along with personal guarantee from Francis, Jack and Alice. In board
meeting of Stores, directors decided to provide guarantee, as it was in the best interest
for Stores that as long as Manufacturer is a legitimate company Stores can purchase
good at a very nominal price. Secondly, if the plan to guarantee fails, reputation of
Stores will be at a stake. Majority of the directors approved the provisions of such
guarantee.
Has Francis, Jack and Alice have breached their equitable and statutory duties to Superdry
Stores Ltd?
Directors have a fiduciary relation with the corporation under which they are
employed. Under the general law they need to act in good faith and restrict themselves
in acting against the interest of the company, they should not use power for any
unlawful purpose, they should avoid any conflict of interest that may hamper the
corporation, they should adopt discretion that is taking up decisions in such a manner
that it proves to be the best interest for the corporation.
They are bound to follow statutory duties as defined under the Corporation Act 2001
Under section 1819, it is stated that the directors of the company must act in good faith
and to the best of their interest towards the corporation.
Duties of a director has also been defined under Companies Act, 2006
9 Corporation Act 2001, Section 181.

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Under section 17310, the director should use independent judgment to act in the best of
his interest towards the corporation under which he is employed.
Under section 17411, duty of care and skill is stated which fundamentally says a
reasonable duty of care is to be taken for the best interest of the company by the
assigned director of that company.
Nominee directors- These are directors who are usually appointed in a subsidiary
company by the parent company. The powers of the nominee director are same as that
of a director, and the duties are also the same which they perform to protect the interest
of the company. They are independent in taking decisions and are not bound to follow
the parent companies directors provided they ensure that they are acting for the
benefits of the subsidiary company under which they are appointed as directors.
It was held in Boulting v Actt12, ‘nominee directors are not bound to act as per the
wishes of the nominator, they have a right to refuse nominator’s directions where they
feel they have a clash of interest. It is a clear breach of duty by a director if a director
of the subsidiary company acts solely in the interest of the parent company’.
It was held in Charter Bridge Corporation v. Llyods Bank Ltd13, ‘each of the subsidiary
companies have a separate legal entity and the directors of a particular single company
are not entitled to act for other parent and subsidiary company by sacrificing the
interest of the subsidiary company under which he is a director’.
Here, we find that Jack, Alice and Francis are worried about their own liability whether
to be a guarantor for Superdry as they feel it might hamper their sole reputation if
Superdry cannot perform well. Being the director of the holding company they should
not think about what would benefit themselves rather under the obligation of director’s
duties they must act in such a manner which proves to be beneficial for the corporation
and act in good faith. They must remain loyal towards the corporation and promote
10 Companies Act, 2006, Section 173.
11 Companies Act, 2006, Section 174.
12 Boulting v. Association of Cinematography, Television and Allied Technicians [1963]
2QB606- Sec 172 of Companies Act, 2006.
13 Charterbridge corporation v. Llyods Bank Ltd. [1970] 1Ch62.

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reasonable standard of care towards the corporation so that the corporation prospers
well.
Remedies for such breach of director’s duties:
Since the directors were not acting dishonestly or recklessly there would not be any
criminal liability under the statute but under the general law they must provide remedy
in the form of equitable damages or statutory compensation in monetary terms or
rescind the decision what they have taken and instead act in a way to uphold the
interest of the corporation. Jack, Alice and Francis being the core director of Superdry
Holding Ltd. must provide personal guarantee for holding and manufacturing to bear
the debts that the companies need to roll over in the business.
Case Summary:
A welfare of a company depends upon the way the directors carry out the tasks related
to the company and the directors are even responsible for the interest of the
shareholders of the company. Directors are fiduciary agents and have a fiduciary
relationship with the company and they owe duty to the company that they must act in
good faith and be honest towards the company. They must disclose every fact to the
company and see to it that for their personal benefit they should not push the company
at a stake.
BIBLIOGRAPHY

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[1] Competition and consumer Act, 2010[Cth]
[2] Misrepresentation Act, 1947
[3] Bare Act- Corporation Act, 2001 [Australia]
[4] Bare Act- Australian Securities and Investment Commission Act, 2001
[5] Australian Corporations Legislation 2017 edition
[6] Bare Act- Companies Act, 2006
[7] Blackstone’s guide to the Companies Act, 2006
[8] Palmer’s Company Law- Annoted Guide to Company Act, 2006
[9] http://www.lawhandbook.sa.gov.au/ch10s03s03s03.php
[10]http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/
s1041e.html
[11] http://e-lawresources.co.uk/Misrepresentation.php
[12] http://e-lawresources.co.uk/Bisset-v-Wilkinson.php
[13] http://e-lawresources.co.uk/Esso-Petroleum-v-Mardon.php
[14] https://www.australiancontractlaw.com/law/avoidance-misleading.html
[15] https://www.lawteacher.net/lecture-notes/misrepresentation-lecture.php
[16] https://www.legislation.gov.au/Details/C2017C00210
[17]http://aicd.companydirectors.com.au/resources/all-sectors/roles-duties-and-
responsibilities/general-duties-of-directors
[18]https://www.icaew.com/technical/business-resources/legal-regulatory-tax-
governance/directors-duties/the-icaew-guide-to-the-duties-and-responsibilities-of-
directors
[19] https://www.out-law.com/page-8207.

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