The Organization At Common Law Of Director - Myassignmenthelp.Com

Question: The question that needs analysis in relation to the given study is that whether the common law duties owed by the directors tocompanyalong with the statutory duties as provided by the Corporation Act 2001(Cth) have been violated by Juliette in relation to her actions. Answer: Issue The question that needs analysis in relation to the given study is that whether the common law duties owed by the directors to company along with the statutory duties as provided by the Corporation Act 2001(Cth) have been violated by Juliette in relation to her actions. Rules The directors of a company own a duty to the organization at common law as well as under the provisions of enacted legislations of the parliament. The legislation governing the actions of the directors operating within Australia is the Corporation Act 2001 (Cth) According to the CA section 9 the duties provided by the Act is applicable on the directors and other officers of the company. In addition there is a fiduciary relationship of directors with the company[1]. At common law the duties of the directors include Duty to use the powers for a proper purpose Duty to retaining discretion Duty of acting in good faith towards the companys interest Duty to observe Skill, Care and Diligence in relation to their company Duty of avoiding conflict of interest The statutory duties of directors as provided through the relevant sections of the CA includes Section 180- Duty to observe Skill, Care and Diligence in relation to their company Section 181- Duty of acting in good faith towards the companys interest Section 182- Duty not to use position in an improper manner Section 182- Duty not to use information in an improper manner Section 191-194 Duty to make proper and timely disclosure Section 588G Duty not to indulge in Insolvent trading The directors have a statutory as well as a common law duty to act bona fide and towards a proper purpose for the company under Section 181. This means that when the powers are discharged by the directors it needs to be in good faith, in the best interest and for a proper purpose in relation to the company[2]. The question in relation to this duty had been discussed in the case of Re Smith v Fawcett[3]. In this case it had been ruled by the court the directors owe the duty to the company and the company may directly sue the directors in relation to the breach. The directors must have a genuine belief that they are acting in the best interest of the company. Whether the responsibility has been conducted properly is analyzed in an objective manner by applying the objective test. This means that a reasonable director is placed in the same position and it is analyzed that whether the same course of action would have been taken by him as provided in the case of Darvall v North Sydney Brick Tile Co[4]. The directors of the company have this duty towards the company as a whole as discussed in the case of Piercy Vs Mills Co[5]. The court also analyzes the purpose for which the power has been exercised by the director in order to analyze compliance with the duty as stated by the case of Society v Wheeler [1994] 12 ACLC 67. The directors have the duty to retain discretion in relation to their activity as provided in the case of Thorby v Goldberg [1964] 112 CLR 59. This means that the directors have to retain their discretion in relation to the power provided to them and cannot avoid the duty. They can however delegate their powers to others. In the case of Omnilab Media Pty Ltd v Digital Cimina Network Pty Ltd[6] the director was held liable of diverting a corporate opportunity which belongs to the company. Any director or officer of an organization has to use their power and discharge the responsibilities imposed on them by observing diligence and care which would have been done by a reasonable person if they were the directors of a company in the same situation or occupied the same position and had the same duty as the director in context as stated by the provisions of Section 180(1) of the CA[7]. In the case Re City Equitable Fire Insurance Co Ltd[8] it was provide by the court that there was although there was no finding in relation to the misconduct and negligence in the part of the directors, the court ruled that the directors may not exhibit high degree of diligence and care in relation to their duties, but they have to exhibit standards which a reasonable person would have done in the same situation. In the case of Daniels Ors v Anderson Ors[9] it was held by the court that the directors owe a common law duty of care to the company which is in compliance with the equitable duty of care. It was also ruled that even where the directors possess only a certain area of expertise it is their duty to represent the business more than their mere area of expertise. The business judgment rules as provided in Section 180(2) acts as a form of defence available to the directors of a company in relation to the breach of statutory or common law duties[10]. Harlowe Nominees P/L v Woodside (Lakes Entrance oil Co NL[11] applied the business judgement rule in Australia. The defence can be availed of the decision of the director was made in good faith and towards a proper purpose, they did nit gave any personal interest in the decision, they informed themselves about the decision taken by them and they have a rational belief that the decision taken by them is towards the best interest of the company. In the case of ASIC v Rich[12] it had been ruled by the court that the director who fails to or neglects a certain matter which would safeguard the interest of the company is the not in fact making a business judgement. As stated by Section 183 of the CA a director of the company may not use the information obtained from the other company for the benefit of any third party or himself. Application It has been provided in the given situation that the Sumo Ltd is a company which is registered in Australia and therefore its affairs would be governed by the provisions of the Corporation Act 2001 (Cth) Juliette is one of the directors of the company and therefore would be subjected to the statutory duties and well as the common law duties of directors. The organization wants to expand the business and conducts surveys in relation to whether they should carry on manufacturing of Scottish tartan looking rugs and carpets or countrystyle timber floorings. Juliette has no expertise in relation to both the plans and therefore took little interest in the meeting conducted by the company in relation to the matter. She was busy in some other work and towards the end of the meeting provided a passionate speech in relation to the matter and made a vote in favor of rugs and carpet project. Although she had no knowledge about the matter the board of directors agreed with her as they presumed her to be correct. The board based on her decision ignored the fact there was little research conducted in the feasibility of Scottish tartan rugs and carpets. There are several areas of concern which have been identified in relation to the actions of Juliette. According to the provisions of the Re Smith case Juliette owes a duty to act in the best interest the company which if breached she can be sued by the company Sumo Ltd. Whether Juliette has breached the duty or not would be analyzed in an objective manner through comparing her actions with a reasonable director as per the Darvall case. In the give situation no reasonable director for the best interest and proper purpose of the company would have taken a decision without having herself informed about it appropriately, thus the common law duty of best interest as well as section 181 of the CA have been breached by Juliette. According to the provisions of the Piercy case Juliette has a duty towards Sumo as a whole. In addition it was the duty of Juliette to retain discretion under common law which she did not by not informing herself about the decision individually and thus she has beached this common law duty as per the Thorby case. Juliette had the duty to observe care and diligence towards her responsibilities in relation to the company which would have been done by a reasonable person in her position and the same situation under section 180(1) of the CA. However it is clear that she has not complied with the duty as a reasonable person would never take such a decision which could considerable affect the interest of the company without informing herself about the subject matter of the decision. In addition as per the provisions of Re City Equitable Fire Insurance Co Ltd it was the duty of Juliette to observe a reasonable degree of diligence and care towards her duties which would have been done by a reasonable person which she failed by not informing herself about the decision, not concentrating on the meeting and without any evidence selecting a proposal for the company. In the given situation it has also been provided that Juliette has resigned from Sumo and joined another company belonging to her brother. She used the information from the surveys conducted by Sumo and took a decision to go forward with manufacturing of countrystyle timber floorings. In the given situation she is libel to divert opportunity from her previous company to another as per the principles of Omnilab Media Pty Ltd case. In addition as she has used the information obtained from sumo to benefit the other company and therefore is also liable for the breach of section 183 of the CA. When it comes to defense provided under the business judgment rule as per section 180(2) of the CA it can be stated that Juliette will not be able to take the defense provided by the section. This is because she did not indulge in informed decision making, it can also be argued that she did it to benefit her brothers company and thus had personal interest , the judgment was not in good faith and proper purpose and she did not have rational belief that the decision was in the best interest of the company. Conclusion Therefore it can be concluded that Juliette has violated Duties under section 180(1), 181 and 183 of the CA along with similar duties under common law. Bibliography ASIC v Rich [2009] NSWSC1229 Corporation Act 2001 (Cth) Darvall v North Sydney Brick Tile Co [1989] 16 NSWLR 26. Harlowe Nominees P/L v Woodside (Lakes Entrance oil Co NL [1968] 121 CLR 483 niels Ors v Anderson Ors [1995] 13 ACLC 614 Omnilab Media Pty Ltd v Digital Cimina Network Pty Ltd [2011] FCAFC 166 Piercy Vs Mills Co [1920] 1 Ch 77 Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 Re Smith v Fawcett Ltd [1942] 1 All ER 542 Society v Wheeler [1994] 12 ACLC 67. Thorby v Goldberg [1964] 112 CLR 59 [1] Corporation Act 2001 (Cth) at Section 9 [2] Corporation Act 2001 (Cth) at Section 181 [3] Ltd [1942] 1 All ER 542 [4] [1989] 16 NSWLR 26 [5] [1920] 1 Ch 77 [6] [2011] FCAFC 166 [7] Corporation Act 2001 (Cth) at Section 180(1) [8] [1925] Ch 407 [9] [1995] 13 ACLC 614 [10] Corporation Act 2001 (Cth) at Section 180(2) [11] [1968] 121 CLR 483 [12] [2009] NSWSC1229 [13] Corporation Act 2001 (Cth) at Section 183