Case Study Corporate Law Assignment

Added on - Dec 2019

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CORPORATE LAW
TABLE OF CONTENTSCASE STUDY 1..............................................................................................................................1CASE STUDY 2..............................................................................................................................2a...................................................................................................................................................3b...................................................................................................................................................4CASE STUDY 3..............................................................................................................................5Scenario A...................................................................................................................................6Scenario B...................................................................................................................................7REFERENCES................................................................................................................................9
CASE STUDY 1In accordance to the given scenario the directors of Uninest Ltd., relying on the opinionof Neales, the board of directors pass a resolution which has been proposed by Neales to give aninterest free loan to one of the directors, Gilligan. Pursuant to the same, requisite shares areissued in the name of Gilligan. It has been stated that Neales is a consultant working for Uninestand has undertaken various important decisions for the company. Therefore, relying solely on hisdecision the directors passed a resolution to lend Gilligan a sum of $30 million and that toointerest free. It is further been noted that this is a strategy formulated to raise the price of sharessignificantly and make it difficult for Urbanlodge Ltd to take over management of the company.The Corporations Act 2001 (hereinafter referred as the 'Act') imposes a general duties onthe directors of companies, which is subject to a business judgement rule, in pursuance to whicha director is required to make every decision in good faith and for a valid purpose. Their shall notexist any form of personal interest in relation to the subject matter of the judgement.1Thedirectors are also under an obligation to inform themselves of every aspect related to thejudgement, so as to be able to reasonably believe in its appropriateness. Lastly, they shallrationally believe that the decision being undertaken takes care of the best interests of concernedbusiness. Section 180 of the Act specifically states that every director as well as other officers ofa corporate shall exercise their powers, along with discharging their respective duties withreasonable amount of care and diligence. In furtherance to the same, Section 181 of the Actprovides that the stated role of directors shall be undertaken in good faith for the catering to thebest interests of the company and for a valid purpose. In furtherance to the same, the court hasoften applied the business judgement rule which has a statutory support. In the case ofAustralian Securities and Investment Commission v. Mariner Corporation Ltd.(2015) it wasopined that while ascertaining breach of duty it is imperative for the authorities to assessapplication of the business judgement rule as enumerated in Section 180 (1) of the Act.2Infurtherance to the same court noted various factors which shall be considered while ascertainingthe liability.1Lanis, Roman, and Grant Richardson. 'The effect of board of director composition on corporate taxaggressiveness.' (2011) 30.1Journal of Accounting and Public Policy50-70.2Sealy, Len, and Sarah Worthington.Sealy & Worthington's Cases and Materials in Company Law. (OxfordUniversity Press, 2013).1
Surrounding circumstances, terms of constitution, nature of business and composition ofthe board.Position and role of directors in the company, terms on which they are working, themanner in which responsibilities are distributed with other officers, reporting systemsand other requirements of company.Applicable legal framework3In the present case, business judgement is in relation to avoiding the occurrence of takeover and the decision to lend a significant amount of money to one of the directors to enable himto make a purchase of shares at a higher rate. It can be stated in this respect that the directorshave taken this judgement solely on the advice of the consultant, Neales. The directors of thecompany have failed to exercise their own diligence or care in determining the correctness andappropriateness of the decision. Thus, it can be inferred that this judgement of passing theresolution for granting interest free loan and significant shares to one of the directors iscompletely a decision of Neales. All the directors have solely relied upon the decision of Nealesand have failed to assess the appropriateness of the decision by application of their own skillsand experience. Further, it has been stated by the court inASIC v. Rich(2009) that both thedirectors and officers of the company are under an obligation to inform themselves about thesubject matter of the decision.4This information shall be to the extent that they can reasonablybelieve in the appropriateness of judgement. In light of the stated law and judicialpronouncement it can be stated that the directors failed to comply with the business judgementrule as they did not inform themselves about the subject matter and relied only on the opinion ofNeales. Hence, they acted to breach the duty of care and diligence. Furthermore, these laws areequally applicable on other officers and hence, Neales shall also be liable as he also failed toassess all the aspects of the decision.CASE STUDY 2Primo is one of the construction companies, who has been working with Landstock on anongoing basis. Shane, director as well as shareholder of Primo is appraised with the fact that3Legal Services Commission, General Duties of Directors – Corporation Act 2001(2017)<http://www.lawhandbook.sa.gov.au/ch05s01s03s02.php>4The Business Judgment Rule: ASIC v Rich and the reasonable-rational divide(2011)<http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1021&context=cgej>2
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