Corporations Act 2001: Sparkles Pty Ltd Case Study and Analysis

This case study examines a legal problem involving Sparkles Pty Ltd, focusing on the rights of a minority shareholder, Peter Jones, and potential breaches of duty by the company's directors. The analysis addresses three key issues: a director's sale of company assets at an undervalued price, a director's proposed misuse of company funds, and the improper relocation of the Annual General Meeting. The case applies relevant sections of the Corporations Act 2001 (Cth), including those concerning director's duties of care, diligence, and good faith (s180-182), and the remedies available to shareholders under s232-234, particularly in cases of oppressive or unfair conduct. The study provides a detailed legal argument, citing relevant case law such as Australian Securities and Investments Commission v Cassimatis, Campbell v Backoffice Investments Pty Ltd, and Regal (Hastings) Ltd v Gulliver, to support the conclusions regarding potential breaches and the remedies Peter Jones can pursue. The conclusion is that Peter has grounds to seek legal action under the Corporations Act.

Running head: BUSINESS AND CORPORATIONS LAW
Corporation and Business Law
Name of the Student
Name of the University
Author Note

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Issue
The issue arising from the situation is whether Peter has any remedies available in relation
to each of the three complaints made by Peter.
Rule
Any person who has been designated as a director or an officer of a company needs to
ensure his actions and discharge his powers to have been taken in a manner, which is diligent
and careful as per the provisions contained u/s 180(1) of the Corporations Act 2001 (Cth).
For the purpose of this section, the degree to which the care and diligence is required to be
exercised would be of the same extent as that of any person who has been placed in the same
position as well as same designation as that of the alleged (www5.austlii.edu.au, 2019). It has
been held in the case of Australian Securities and Investments Commission v Cassimatis (No
8) [2016] FCA 1023, that a director of a company or any other officer of the company is
required to ensure his actions as a director to be carried out with care and due diligence. Any
breach of the same would held the director liable for the breach of this section.
As per the provisions contained u/s 181 of the Corporations Act 2001 (Cth), any director
or officer belonging to a company needs to ensure all its actions in relation to the authority as
a director to be beneficial for the company and to be taken for serving an appropriate purpose
of the company (www5.austlii.edu.au, 2019). It has been held in the case of Australian
Securities and Investments Commission v Healey & Ors [2001] FCA 717, that a director of a
company needs to ensure the actions of the director of a company needs to be in favour of the
company.

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Any individual appointed as a director or as an employee has been prohibited from
utilising his designation in the company for an improper purpose as per the provisions
contained u/s 182 of the Corporations Act 2001 (Cth). Such an individual has been restricted
from using his position as a director or officer of a company to serve his own interest
(www5.austlii.edu.au, 2019). Moreover, any officer or director of a company would be
prohibited to undertake any actions that have the probability of causing detriment to the
company. It has been held in the case of Regal (Hastings) Ltd v Gulliver [1942] UKHL that a
director of a company is not supposed to utilise his position as a director in the company to
serve his own interest causing detriment to the company.
As per the provisions contained u/s 232 of the Corporations Act 2001 (Cth), the courts
have been authorised to provide orders u/s 233 of the Corporations Act 2001 (Cth) if it has
been satisfied that there are certain conduct that has been made by the company or by any
individual acting under the name of the company causing or probable to cause detriment to
the company (www5.austlii.edu.au, 2019). Any actions of the company or actions taken
under the name of the company would be brought under the purview of this section if the
same appears to be oppressive, prejudicial in an unfair manner or causing discrimination
against any member or any class of members pertaining to the company.
As per the provisions u/s 233 of the Corporations Act 2001 (Cth), the court has been
empowered to deliver any order that has been appropriate with respect to the company. The
court has discretionary power to wind the company up, alter or replace the constitution of the
company or regulate the future affairs of the company (www5.austlii.edu.au, 2019).
As per the provisions contained u/s 234 of the Corporations Act 2001 (Cth), the
application u/s 233 of the Corporations Act 2001 (Cth) can be made before the court by any
of the member of the company. The member may or may not be affected by the policy that

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was oppressive or he may have been making such an application on behalf of another
member. Such a member can be a present member as well as a past member or even a
member who has been given a share by way of transfer through will or any operation of law.
Moreover, it may also be brought by any other person that the ASIC renders appropriate to
being such an application (www5.austlii.edu.au, 2019).
It has been held in the case Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR
304, for the purpose making an application u/s 232 of the Corporations Act 2001 (Cth), the
action of the company against which the action has been taken needs to be oppressive and
harsh for any of the members of the company and has been inflicting injustice, unfairness or a
wrongful act.
Application
In the given situation, Peter Jones has been a 5% shareholder in the Sparkles Pty Ltd. The
company has been involved in the making and selling of custom jewellery. This makes Peter
to be a member in the company. Although he has been owning a minority of share, still he
will be a member of the company for the purpose of s 233 of the Corporations Act 2001
(Cth).
It has been provided in the constitution of the company that the annual general meeting of
the company will be held at Brisbane in an address stipulated therein. This requires all the
Annual General Meetings of the company to be held at that particular address only. An
Annual General Meeting of the company needs to be carried out as for the constitution of the
company and the directors does not have the power to deviate from the same.
It has been discovered by Peter that one of the directors of the company who is also the
CEO of the company, namely Roger, has made a sale of a rare sapphire belonging to the

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company to his nephew for a much negligible amount of $5000. He has also discovered that
the real water of the stone has been $100000. This can be treated as the breach of the duty of
the director to avoid conflict of interest as has been provided u/s 182 of the Corporations Act
2001 (Cth). This is because he has been using his position in the company to serve his own
purpose causing a probable detriment to the company. This can father be supported with the
case of Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA
1023. It would also amount to a breach of s 180 (1) as well as s 181 of the Corporations Act
2001 (Cth). This is because the actions taken by Roger cannot be said to have taken for a
proper cause and such actions cannot be treated as diligent or careful.
It has also been found by Peter that another director namely Irma has been in resolving to
utilise $10,000 belonging to the company for the purpose of buying a new lounge suite for
herself. In case she successfully effect this resolution, it would amount to a breach of her duty
as a director of the company. This would contravene s 180(1), s 181 and s 182 of the
Corporations Act 2001(Cth). This is because the actions proposed by Irma cannot be said to
have been backed by diligence and care. Her actions failed to serve any appropriate purpose
of the company. Moreover, the chief intention behind the actions she has been resolving to
commit words to serve for own purpose and has the probability of causing detriment to the
company. However, this action has been proposed to be taken and has not yet been taken.
Hence, this would not amount to a breach of duty as the breach has yet to be committed.
Hence, the same can be prevented by bring an injunction against Irma to restrict her from
pursuing an action. This can be supported with the case of Regal (Hastings) Ltd v Gulliver
[1942] UKHL.
Moreover, Peter has received a letter, where it has been stipulated that the Annual General
Meeting of the company would be held in Melbourne owing to the convenience of the
directors. This can be treated as a breach of the constitution of the company.

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All these three incidents has been informed to the Company Secretary by Peter. Peter has
also been seeking a restriction being imposed in these incidents by the Company Secretary.
However, the Company Secretary fail to take any action and informed Peter that the decision
of holding the Annual General Meeting in Melbourne was that of the board of directors and
the same cannot be changed. This needs to be treated as an act of oppression. Peter has the
option of pursuing an application to the court u/s 232 of the Corporations Act 2001(Cth).
This is biggest the actions of the Company Secretary has been unfair and oppressive and he
has failed to abide by the duty has been responsible for u/s 180(1) of the Corporations Act
2001(Cth) as he failed to ensure due diligence and care while performing his duties as an
officer of the company. Such a remedy would further be supported by the case of Campbell v
Backoffice Investments Pty Ltd (2009) 238 CLR 304.
Conclusion
Hence it can be concluded that Peter has the option of pursuing an application to the court
u/s 232 of the Corporations Act 2001(Cth).

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Bibliography
Statues
The Corporations Act 2001 (Cth)
Cases
Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023
Australian Securities and Investments Commission v Healey & Ors [2001] FCA 717
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Regal (Hastings) Ltd v Gulliver [1942] UKHL
Books, Articles and Websites
www5.austlii.edu.au. (2019). CORPORATIONS ACT 2001. Retrieved 6 August 2019, from
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/