Law of Business Associations and Directors' Duties in Australia

RUNNING HEAD: LAW OF BUSINESS ASSOCIATIONS
Law of Business
Associations

LAW OF BUSINESS ASSOCIATIONS
Part A
Overview
The director’s duties fall under the Corporation Act 2001 (CA) that describes the way in
which the company shall operate i.e. adequate economic records, decision taken with due
care and diligence and in good faith, no misuse of the role or information of the director, and
the provision of strategic advice. This study will define Norah's privileges as preventing
Unique Victorian Arts Crafts Ltd from operating on a shortlist provided by certain internal
sources without the consent of Class A shareholders. It will also identify the criteria for
amending the constitution as well as whether Norah has the right to avoid amendment in the
constitution of company.
Legal Consequences as per the Corporation Act
The directors must act in best interest and bonafidely in what they consider and not what the
tribunal may consider is in the benefit of the corporation as per the case of Re Smith &
Fawcett Ltd (1942) CH 304. The Corporations Act 2001 contains various duties of director
(Cowley & Knight, 2017). According to sec 180 of the CA, the director or other employees
of a company must practice their authority and carry out their duties closely and diligently
(Langford, 2014). This obligation is subject to a law of business judgment requiring the
director to give a judgement on the company; to create a choice properly and in good faith,
not to have a material private interest in the topic matter of the judgment; to be honest, to
believe that the choice is in the best interests of the company (Baxt, 2015). Likewise, in the
given scenario Norah, who is a member of the board of the directors and maintains Class A
shares. Georgiana and Yasmin, being the board of directors of the company, had the duty of
care and diligence in accordance with sec 180. However, they misused their power by
selecting Seek-Easy Consultant to perform a review and shortlisting method for the
appointment of directors without consulting Class A shareholders. To appoint director advice
of Class A shareholder is necessary, they knew such fact still it was not consulted by them.
According to sec 182 of CA, directors are forbidden from misusing their role in order to
receive benefits for themselves or someone else or detriment to company (Tricker & Tricker,
2012). Whereas according to sec 232 of the CA the court may give order under sec 233 if any
directors has acted unfairly, oppressive, unfairly discriminatory against any director or
directors either in that capacity or in any other capacity (Hepburn, 2013). Whereas, in
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LAW OF BUSINESS ASSOCIATIONS
accordance with section 183 of the acting directors, the information obtained because of their
role with the company in order to achieve benefits for themselves or someone else or to the
detriment of the company is forbidden (Kiel et al., 2012). Likewise, in the given situation
Georgiana and Yasmin infringed the provisions set out in sec 182 and 183 of the act as they
directed the consultant not to include Norah in the short list for their own and personal
interest. As well as they have breached provisions laid down in sec 232, Norah can file suit
and obtain court’s order under sec 233 as Yasmin and Georgiana acted against the Norah.
Each Australian company is governed by its own collection of legislation outlining how the
company will function (Bottomley, 2016). Many companies laid down these rules in a
corporate constitution. These guidelines are also termed, as replaceable rules in the CA
(Australia, 2011). Directors who violates these rules can be held liable under the CA
(Saunders & Stone, 2018). In order to amend the business constitution, few processes are
enacted that must be strictly followed (Harris et al., 2016). The replaceable regulations
provide a helpful and fundamental structure in the Corporations Act that can be fully adopted
or modified to meet the demands of the business (Bruner, 2013). The CA offers different
laws that can be replaced to change the company’s constitution (Yogaratnam et al., 2016).
Anyone who does not follow the laws or violate those laws will be in contravention of the
agreement (LexisNexis, 2016). Members may apply for a court order seeking compliance to
or compensation from the replaceable regulation (De Plessis et al., 2014).
As in the case of Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL
(1968) 121 CLR 483, it was determined by the court that the concept is that although mainly
the authority is provided to allow funds to be collected when needed for the company's
purposes, there may be opportunities for directors to award shares reasonably and
appropriately for other reasons, provided that those reasons apply to the intent of benefiting
the corporation as a whole, as differentiated from a function. Furthermore court stated that the
ultimate question must always be whether the problem was honestly raised in the company's
interests. Likewise, in the given case study, Georgiana and Yasmin tried to amend the
constitution with the consent of the Norah as well as they did not intend to act for the benefit
of the company. They wanted to amend the constitution of the company for their own
benefits and to deprive Norah from being re-elected as director of the company. Georgiana
and Yasmin did not act in good faith and for the benefit of the company. Thus, Norah can
prevent them from allowing them for the buyback of the Class A shares.
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