Breaches and Remedies: Common Law, Equitable Principles, Corporations Act 2001
Assignment 1 Question C
This paper will seek to identify any breaches of Common Law, Equitable principles, sections 180-184 of the Corporations Act 2001 (Cth), and any other breaches of the aforementioned Act specifically dealing with Takeovers, whilst describing any appropriate remedies that may be available for said breaches.
Breaches of s180-184 of the Corporations Act 2001 (Cth), and Breaches of Common Law and Equitable Principles
S180
S180(1) of the Corporations Act 2001 Commonwealth (hereinafter referred to as The Act) states that a “director or officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:
a. Were a director or officer of a corporation in the corporations circumstances; and
b. Occupied the office held by, and had the same responsibilities within the corporation as the director or officer.”1
Stefani may well have breached this section as the decision to vote against the allocation of shares to Julie Andrews Processing Ltd (JAPL) was made despite having knowledge that it would be highly beneficial to MakemFlakem Limited (MF) for JAPL to eventually takeover. If it can be shown that a reasonable person would not have made the same decision, the test for which is objective2, it would indicate a breach of s180(1) under which Civil Penalty Provisions apply.
A breach of s180(1) falls under s1317E allowing the court to make a declaration of contravention. Once this declaration has been made it is possible for the Australian Securities and Investments Commission (ASIC) to seek a pecuniary penalty order under s1317G of up to $200,000 (although this depends on an action materially affecting the corporation) or a disqualification order under s206C. In this case because there does not actually appear to be any material damage it may be more likely for the court to impose a disqualification order under s206C on application of ASIC.
This paper will seek to identify any breaches of Common Law, Equitable principles, sections 180-184 of the Corporations Act 2001 (Cth), and any other breaches of the aforementioned Act specifically dealing with Takeovers, whilst describing any appropriate remedies that may be available for said breaches.
Breaches of s180-184 of the Corporations Act 2001 (Cth), and Breaches of Common Law and Equitable Principles
S180
S180(1) of the Corporations Act 2001 Commonwealth (hereinafter referred to as The Act) states that a “director or officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:
a. Were a director or officer of a corporation in the corporations circumstances; and
b. Occupied the office held by, and had the same responsibilities within the corporation as the director or officer.”1
Stefani may well have breached this section as the decision to vote against the allocation of shares to Julie Andrews Processing Ltd (JAPL) was made despite having knowledge that it would be highly beneficial to MakemFlakem Limited (MF) for JAPL to eventually takeover. If it can be shown that a reasonable person would not have made the same decision, the test for which is objective2, it would indicate a breach of s180(1) under which Civil Penalty Provisions apply.
A breach of s180(1) falls under s1317E allowing the court to make a declaration of contravention. Once this declaration has been made it is possible for the Australian Securities and Investments Commission (ASIC) to seek a pecuniary penalty order under s1317G of up to $200,000 (although this depends on an action materially affecting the corporation) or a disqualification order under s206C. In this case because there does not actually appear to be any material damage it may be more likely for the court to impose a disqualification order under s206C on application of ASIC.
Bibliography: Textbooks and Study Guide Corporations Legislation 2008, Thomson Lawbook Co., 2008 Jackson, J. Corporations Law LAW00527 Study Guide, 2008, published by Southern Cross University School of Law and Justice. Tomasic, R. Jackson, J. Woellner, R. Corporations Law Principles, Policy and Process 4th ed. 2002, Butterworths Australia. Cases Australian Securities and Investments Commission v Adler (2002) 168 FLR 253; 20 ACLC 576; 41 ACSR 72; [2002] NSWSC 171 Chew v The Queen (1992) 173 CLR 626; 10 ACLC 816; 7 ACSR 481 Daniels v Anderson (1995) 37 NSWLR 438; 118 FLR 248; 13 ACLC 614; ACSR 607 Furs Ltd v Tomkies (1936) 52 CLR 583 Howard Smith Ltd v Ampol Petroleum Ltd 1974 AC 821; [1974] All ER 1126; [1974] 1 NSWLR 68; (1974) 48 ALJR 5 Lucy v Lomas [2002] NSWSC 448 R v Byrnes (1995) 183 CLR 501; 81 A Crim R 138; 69 ALJR 710; 13 ACLC 1488; 17 ACSR 551 Rosetex Co Pty Ltd v Licata (1994) 12 ACLC 269; 12 ACSR 779 at 784 per Young J Shamsallah Holdings Pty Ltd v CBD Refrigeration & Airconditioning Services Pty Ltd (2001) 19 ACLC 517 Wayde v NSW Rugby League Ltd (1985) 180 CLR 459; 59 ALJR 798; 3 ACLC 799; 10 ACLC 87 Whitehouse v Carlton Hotels Pty Ltd (1987) 162 CLR 285; 61 ALJR 216; 70 ALR 251; 5 ACLC 421; 11 ACLR 715