Directors' Duties and Frauds

This assignment delves into the world of corporate governance, exploring directors' duties and the importance of exercising powers for a proper purpose. It also touches on the topic of fraud, including commercial computerized accounting programs and online scams. The assignment draws from various sources, including academic journals and online resources, to provide a comprehensive understanding of these critical concepts.

Monitor Corporate Governance
Activities

Table of Contents
Q1. What could ASIC do to the company after knowing the fraud?...........................................3
Q2. Is the recognition of single director/ shareholder companies a backward step in regard to
the undesired consequences of limited liability?’........................................................................3
Q3. What does “ultra vires” means and has it been abolished?...................................................3
Q4. How many directors be removed or forced to vacate their office?.......................................3
Q5. When an employee sells a defective product that causes harm. Is the employer company
or the employee liable for the damage?.......................................................................................4
Q6 Considering the facts covered in case, what steps will be taken?..........................................4
Q7 Discuss Viroserve's rights?....................................................................................................4
Q8 What is a business judgement rule? Why did the government introduce such a rule in the
Corporations Act?........................................................................................................................5
Q9 Do you agree with the statement?..........................................................................................5
Q10 Should ratification by the members be allowed with all breaches of director’s duties? Are
there any circumstances where ratification should not be permitted?.........................................5
Q11 Are directors of public companies being able to delegate some of their functions to, and
or to rely on information and advice from senior executives?....................................................6
Q12. Why is a director required to act for a proper purpose? What is meant by the phrase
“proper purpose”?........................................................................................................................6
REFERENCES................................................................................................................................8
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Q1. What could ASIC do to the company after knowing the fraud?
ASIC refers to the Australian securities and investments commission which involves a
variety of consumer and corporate laws in order to protect the rights of people. As per the given
scenario, Marcia was 17 years old but he registered her age 19 for privately held company which
can be considered as fraud. ASIC can take action in against of Marcia and her company can be
closed because of misinterpreting ASIC (Button, Nicholls and Owen, 2014).
As per the section 201B of the corporation’s act 2001 provides that a director must be a
individual not a body corporate. Along with this, it should be at least 18 years of age and cannot
be disqualified from managing corporation under part 2D.6 unless the appointment is made with
ASIC’s permission as provided under 206F of the act of leave is granted by the court under s
206G of the act. After deducting that Marcia is below the age of 18 she can be disqualified frim
the directors post.
Q2. Is the recognition of single director/ shareholder companies a backward step in regard to the
undesired consequences of limited liability?’
Yes, single director companies can be considered as backward step in regard to the
undesired consequence of limited liability. It is due to possibility that firm will not be able to
repay to creditors who are linked with them (Fisher, 2015). Further, for a single director it is not
easy to carry out business in an effective manner which lead to consequences of limited liability.
A single director of the firm can afford all the protection of all the liabilities as covered in
corporation act 2001.
Q3. What does “ultra vires” means and has it been abolished?
Ultra vires act is known as the any act which lie beyond the authority of a corporation to
perform. It leads to fall outside the powers which are particularly listed in a corporate charter or
law. At last it can be also referring as any action that is precisely forbidden by the corporate
charter. Ultra vires has been abolished at present. The main reason of its occurrence is that it
became near impossible to specifically define the scope of the business of a corporation in
essence making it a guessing time. There are many states at present who has banned the ultra
vires defence through providing a statute stating that a company can outright act outside of its
scope.
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Q4. How many directors be removed or forced to vacate their office?
Directors of the firm are at the top level of organisational hierarchy and they can be
removed on the basis of law mentioned by government. There are different processes of removal
of the director as per accordance to corporation act 2001. Furthermore, directors can be removed
as per the procedure mentioned in section 203D in public companies. On the other side in case of
private companies section 203C reflects the removal process through resolution. .
Q5. When an employee sells a defective product that causes harm. Is the employer company or
the employee liable for the damage?
In Australia, the law related to the extent at which employers are vicariously liable for
wrongful act by an employees. At the time when employee sells a defective product which can
cause harm it is considered as employer fault. Vicarious liability act of Australia state that the
situation where someone is held responsible for the actions and omissions of another person
(Andon, Free and Scard, 2015). For example, in the workplace and employer can be liable for the
fault of omission of its employees. However, for victim it is important to prove it that elements
of vicarious liability exist. In the circumstance when employees sell defective product and
customer suffer from damage then it can easily claim in court for compensation against
employer. It is important employer to ensure that their employees do not sale defective products
to customers and sales product with warranty.
Q6 Considering the facts covered in case, what steps will be taken?
As per the given scenario Company A and company B enter into an agreement to a form
a new company that is company C. For this purpose, they can register a company and take all
necessary step to form a company C. Further, after forming company C they want to make a
contract with company Y. But they told company Y that their firm is still not registered.
However, company C was agreed with including clauses that provides if company C is not
registered within two months of the date of the contract, then company Y can rescind the
contract.
In condition when company C is registered within a month after the contract executed
Shirley a Laverne need to ensure company Y become aware that company is registered as per
provided condition in contract and not Y company cannot breach the contract in any case.
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Both of them are not personally liable for the action of company C under the contract because
they are now working in partnership, in accordance to which no individual can make decision
without both partners agreement (Button, Nicholls and Owen, 2014). According to the provision
of section 127 (2) of the corporation act 2001 is essential for company to execute a document
through attaching a common seal that shows there are two directors of company. if company is
not registered then company is held personally liable for all the damages which is clearly
reflected in section 131 of corporation act.
Q7 Discuss Viroserve's rights?
According to the provide cases Viroserve Ltd has recently Acquire 4% of Aztec
following partial takeover. As per the S198A: Board of directors can call a general meeting.
Whenever they want S239: members with more than 50% of requesting members votes can call a
GM on failure of board to call GM. Viroserve have power to sue in court if board refuse to call
for a meeting. In second condition when meeting is called and Virsoerve is outvoted then it
cannot replace the existing director without any valid reason. It is important for shareholder or
company to have a valid reason of replacing existing directors (Fisher, 2015). However, meeting
can be conducted as it can be cancelled. In the case if chair refuses the firm has rights to
information and inspection in order to protect own interest in meeting.
Basically, director of companies called meeting but members who hold at least 5% of the
votes that are eligible to cast at a meeting can easily make a writer and signed request to the
company directors that a meeting be held. In such response the director should call a meeting
within 21 days and hold the meeting within two month of the signed request. A members
(shareholders) can remove a director by resolution (s 203D (1)). In some cases when large
shareholders have become involved and the director has left. In the such a case there can be no
resolution has left. Then decision from shareholders and a general meeting should be called for
resolution.
Q8 What is a business judgement rule? Why did the government introduce such a rule in the
Corporations Act?
A business judgement rule is known as presumption for making a business decision in
which directors of a corporation acted on an informed basis, in a good faith and with honesty that
action which is considered was for the benefit of the firm (What is the Business Judgement Rule?
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2016). Reason for introducing this rule is that it helps in protecting the interest of directors and
stakeholders within the firm at the time of making decision. Through enforcing this rule
government can protect their business partnership mostly in matters of budgeting and changing
firms function.
Q9 Do you agree with the statement?
Yes, agreed with the statement that “To act in good faith and in the bests interests of the
company requires directors to act in a manner which is consistent with the objectives of
shareholders” At present directors need to work for the best interest of all the areas where they
need to handle large and risk driven at the time when claim is brought against the directors who
disposes their duties in good faith for everyone interest, the protection stands for them with the
claims in the form of BJR. Further this rule is best fit for the current business realities at the
place where risk and innovation are required.
Q10 Should ratification by the members be allowed with all breaches of director’s duties? Are
there any circumstances where ratification should not be permitted?
A director’s breach of duty can be ratified with the resolution of the shareholders.
However, some of the acts are incapable of ratification. For instance, where the act is a fraud on
the minority shareholders; in this act is considered as dishonest or act was inherently unlawful
like payment of an unlawful dividend (Button and Cross, 2017). Furthermore, the court also
considered that ratification by shareholders and prior authorisation by the board were precluded
through respectively section 239 as per the companies act 2006. As per this act shareholder were
prohibited from voting on resolution to ratify breaches concerning themselves as directors and
section 175 (6).
Q11 Are directors of public companies being able to delegate some of their functions to, and or
to rely on information and advice from senior executives?
Yes, directors of public companies being able to delegate some of their functions to
senior executives in some specific situations. As per the corporation law providers that a director
will not be responsible for all the actions of a delegate if the director believed on reasonable
grounds. Further, section 189 reflects that directors and officers can be able to rely on
information or advice which is provided by others in few circumstances.
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Q12. Why is a director required to act for a proper purpose? What is meant by the phrase “proper
purpose”?
Directors are required to exercise their powers for a proper purpose. A purpose can be
proper if it is inspired for the interest of company (Directors’ Duties: The Proper Purpose
Obligation, 2016). All action which are recognised in thus lead to become permissible and
appropriate for the use of managerial powers. The directors are required the proper purpose rule
so that they do not able to use their power for wrong purpose. Further, it also helps in avoiding
the breaching of rules and regulation from the director’s side. As per accordance to the ASIC the
directors have power but they cannot misuse it. Section 180-184 of the corporation’s act cover
the purpose of the director’s duties for protecting people such as shareholder who trust their
interest to the care of others. Section 181 (1) of the corporation act reflect that director should
exercise their powers and discharge their duties for a proper purpose. Similar to this, 182 of the
corporation’s act reflects that a director cannot use their own position for gaining an advantage
for themselves or someone else.
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REFERENCES
Books and Journals
Andon, P., Free, C. and Scard, B., 2015. Pathways to accountant fraud: Australian evidence and
analysis. Accounting Research Journal, 28(1), pp.10-44.
Button, M. and Cross, C., 2017. Technology and fraud. The Routledge Handbook of Technology,
Crime and Justice, p.78.
Button, M., Nicholls, C.M., Kerr, J. and Owen, R., 2014. Online frauds: Learning from victims
why they fall for these scams. Australian & New Zealand journal of criminology, 47(3),
pp.391-408.
Fisher, K., 2015. The Psychology of Fraud: What Motivates Fraudsters to Commit Crime?.
Mui, G. and Mailley, J., 2015. A tale of two triangles: comparing the Fraud Triangle with
criminology’s Crime Triangle. Accounting Research Journal, 28(1), pp.45-58.
Yaftian, A., Mirshekary, S. and Mihret, D.G., 2017. Learning commercial computerised
accounting programmes: Perceptions and motivations. Accounting Research
Journal, 30(3), pp.312-332.
Online
What is the Business Judgement Rule?. 2016. [online]. Available through:
<https://legalvision.com.au/what-is-the-business-judgment-rule/>
Directors’ Duties: The Proper Purpose Obligation. 2016. [online]. Available through:
<https://legalvision.com.au/what-is-the-duty-not-to-improperly-use-my-position/>.
Directors key responsibilities. 2018. [Online]. Available through: <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/>
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