Applied Corporate Law: Case Study on Breaches of Corporations Act

This case study provides an analysis of potential violations of the Corporations Act 2001 (Cth) by various parties. It identifies breaches related to director and officer duties, including the duty of care and diligence (section 180), acting in good faith (section 181), proper use of position (section 182), misuse of information (section 183), disclosure of interests (sections 191-195), and meeting quorum requirements (section 248F). The analysis focuses on the actions of Boris (CFO), Yelsin (director), Peta, and Olga, highlighting their failures to comply with the Act's provisions. The study concludes that several sections of the Corporations Act were violated, emphasizing the importance of adhering to corporate governance standards. Desklib offers a wealth of resources, including past papers and solved assignments, to support students in their academic pursuits.

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Commercial and Corporation Law

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Part (a)
Issue
Whether any provisions of the Corporations Act 2001 (Cth) have been violated by the parties
given in the case study?
Rule
The Corporations Act1 provides a range of provisions in order to govern the operations of
companies and other parties operations in Australia. Section 9 of the act defines officer as a
director and secretary of the corporation.
 Director duties
Various duties are imposed on directors of the company under the act in order to govern
their operations. The duty of care and diligence is given under section 180. It provides that a
standard should be maintained by the directors which any reasonable person would
maintain while operating in the particular position. In ASIC v Rich2 case the court provided
that the director should maintain a standard of care while taking business decisions. In
Daniels v Anderson3 case, the court provided that both executive and non-executive
directors are equally responsible for their position. Section 181 provides that directors
should act in good faith4. It means that they should focus on the interest of the company
rather than generating personal gains. In Greenhalgh v Arderne Cinemas Ltd5 case, the court
provided that interest of the company include the interest of the shareholders. Section 182
provides that directors should use their position for the proper purpose only.
They should avoid using their position in such a way which could harm the company or the
interest of its members. In ASIC v Adler6 case, the court provided that using the position for
ulterior motives and failing to comply with the standard of conduct is considered as
improper use of the position. Section 183 of the act provides that the directors should avoid
1 2001 (Cth)
2 (2009) 75 ACSR 1
3 (1995) 16 ACSR 607
4 Daniel Atkin and Daniel Cheilyk, 2015, ‘Jumping at shadows — shadow and de facto directors’, 67 Governance
Directions, pp 491–493.
5 [1951] Ch 286
6 (2002) 41 ACSR 72

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using the information which they have for improper purposes. The confidential information
should not be used by them in order to cause harm to the company or its members. Section
191-195 of the act provides that the directors’ duty is to disclose their interests. It is the
duty of directors that they should disclose the information regarding material personal
interest in business transactions7. As given in Drillsearch Energy Ltd v McKerlie8 case, it is the
duty of directors given under section 195 that they should not vote or present in the
meeting when such matter is considered. Section 248F of the Act provides that two
directors are must be present during the meeting to consider a valid quorum for the
meeting.
 Company secretary liabilities
A company secretary comes under the definition of an officer of the company given under
section 9 of the act. All the duties imposed by the Corporations Act on the directors of a
company apply over the company secretary as well. Section 188 provides that the company
secretaries must ensure proper preparation and lodgement of the particulars and books of
accounts of the company9. Moreover, they are also responsible for lodging notice and
documents with ASIC.
Application
In the given case study, various provisions given under the Corporations Act have violated
by the parties. Boris was operating as the accountant and CFO of the company, and he failed
to maintain a standard of care by violating section 180. Even after the request of Ivan, he did
not translate the documents to ensure that the members are able to understand the
business plan. Moreover, he was acting as an accountant of the company, and he failed to
ensure that the latest profit projections are shown in the meeting. Due to the failure of
maintaining a standard of care, the healthy profit projects of December 2016 were shown in
the meeting due to which the company suffered substantial loss along with its members.
Moreover, the directors have to ensure that they disclose material personal interest, and
they should not vote in meeting in which such matters are discussed. In this case, Yelsin
7 Robert Baxt, 2016, ‘The possible role of shadow directors in the collapse of Queensland Nickel Pty Ltd’, 34
Company and Securities Law Journal, pp 304–309.
8 [2009] NSWSC 517
9 Anil Hargovan, 2012, ‘Raising the bar for general counsel and company secretaries — High Court decision in
James Hardie’, 64 Keeping good companies, pp 260–262.

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failed to disclose that his wife is major shareholder in Big Impressions agency to other
directors. Furthermore, he also received a commission of $50,000 from the company for
signing the contract. Therefore, section 181 and 182 has been violated by Yelsin since he
failed to act in good faith, and he misused his position.
He also violated section 191 of the act by not disclosing the material facts to other directors.
Moreover, he was present in the meeting in which this matter was considered, and he also
voted in it as well. Thus, he has violated the provisions given under section 195 of the act. As
per section 248F, the quorum of a meeting must be two directors, and since Yelsin is
disqualified for voting in the meeting, the decision taken by the directors in the meeting is
not considered as valid. Furthermore, Peta misused the information which he had for selling
his shares to the sophisticated investors in order to reduce his loss. He violated the
provision given under section 183 by misusing the information for proper purposes. He also
violated section 181 by not acting in good faith and prioritising his personal interest above
the interest of the company. Olga is also liable for violating section 188 of the act. This act
was violated because the details of appointment of Peta was not lodged to ASIC which was
the duty of Olga. Olga also failed to maintain a standard of care, thus, the liability can also
be imposed under section 180 of the act.
Conclusion
Based on the above analysis, various provisions given under the Corporations Act are
violated by the parties in this case which include section 180, 181, 182, 183, 188, 191, 195,
and 248F.

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Bibliography
Articles/Books/Reports
Atkin D and Cheilyk D, 2015, ‘Jumping at shadows — shadow and de facto directors’, 67
Governance Directions, pp 491–493.
Baxt R, 2016, ‘The possible role of shadow directors in the collapse of Queensland Nickel Pty
Ltd’, 34 Company and Securities Law Journal, pp 304–309.
Hargovan A, 2012, ‘Raising the bar for general counsel and company secretaries — High
Court decision in James Hardie’, 64 Keeping good companies, pp 260–262.
Cases
ASIC v Adler (2002) 41 ACSR 72
ASIC v Rich (2009) 75 ACSR 1
Daniels v Anderson (1995) 16 ACSR 607
Drillsearch Energy Ltd v McKerlie [2009] NSWSC 517
Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286
Legislation
Corporations Act 2001 (Cth)