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Case Study on Corporate Law Assignment

   

Added on  2021-05-30

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Corporate LawAnalysis of case study

2Task AIssueThe key issue of this case revolves around the possible breach of director duties’ covered under section 180(1) of the Corporations Act, by the directors of the company, and the possible defenceavailable under 180(2) of the Corporations Act.RuleCorporations Act, 20011 is the legislation which has to be followed by all the companies workingin Australia, unless otherwise exempted. This legislation provides the different aspects of company like the constitution/ replaceable rules, shares, director duties, and other major provisions2. Under section 9 of this legislation, the definition of a director has been given. This section provides that any person who acts in the position of a director, or where the company is used to acting as per the wishes or instructions of such person, the person would be deemed as a director of such company, even when not specifically named so3. In Australian Securities Commission v AS Nominees Ltd4it was held that the true source of decision making and holding the personal liable for decisions was the reason for holding such individuals as director of the company. Where a person undertakes management functions which typically a director of company undertakes Chameleon Mining NL v Murchison Metals Ltd51 Corporations Act, 2001 (Cth)2 Julie Cassidy, Concise Corporations Law (Federation Press, 5th ed, 2006)3 Corporations Act 2001, s94 (1995) 13 ACLC 18225 [2010] FCA 1129CORPORATE LAW

3would make such person a director of the company. Similar findings were given in Deputy Commissioner of Taxation v Austin6. A shadow director and a de facto director have the same duties and responsibilities as a general director of a company has. Part 2D.1 of the Corporations Act specifically covers the duties of directors7. Of the duties covered under this section is the civil obligation of care and diligence as is covered under section 180 of this act8. As per section 180(1) of the Corporations Act, the directors of the company are under a civil obligation of using their powers and fulfilling their duties in a manner as a reasonable person holding their office in similar situation and faced with similar issue would use9. In case the provisions covered under this sub-section are not fulfilled, the director would have to bear the penalty provisions covered under section 1317E of this act10. This allows the Court to make a Declaration of Contravention against the director; pursuant to which the ASIC can apply for a disqualification order against the director based on section 206C of this act11, or to apply for pecuniary penalties as are provided under section 1317G of this act12. In AWA Ltd v Daniels13, it was clarified that the court takes into consideration the subjective elements of position which the director held in the specific situation of the particular company when they make the decision of the contravention of duty covered under this section. Section 180 not does come with civil penalty provisions alone, it also offers defence in needful cases to the directors. Section 180(2) covers the business judgement rule, which provides that a director would not be in breach of subsection (1) where they make the decision on the basis of 6 (1998) 16 ACLC 15557 Corporations Act 2001, pt 2D.18 Corporations Act 2001, s1809 Corporations Act 2001, s180(1)10 Corporations Act 2001, s1317E11 Corporations Act 2001, s206C12 Corporations Act 2001, s1317G13 (1992) 7 ACSR 759; 10 ACLC 933CORPORATE LAW

4business judgment rules14. These rules provide that the decision by the director has to be made onthe basis of making judgment in good faith for proper purpose, director lacking personal interest in the judgment’s subject matter, director informs himself/ herself regarding the judgment’s subject matter, and the director rationally does believe that the judgment being undertaken is in the company’s best interest15. The directors need to consider a lot of factors in order to use this section as their defence. They have to show that they took time in reviewing the information available to them, their confidencein consideration of the particular matter, and the nature of demand which required attention and the business of company. In Australian Securities and Investments Commission v Rich16, Austin Jprovided that in order to fulfil section 180(2) there was a need for the director to inform themselves on the judgment’s subject matter to such an extent which in their view was reasonably appropriate. People’s Department Store Inc v Wise17 clarifies that this does not only involve what the director knew, but what such a director should have known. ApplicationIn the present case study, there is a need to firstly clarify on the individuals who can be deemed as the director of Fruut Pty. Ltd. Company. It is clearly provided in the case study that Rik and Patel are the directors and shareholders of Fruut Pty. Ltd. Company. The status of Lana needs to be analysed here. Here, there is a need to analyse the work done by Lana and the role she played in the company. Applying section 9 here, Lana although has not been named as the director of 14 Corporations Act 2001, s180(2)15 PwC, A guide to directors’ duties and responsibilities for non-listed public companies and proprietary companies in Australia (2008) <http://etraining.communitydoor.org.au/pluginfile.php/608/course/section/95/GuideDirectors_Apr08.pdf >16 (2009) 236 FLR 117 [2004] 3 SCR 461CORPORATE LAW

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