Corporate Law Assignment: Max's Rights and Directors' Responsibilities

This law assignment analyzes two key issues in corporate law. The first issue examines whether Max can enforce a constitutional clause making him the company's solicitor and prevent the inclusion of a clause allowing the expropriation of shares from minority shareholders. The analysis centers ...Read More

Running Head: Law 1
Law

Law 2
Answer 1
Issue: Part A- Whether Max has right to enforce the clause stated under constitution which
makes him solicitor of the company?
Part B- whether Max can prevent the inclusion of the clause related to the expropriation of shares
of those shareholders who holds less than 10% of shares?
Law: Section 232 of the Corporation Act 2001 states, Court has power to make order under
section 233 of the Act, if:
 Any conduct related to the affairs of the company,
 Any actual or propped act or omission by the company or on behalf of the company,
 Any resolution, proposed resolution passed by members or class of members
Is either:
 Contravenes the interest of any member of the company, or
 Oppressive or unfair against any member of the company,
Section 233 of the corporation Act 2001 states, Court has power to make following orders under
this section:
 Company must be wound up
 Existing constitution of the company must be modified or repealed.
 Regulation regarding the conduct of the company affairs in the future.

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 For purchase any shares by any member to who shares in the company has been
transmitted by will or by operation of law.
 Purchase of shares with an appropriate reduction in the share capital of the company.
 Order company to file, prosecute, defend, and discontinue any particular proceedings.
 Provide authorization to any member or person who has shares in the company through
transmission, to file, prosecute, defend, and discontinue any particular proceedings on
behalf of the company or in the name of the company.
 Appoint receiver for any particular property or all of the property of the company.
 Prevent any person from engaging in any particular conduct or from doing any particular
act.
 Order any person for doing any particular act.
These section further states, Court can make following orders for altering the Constitution. If
court make any order under this section for the purpose of repeals or modify the constitution of
the company, then power of the company under section 136 is restricted if such changes are
contrary with the provisions of the order made by the Court, unless:
 Court specifically stated in the order that company can done changes in the constitution
or repeal the constitution.
 Leave is obtained by the company from the Court.
However, it must be noted that if any person established that conduct in question stated under
Section 232(a), (b) or (c), then also for getting relief under section 233, it is necessary that person
must satisfy:

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 That matter is contravenes the interest of the members (Section 232(d)). This usually
happens when directors breach their duties.
 Oppressive and unfair to any member or members of the company (Section 232(e)).
This can be understood through case law Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR
1042. In this case, Court stated interpretation of the oppressive conduct was done narrowly, and
it mainly consider the nature of the conduct and not on its effect. It was considered as conduct
under which there was lack of degree of probity which was expected by the members while
conducting operations of the company.
Application- Part A- In the present case, Max has been appointed as solicitor of the company by
constitution, and later between relationship Max and Alana and David becomes strained. Alana
and David call general meeting and pass special resolution for altering the constitution of the
company for the purpose of removing the max as solicitor.
Part B- Alana and David also add clause in the constitution which provide power to the Board to
expropriate the shareholdings of members owning less than 10% of the total shares issued.
In above stated issues, max can seek order from Court under section 233 of the Act, to restrict
the power of the Board under section 136 of the Act to repeal or modify the constitution, because
both the modification stated above satisfy the provisions of Section 232 of the Act. Section 232
states, if any resolution, proposed resolution passed by members or class of members which
contravenes the interest of any member of the company, or oppressive or unfair against any
member of the company.

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Resolution passed by Alana and David contravenes the interest of Max and it is also unfair with
the Max. Therefore, Max can seek order under section 233 to restrict the power of Board under
section 136 of the Act.
Conclusion- in the present case, max can take legal action against the Alana and David under
Section 232 of the Act for seeking order from Court under section 233 of the Act.

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Answer 2
Issue: Whether directors of the company that is Clancy and Jack breach their statutory or general
duties under Corporation Act 2001?
Law: Corporation Act 2001 imposed various statutory and general duties on directors of the
company, and some of these duties are stated below:
Section 180 of the corporation Act states, any director or officer of the company is under
responsibility to conduct their operations and use their power with reasonable care and diligence
that would be exercised by any reasonable person if such person is appointed as the director or
officer of the company or holds the office of director or officer of the company with similar
obligations. It must be noted that this subsection is considered as civil penalty provision under
section 1317E.
This section further state, any director or officer of the company is under responsibility to
comply with the requirements which are stated above while making any decision or judgment
related to the company. Above stated provisions are satisfied if following factors are present in
the judgment:
 Director while making the judgment related to the business must act in good faith for
proper purpose.
 Director must not have any material personal interest in the judgment taken by director.
 Must have accurate knowledge related to the subject matter of the judgment up to the
extent which is reasonably appropriate.

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 Directors must have rational belief that judgment taken by them is in the best interest of
the company.
Section 181 imposed duty on directors or other officers of the company that they must compile
their actions and use their power in the good faith, and in the best interest of the company, and
for proper purpose. It must be noted that this subsection is considered as civil penalty provision
under section 1317E.
However, if any person contrives subsection 1 of this section then such person contravenes
complete section.
Section 182 of the Act states, any director, secretary, or officer of the company must ensure that
they are not using their position gain any kind of advantage for themselves or for any other
person, and also ensure that they did not use their position to cause any detriment to the
company. This subsection is considered as civil penalty provision under section 1317E.
Remedies- section 1317E states, if any person contravenes civil penalty provision, then Court
has power to make declaration of contravention. It must be noted that once a declaration has
been made, ASIC has can seek pecuniary order under section 1317G or disqualification order
under section 206C.
Application- in the present case, Aussie Boats Ltd (“AB”) is a listed company, and from last few
years this company facing financial difficulties. Other company named as Millionaires on Water
Ltd (“MWB”) wants to take over the AB but executive directors of the company that is Jack and
Clancy does not want that MWB takeover the AB. For this purpose, executive directors issue
new lot of shares.

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In this case, non-executive director Banjo stated that decision taken by the Clancy and Jack is
not in the best interest of the company because directors believe that if MWB take over the AB
then they lose their positions of executive director because after takeover MWB terminate the
position of executive director. This can be understood through case law Asic v Adler and 4 Ors
[2002] NSWSC 171. This case is considered as unique case and it is a good example to
understand the duties of directors towards the corporation. This case involves various breaches of
the director’s duties. Collapse of HIH was caused because of very bad corporate governance.
This case involves some of these breach of duties, such as section 9 related to duties of director,
section 180 deal with duty to act with care and diligence, section 181 imposed duty to act in
good faith and for a proper purpose, section 182 deals with improper use of position, section
182(2) related to business judgment rule, section 183 deals with duty not to improperly use
information and section 260A deals with financial assistance.
In this case, directors of the company fail to take business judgment in good faith, in the best
interest of the company, and for proper purpose. Santow stated that, Adler has material personal
interest in the subject matter of the business judgment taken by director of the company. Santow
further stated that other two directors that was William and Fodera. In case of William, he fails
to establish that judgment taken by him was taken in good faith and in the best interest of the
company. In case of Fodera, she fails to inform the other members of the board about the
judgment.
For above stated contraventions all three directors that were William, Adler, and Fodera face
civil consequences stated under Part 9.4B of the Act. These consequences were faced by
directors for breaching sections 180, 181,182,183 209(2), 260 D (2), and consequences include:

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 Order related to compensation for damages under section 1317H.
 Pecuniary Penalty Order under section 1317G, in this section Court can order Penalty up
to $200,000.
 Court also disqualifies the directors from managing the corporation under Section 206C
of the Act.
In this case also, both Clancy and jack breach their statutory duties under section 180, 181, and
182 by not taking the business judgment in the best interest of the company and they also had
material personal interest in the subject matter of the judgment.
Conclusion- therefore, both Clancy and Jack breach their statutory duties under Corporation act
2001, and they are liable under civil penalty provision 1317E. Following consequences can be
faced Clancy and Jack:
 Order related to compensation for damages under section 1317H.
 Pecuniary Penalty Order under section 1317G, in this section Court can order Penalty up
to $200,000.
 Court also disqualifies the directors from managing the corporation under Section 206C
of the Act.
.

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References:
Asic v Adler and 4 Ors [2002] NSWSC 171.
Corporation Act 2001- Section 1317E.
Corporation Act 2001- Section 180.
Corporation Act 2001- Section 181.
Corporation Act 2001- Section 182.
Corporation Act 2001- Section 206.
Corporation Act 2001- Section 232.
Corporation Act 2001- Section 233.
Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042.