The Corporations Act 2001

   

Added on  2020-03-01

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Research on an Australian case (not more than 10 years old since the decision by theCourt) involving breach of company director’s/officer’s duties under the Corporations Act2001 (Cth)Case introduction: In Weinstock v Beck [2013] HCA 14, the High Court of Australia had madea clarification regarding the power of the court to remedy the impact of the breach of theCorporations Act, 2001 (Cth) or the constitution of the company that has taken place as a resultof an honest mistake or a procedural irregularity. The background of this case is that Mrs. TamarBeck and Mr. Amiran Weinstock had been appointed as the directors of LWC FurnitureConsolidated Pty Ltd. until the next annual general meeting of the company. The next annualgeneral meeting of the company to place the following year and in this meeting, the shareholdersof the company voted in favor of a resolution according to which Mrs. Beck and Mr. Weinstockhave been appointed again as the directors of the company. However due to different reasons,that religion has not been passed effectively and the result was that technically Mrs. Beck andMr. Weinstock had not been reappointed as the directors. Not appreciating district, both of themcontinued in this position and to act as the directors of the Corporation after the resolution hadbeen passed. Under these circumstances, the 1982, Mrs. Beckett retired from her position as thedirector of the company. On 30th June, 2003, in his position as the sole director of the company,Mr. Weinstock decided that he was going to appoint his wife, Mrs. Helen Weinstock as the
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director of the company. Keeping in view, the fact that Mr. Weinstock was not properly theappointed as the director, the efforts made by him to appoint his wife as the director of thecompany were considered to be in breach of the Constitution of the company. In this case, it wasaccepted by all the parties concerned that the appointment of Mrs. Weinstock was technicallyinvalid, keeping in view the construction of LWC. The duties/responsibilities breached: it has been mentioned in section 1322(2), CorporationsAct that any procedural irregularity will be inconsequential, unless it has been established beforethe court that there was or may result in “substantial injustice” to a third party, which cannot beotherwise remedied by the court (Cassidy, 2001). It has been further provided by section 1322(4)that the power has been given to the court according to which, 18 one. The application made byan interested party, the court can make a wide range of orders, which include the order thatprovides that the conduct resulting in the breach of the provisions of Corporations Act or theconstitution of the company is not invalid (Clark, 1986).In this way, the present dispute was concerned with the issue if the appointment of certaindirectors can be described as proper and valid or get the court has the power to "forgive" thefailure on the part of these directors would comply with the constitution of the company or thelaw (Fisher, 2001). There have been several interesting cases under section 1322(4) of theCorporations Act. For example in the present case, the NSW Court of Appeal were dividedregarding the issue of the appointment by one of the children of Weinstock of his wife to theposition of the director of the company, so that he may have the appropriate number of directors,as valid. According to article 69 of the articles of Association of the relevant company, it hasbeen mentioned that all the directors of the company will automatically retire at the end of the
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annual Gen. meeting of the company. Hence, after Tami has resigned from his position as thedirector of the company in 2003, Ami wanted to appoint his wife Helen as the other director ofthe company. Tami was also a shareholder of the company and he expressed his desire to windup the company due to the ground that the appointment of Ami as the director of the companywas not valid and as a result, the purported appointment of Helen was also invalid. In this case, it was decided by the primary judge, Barrett J, who had relied on article 69 of theConstitution of the company to arrive at the conclusion that Ami had not been appointed bylately as the director of the company when he purportedly appointed his wife Helen as a co-director. But in this regard, the court had made an order in accordance with section 1322(4)(a),Corporations Act, which validated the appointment of Helen as a co-director and precluded thecompany, LWF from being wound up. The judgment given by Barrett J was unanimously upheldby the NSW Court of Appeal according to which Ami and Helen were not appointed validly tothe position of the directors of the corporation. However, the Appeal Court had differencesregarding the issue if section 1322, Corporations Act can be used by the court for the purpose ofvalidating the appointment of these two persons as the directors of LWF. In this regard, it was stated by Young J and Sackville J that section 1322(4)(a) of theCorporations Act cannot be relied upon by the board for the good was a validating theseappointments. It was felt by the court that the contraventions that has been mentioned in section1322(4)(a) of the Act was applicable in cases where the actions of a person, who has beenappointed invalidly, have to be validated. As a result, the court stated that this section was notapplicable in the cases, like the present case, where the law requires the court to validate theactions of someone who cannot be appointed invalidly. On the other hand, Campbell J, gave hisjudgment in dissent. The reason was that he was in favor of a broad interpretation of this section.
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