Corporations Act- Case Study

This case study explores the duties and liabilities of directors under the Corporations Act. It discusses a breach of the Act by Adoni and the potential remedies for the breach.

Running Head: Corporations Act
Corporations Act- Case Study
System04128

Corporations Act
Table of Contents
Introduction................................................................................................................................2
Regulatory Authority.................................................................................................................2
Key obligations of the Directors................................................................................................3
Arguments by Parties.................................................................................................................4
Remedies for Dig against Adoni................................................................................................4
Conclusion..................................................................................................................................6
Bibliography...............................................................................................................................8
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Corporations Act
Introduction
The Corporations Act puts various duties on the administrators of the company.
Directors of an organisation includes as an employee who participates in process of decision
making or make the decisions which influence the company’s decisions wholly or partially,
any person who has power to effect the financial standing of the company or an individual on
whose guidelines and information the directors acts. These persons are known as ‘de facto’ or
‘shadow’ directors (Directors Duties in Australia: A Guide for Residents and Non-Residents
Directors, 2017). Therefore, the directors of the main company will be liable for the acts done
by the directors of the subsidiary companies. There is a marginal inclination of putting
personal liabilities on the administrators. There have been various case laws in recent times
which are dealing with the civil and criminal liabilities of the directors of the company.
Yes, there is breach by Adoni under Corporations Act. The sections that are breached
by Adoni under Corporations Act are-
Corporations Act’s Section 180 engaged in responsibility of perseverance and care
(Corporation Act 2001- Sect 180). It provides that in certain circumstances the administrator
of an organization during making the decisions should adhere to duty of due diligence and
care. Section 181 of the Corporations Act point out that director must act under best purpose
and bona fide intention (Corporation Act 2001- Sect 181). Section 182 says that the
administrator should not misuse any information and position (Corporation Act 2001- Sect
182). When the other directors of the company rejected Adoni’s proposal to take the lease
from Western Mining then he should have think for the interest of the company and should
have dropped the idea of buying the lease. The Board of Directors were thinking for the
benefit of their organisation so they rejected Adoni’s idea.
Regulatory Authority
Offenses within the purview of Corporations Act are principally polite.
Notwithstanding, there is existence of criminal offenses are well. The Australian Securities
and Investment Commissions (Australian Securities and Investments Commission, 2019) is
corporate administrative expert in Australia. Corporations Act and the Australian Securities
and Investment Commission Act 2001 have power to deal with the criminal cases. The
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individual obligation of the chiefs is represented through these demonstrations. ASIC is in
charge of putting procedures against officers, organizations and executives. Contingent upon
the supposed break, ASIC will choose among common or criminal procedures. The
undeniable distinction is that a criminal continuing will ask for higher standard of
verification. Criminal punishments can lead in detainment. Nevertheless, common
punishments are ordinarily financial and may avoid an individual from going about as a chief
of an Australian organization for a predefined time (Ferguson, 2013).
Key obligations of the Directors
 Act with consideration and determination there is a commitment to guarantee a
fundamental comprehension of the organization's exercises, estimate, circulation of
capacities and its monetary position.
 In gatherings of the corporate, the organization’s interest stretches out to the interest
of investors just as premiums of different partners. This requires equalization. Further,
extra thought should be given to investor-delegated executives in joint endeavours.
The partnership of entirely possessed auxiliary and organisation’s gathering is talked
about underneath.
 Not utilize his or her situation to pick up preferred position for themselves or another
or to make impairment the organization.
 Not use data for picking up bit of freedom for himself, herself, or another or to make
disadvantage the company (obligation proceeds after end of arrangement) (The
responsibilities and duties of a company director, 2019).
Chiefs and officers who break these obligations are subject for common and, in certain
conditions criminal punishments. Moreover, the obligation to act with consideration and
determination forces a commitment on chiefs to have a fundamental comprehension of the
organization's exercises and its money related position. Different obligations of the executive
incorporate obligation to reveal any adequate individual interests that are identified with the
organization day-by-day issues. Individual intrigue is that intrigue which has reasonable limit
or penchant to constrain the choices of the chief in organization's choices. Adoni engaged in
the contract with the other company without taking assent from the other board of directors
amounts to civil breach. The act was unethical and amounts to harsh punishment. Adoni can
argue that he acted in the good faith of the organisation and in the interest of the company.
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Arguments by Parties
Section 180- Duty of care and perseverance (Corporations Act 2001, Section 180
Care and Diligence- Civil Obligation Only, 2019). The other directors of the company will
make Adoni liable for the breach of the said section as he failed to live upon the duties of the
director. He did not think about the company and hastily decided to but the lease. Adoni will
argue that he was correct to buy the lease as he sold the lease at substantial profit to his own
company. If the other directors has agreed to buy the lease then they would have been in
profit and he was correct in deciding to buy the lease.
Section 181 of the Corporations Act points out that director must perform under best
purpose and bona fide intention (Corporations Act 2001, Section 181 Good Faith- Civil
Obligation, 2019). Adoni will argue that he was doing everything with the section as he was
trying to purchase the lease at reasonable price on the basis of authentic source. He was
acting in good faith and with bona fide intention. Board of directors will counter his
arguments that by going against the decision of majority of board of directors are not coming
under the purview of good faith.
Section 182 of the Corporation Act provides that director must not use any
information and position with mala-fide intention (Corporations Act 2001, Section 182 Use
of Position- Civil Obligations, 2019). This is the strongest arguments for board of directors as
the information received from other company was confidential and Adoni used this
information for his company. It was serious breach of the section. Adoni will argue that he
use the information for his company in good faith because Desert International Gold NL
(DIG) was not listening to his proposals and he knew that it was beneficial. He saw the
opportunity to earn profit and it was legal thing to do. The information used by Adoni from
the Western Mining (NL) to purchase the lease at reasonable price is kind of misusing
confidential information that comes under the purview of insider trading. The offence of
insider trading is defined under Corporations Act as an activity for transaction by help of
confidential and secret information or to tell confidential information through which the
people will trade.
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Remedies for Dig against Adoni
Section 140 (1) of the Corporations Act authorises the company to form its own
constitution. This section provides that the constitution is effected by the contract among the
every administrators of the company or among company and administrators. The essential
solutions for rupture of the contract centre on need of consistence with providing the damages
or the for the illegal act to the blameless people. It is reliable with the concept that contracts
establish a deal among the gatherings to it (CORPORATIONS ACT 2001 - SECT 140,
2019). The constitution of Desert International Gold NL (DIG) and other companies under
Corporations Act takes decisions based on majority votes. The majority of the directors
rejected the proposal of Adoni to purchase the lease. He should have accepted the decision
being the director of the company. He should not have think about his own interest. Then
again, evaluation did by courts of the activities that comprise a rupture of the company’s
guidelines by comparing to the legality of the activity. The accompanying precedents outline
this:
 When the shares are being exchanged against the constitution of the company then the
exchange will be voidable and have to do amendment in the constitution (Grant v
John Grant & Sons Pty Ltd, 1950).
 The rights and duties of the administrators, which are against the constitution of
organisation and the authorisation taken by the administrators will not be valid and
will have no impact (Wilson v Meudon Pty Ltd, 2005).
 There is no impact of the accommodation if the arrangement of administrators is
against the constitution (Re Australian Koyo Ltd, 1984).
 A goals of investors thinking about matters inside the extent of forces of executives,
as distinguished in the company’s constitution has no impact (NRMA v Parker, 1986).
Maybe contingent upon the idea of the break and the resulting move made, the register of
individuals ought to be redressed. In many examples, this will require an application to the
court under Section 175 of the Corporations Act by the organization or any distressed
individual, which would incorporate a part. The court’s capacity to arrange a remedy of the
register of individuals is optional. Nevertheless, if there is a certifiable contest regarding
whether a supposed investor is extremely an investor, an organization may actualize a
genuine goals of the question that includes an adjustment of the register of individuals
without the requirement for a court request (CORPORATIONS ACT 2001 - SECT 175,
2019).
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Corporations Act
A few breaks of an organization’s constitution might be described as procedural
anomalies and in this way might be approved by the arrangements of Section 1322 of the
Corporations Act. In the ongoing instance of Dungowan Manly Pty Ltd v McLaughlin,
Supreme Court of New South Wales conceded harms to the holders of offers in domestic unit
organization that was redeveloped in a structure that comprised a variety of their group rights.
An intrigue to the New South Wales Court of Appeal was expelled, despite the fact that
Bathurst CJ noticed that: “There is some uncertainty with respect to whether the statutory
contract framed by Section 140 of the Act offers ascends to a case for harms for rupture.”
In situations in which there is breach of guidelines of an organisation leads to the
negation of Corporations Act. Section 1324 of Corporations Act enables court to allow
directives to request harms. The act done by Adoni is contravening the object and the scope
of Corporations Act. The other directors of company can file the application representing the
company or the ASIC is authorised to file the application for injunction. The antibiotic of
amendment cannot be accessed regarding the constitution of the company no matter if there is
some overlooking made in writing. In any case, the directives should allow averting the
transaction of required base in the constitution of the company that is against the prior
understanding among the administrators.
In Westpac Banking Corporation vs The Bell Group, Supreme Court of Western Australia
ruled with the majority that the duties of director are to do transaction with bona-fide
intention, in company’s and for best objective of the company. In landmark case, Foss v
Harbottle, the court ruled that if any wrong is occurred to an organisation then the
organisation is appropriate person to sue for damages and compensation. In this case, the
shareholders bought the suit against the directors of the company. The court ruled that the
shareholders are not the proper person to commence the suit because the wrong was done to
the company so the proper plaintiff is the company. Another aspect in the case is known as
principle of internal management. If the majority says and that thing is not done then only the
majority has the responsibility to file the complaint.
Conclusion
It can be concluded that Adoni has violated various duties as a proprietor of the
company. He might be asserting that he has done in the good faith of the company but it
cannot be overlooked that he got the information of purchasing of lease at reasonable cost. He
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got the information on the exact amount offered by other company for the lease. The way of
information obtained was illegal and it was unethical to get the lease. The purchasing of lease
on his own name was too illegal and unethical but he has right to sell the lease to his own
company and not to DIG. Adoni is liable for all other acts but not the selling of lease to his
company.
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Bibliography
Australian Securities and Investments Commission. (2019). Retrieved from Australian
Government: https://www.australia.gov.au/directories/australia/asic
Corporation Act 2001- Sect 180. (n.d.). Retrieved April 23, 2019, from Commonwealth
Consolidated Acts:
http://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s180.html
Corporation Act 2001- Sect 181. (n.d.). Retrieved April 23, 2019, from Commonwealth
Consolidated Acts:
http://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s181.html
Corporation Act 2001- Sect 182. (n.d.). Retrieved April 23, 2019, from Commonwealth
Consolidated Acts:
http://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s182.html
CORPORATIONS ACT 2001 - SECT 140. (2019). Retrieved from Commonwealth Numbered
Acts: http://www5.austlii.edu.au/au/legis/cth/num_act/ca2001172/s140.html
CORPORATIONS ACT 2001 - SECT 175. (2019). Retrieved from Commonwealth
Consolidated Acts:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s175.html
Corporations Act 2001, Section 180 Care and Diligence- Civil Obligation Only. (2019).
Retrieved from Wolters Kluwer:
https://iknow.cch.com.au/document/atagUio485896sl14504541/corporations-act-
2001-section-180-care-and-diligence-civil-obligation-only
Corporations Act 2001, Section 181 Good Faith- Civil Obligation. (2019). Retrieved from
Wolters Kluwer:
https://iknow.cch.com.au/document/atagUio485897sl14504551/corporations-act-
2001-section-181-good-faith-civil-obligations
Corporations Act 2001, Section 182 Use of Position- Civil Obligations. (2019). Retrieved
from Wolters Kluwer:
https://iknow.cch.com.au/document/atagUio485898sl14504559/corporations-act-
2001-section-182-use-of-position-civil-obligations
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Directors Duties in Australia: A Guide for Residents and Non-Residents Directors. (2017,
May). Retrieved from DLA Piper:
file:///C:/Users/System04128/Downloads/3232843_Directors_Duties_in_Australia_29
07122_V1%20(3).pdf
Ferguson, D. (2013, February 14). Australia: The Statutory Contract. Retrieved from
mondaq:
http://www.mondaq.com/australia/x/221404/Contract+Law/The+Statutory+Contract
Grant v John Grant & Sons Pty Ltd, 82 (CLR 1950).
NRMA v Parker, 4 (ACLC 1986).
Re Australian Koyo Ltd, 8 (ACLR 1984).
The responsibilities and duties of a company director. (2019). Retrieved from Burges
Salmon: https://www.burges-salmon.com/news-and-insight/publications/the-
responsibilities-and-duties-of-a-company-director/
Wilson v Meudon Pty Ltd, 448 (NSWCA 2005).
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