Company Law: Managing Director, Chairperson, Nominee Director, Alternate Director

This article covers various topics related to Company Law, including the differences between managing director and chairperson, nominee director and alternate director, and the duties and responsibilities of directors. It also provides answers to common issues such as selling manufacturing facility, removing directors, and issuing shares. The article includes references to relevant sections of the Corporations Act 2001 and ASIC guidelines.

Company Law

Table of Contents
Answer 1....................................................................................................................................3
Answer 2....................................................................................................................................3
Answer 3....................................................................................................................................4
Answer 4....................................................................................................................................5
Answer 5....................................................................................................................................5
Answer 6....................................................................................................................................6
Answer 7....................................................................................................................................7
Answer 8....................................................................................................................................8
Answer 9....................................................................................................................................8
Answer 10..................................................................................................................................9
Answer 11..................................................................................................................................9
References................................................................................................................................10

Answer 1
a) Difference between managing director and chairperson
Managing Director of the organization controls all the affairs of day to day occurring within
the company. However, the managing director cannot be selected for more than 5 years. On
the other hand, the chairman is considered as a person who is the head of the Board of
Directors. The managing director has to provide details to the Board of Directors of the
organization (Heibutzki, 2018). The chair person is considered as an independent director and
the Non Executive Director, on the other hand, the Executive as well as Non Independent
Director(Ajgaonkar, 2015). The Chair person can be the managing director and then
designated as Chairman and Managing Director (CMD).
b) Difference between a nominee director and alternate director
The nominee director is familiar under a responsibility whether formal or informal in order to
act in accordance with the directions or instructions of others. The nominee directors as well
as the particulars of nominator should be evidenced in the register of nominee directors of the
company. On the other hand, an alternate director is considered as a director who is appointed
to attend the meetings of board members on behalf of other directors of company in case,
when the other director is not capable to be present at the meeting of the board members. The
alternate director cannot itself be considered as a nominee director (Accounting and
Corporate Regulatory Authority, 2018).
Answer 2
Issues: Whether the company can sell its manufacturing facility? Can the members pass a
resolution to remove the director? Can they vote to replace the managing director?
Rule: According to ASIC, directors are required to act for the profit of the company and must
act in interests of all the members in a collective manner. As per the rule, the directors cannot

ignore the decisions taken by the members in meeting as they are held responsible for taking
decisions related to the organization by passing resolutions. The members can pass a
resolution for the removal of director under section 203 D of Corporations Act 2001.
Application: As there are 3 directors of the company, and the resolution was passed by 80%
votes by the members, so the company cannot sell its manufacturing resource. The directors
cannot ignore the decisions of the members as well as the resolution taken by them (ASIC,
2018).The members of the company can pass a resolution for the removal of director and vote
to replace the managing director as well.
Conclusion: The directors cannot sell the manufacturing resource without the permission of
the members. The board members possess the right to pass a resolution to remove the director
and they can replace the managing director as well by voting.
Answer 3
It is the duty of the directors to put the interests of the shareholders ahead of any other party.
Director should not get involved in such a situation where there is disagreement between their
individual interest and company interest (Legal Vision, 2015). The best way is to reduce the
potential for breach or liability as a director when the interests of the company, shareholders
and creditors are prioritized over the third parties.As directors have various duties and
obligations,they should consider the interests of the company, creditors as well as
shareholders on top priority with the company. So, I agree with this point of view that
directors owe duty towards shareholders ahead of other parties.

Answer 4
Issue: Whether the court would find the share issue invalid?
Rule: According to ASIC, the major duties of directors are to act in a manner so as to provide
profit the company; exercise powers for which they are given authority; to act in a
responsible and diligent manner; to avoid conflict of interests; and not to make improper use
of their position for their benefits (Baker McKenzie, 2017).
Application: It is the duty of the directors to act for the advantage of the company but at the
same time they owe duty towards shareholders as well. The directors should take the consent
of the shareholder when he holds 26% of the issued shares that has now been diluted to 20%.
As the directors have issued the shares to rise the funding for new factory, so they had no
intention to dilute his shareholdings.
Conclusion: The directors are performing their duties and court cannot consider issued
shares as invalid because the directors have acted for the best interests of the company. The
directors will be able to provide evidences that they have issued the shares to increase funds
for opening factory because of declining sales and productivity of the company.
Answer 5
Issue: Is Benita entitled to retain the profits made by her? Can Bananas Pty Ltd take legal
action against Ted Big?
Rule: It is the duty of the director to keep away from conflict of interests such as giving
financial benefits to others in any manner not even indirectly, informally or involving in
discussions about financial advantage. The directors must not provide, buy, lease or supply or
issue any asset to a related party in any time in future. They must act for the advantage of the
company and must prioritize the company, its shareholders and the creditors before third
parties (Federal Register of Legislation, 2018). The directors must exercise their powers and

discharge duties with reasonable care and diligence and similarly, any special responsibilities
taken by chair person might also affect the scope of their duty of care and diligence.
Application: Benita is the non-executive Chairperson and is involved in selling products to
Bananas for manufacturing of pyjamas. As per the ASIC, the Chairperson or directors of the
company must avoid conflicts of interests so, she should not be entitled to get benefitted by
doing business with the company in which she is chairperson.
Ted is the marketing director of the company and he should not provide any kind of benefits
to other competitors and should act for the benefit of the company. He is not linked with TJ
Pty Ltd. as Jemima is the sole director as well as shareholder of the company and is involved
in manufacturing and selling dressing gowns. The product is entirely different from what
Bananas were selling previously. However, the customers of Bananas have taken over by TJ
through signed agreement. So, Bananas can succeed in taking legal action against Ted on this
basis.
Conclusion: Benita is not entitled to retain profits made by her. Bananas can succeed in
taking legal action against Ted.
Answer 6
Issue: Can directors or the company appoint Fred and Trevor to the positions of managers?
Can directors issue the shares to Eddie?
Rule: Section 191 of the Corporations Act 2001 requires the director to disclose about
material personal interests to other directors(AustLII, 2018). The director should provide
details about the nature and extent of interest and association of interest with the affairs of the
company. Along with it, ASIC requires the directors to act for the welfare of the company
even if it could not benefit themselves (AustLII, 2006).

The Ltd refers to public company and Pty Ltd refers to proprietary limited company so, in
proprietary limited company, the constitution provides for the duties and liabilities of
directors according to Corporations Act 2001.
c) Section 208 of Corporations Act allows for need of approval from the members for
providing financial benefit to related party.
Application:As Fred and Trevor are relatives of directors of the company, the directors can
appoint them as managers only after informing the details to the other directors of the
company. However, they should be considered as one of the applicants for job and should not
be given undue advantage because of being related to directors and if they prove to be
capable to hold the position of manager, they should be appointed.
If Adventure Ltd was Adventure Pty Ltd, the constitutionof the company would provide for
the duties and liabilities of directorsand they would have acted accordingly.
The directors should issue the shares with related party with the mutual consent of the
shareholder Eddie as he was holding 52% of shares in the company which reduced to 47%. In
order to determine if the breach have been conducted by the directors or not, the court will
consider the test of best interests for the company. If the court will find that the act of
directors is for benefit of the company and not for third party, it will not be considered as
breach.
Answer 7
Issue: Whether the directors performed with care and diligence and to prevent insolvent
trading?
Rule: Under section 180 of the Corporations Act 2001, the director should perform their
duties with care and diligence and their actions should not make the company insolvent
(ASIC, 2018).

Application: Henry, Jack and Tanya were the directors of the company. When Jack took the
responsibility and not presented any financial report of the trading in six months, Henry and
Tanya did not act with duty of care and diligence and not taken hold of the situation. On the
other hand due to the act of Jack, the company involved in insolvent trading. So, all three of
them are responsible for the financial loss of company.
Conclusion: All three directors did not act in care and diligence towards company and their
acts put the company in insolvent trading.
Answer 8
As the shareholding of 1000 shares have been evident in the share register under the name of
Mary, Cyril should have inspected it before purchasing shares from her. Cyril should have to
incur financial loss as she believed Mary unknowingly.
Answer 9
a) The share certificate is a legal certificateissued to the shareholder to validate the ownership
of specific number of shares within a limited company from a specific date. The limited
companies issue the share certificates to their shareholders when they buy shares after the
formation of the company(Investopedia, 2018). On the other hand, the purpose behind entry
in share register is for transparency regarding control on company, to ensure equal treatment
of shareholders. Moreover, the company also has legal interest in being aware of knowing the
identities of the beneficiaries of shares registered with voting rights(Lindt & Sprungli, 2018).
The company is required to issue a share certificate in2 months of issuing or
transferringtheshares and might issue only one share certificate for all the issued or
transferred shares at a given point of time but if shareholder demands separate certificates,
then company should issue separate share certificates.

b) The transfer of shares refers to the transfer of title to the shares in a voluntary manner by
one party to the other. On the other hand, transmission of shares means transferring title to
shares through legal operations. The liabilities of transferor ceases once the transfer is
complete (The KCP Limited, 2017).
Answer 10
Issue: Are the directors allowed to repudiate to hold general meeting?
Rule: It is the duty of the directors as well as essential for them to hold general meetings.
The directors of a public company cannot refuse to hold general meeting under section 248 of
the CAct 2001. In case of refusal by director, members can call general meeting under section
249 F of the Act.
Application: The members can request for general meeting to directors but when the
directors refused to call for general meeting, they have conducted breach of their duty.
However, the members can call for meeting to amend the clause.
Conclusion: The directors are not allowed to repudiate to hold the general meeting. Even if
they refuse, members can call general meeting to make the resolution.
Answer 11
Issue: Is the resolution valid that passed at the general meeting?
Rule: The directors are required to inform about their personal interests to the other directors.
They should avoid conflict of interests and should act for the benefits of the company
(AustLII, 2018).
Application: Being the directors of the company, they have become the directors of
competing company which itself is conflict of interests and is disadvantageous for the
company. Any kind of resolution passed against the welfare of the company is invalid.

Conclusion: The resolution is invalid as it is against the welfare of the company.
References
Accounting and Corporate Regulatory Authority. (2018). Is an alternate director considered
a nominee director? Retrieved from acra.gov.sg:
https://va.ecitizen.gov.sg/CFP/CustomerPages/ACRA_google/displayresult.aspx?
MesId=15057972&Source=Google&url=va.ecitizen.gov.sg
Ajgaonkar, P. (2015). What is the difference between a CEO, CMD, MD and COO and what
are their functions? Retrieved from Linkedin.com:
https://www.linkedin.com/pulse/what-difference-between-ceo-cmd-md-coo-
functions-pranav-ajgaonkar
ASIC. (2018). ASIC guide for small business directors. Retrieved from asic.gov.au:
https://asic.gov.au/for-business/your-business/tools-and-resources-for-business-
names-and-companies/asic-guide-for-small-business-directors/
ASIC. (2018). Directors' key responsibilities. Retrieved from Asic.gov.au:
https://asic.gov.au/for-business/your-business/tools-and-resources-for-business-
names-and-companies/asic-guide-for-small-business-directors/directors-key-
responsibilities/
AustLII. (2006). Corporate power, related party and shareholder ratification issues in
financial transactions. Retrieved from Austlii.edu.au:
http://classic.austlii.edu.au/au/journals/QldJSchol/2006/64.pdf
AustLII. (2018). Corporations Act 2001. Retrieved from Austlii.edu.au:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/
AustLII. (2018). Corporations Act 2001 - SECT 191. Retrieved from Austlii.edu.au:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s191.html

Baker McKenzie. (2017). Duties and liabilities of directors of Australian companies.
Retrieved from Bakermckenzie.com:
https://www.bakermckenzie.com/en/insight/publications/2017/12/duties-and-
liabilities-of-directors
Federal Register of Legislation. (2018). Corporations Act 2001. Retrieved from
legislation.gov.au: https://www.legislation.gov.au/Details/C2017C00328
Heibutzki, R. (2018). The Difference Between CEO, President & Managing Director.
Retrieved from chron.com: https://smallbusiness.chron.com/difference-between-ceo-
president-managing-director-37047.html
Investopedia. (2018). Share Certificate. Retrieved from Investopedia.com:
https://www.investopedia.com/terms/s/share-certificate.asp
Legal Vision. (2015). What are director’s duties and how can a director comply with them?
Retrieved from Legalvision.com.au: https://legalvision.com.au/directors-duties-can-
director-comply/
Lindt & Sprungli. (2018). Registered share and shareholder registry regulations. Retrieved
from Lindt-spruengli.com:
https://www.lindt-spruengli.com/fileadmin/user_upload/corporate/user_upload/
Investors/BOR/Sharehoder_Registry_Regulations_and_applications_EN.pdf
The KCP Limited. (2017). Procedure for Transfer & Transmission of Securities. Retrieved
from Kcp.co.in:
http://www.kcp.co.in/downloads/investor/shareholders-information/procedure-for-
transfer-transmission-of-securities.pdf