Law of Business Association

Question: Discuss about the Law of Business Association. Answer: Introduction: The directors of a company are selected according to the provisions of the Corporation Act 2001. They are in-charge of the management affairs of the company. Section 183 of the Corporation Act 2001, is one of the most important section of the said Act. According to section 183(1) of the Corporation Act 2001, any person who is said to be a director or already have been a director or any other officer of a company, should not bring into service any information in a wrong or inappropriate way, or make any profit neither for himself nor for any other person, in connection with the affairs of the company, or cause any misfeasance. This duty continues even if the person concerned is no longer a director or any other officer of the company. In subsection (2) sec.183, it is mentioned therein that if any person involved in any act contrary to subsection (1), contravenes this section. The word involved has been defined in sec.79 of the Act. It says that any person who has abetted the contraven tion, or intentionally given his concern or has done a conspiracy is said to have been involved in contravention. Preliminary issues The person/s must be a director, officer or an employee of a company in order to breach sec.183. For this, it is necessary to understand the definition of director as well as officer, which is given in section 9 of the Corporation Act 2001. A Director means any person who is occupying the position of the director, or a person is appointed to be an alternate director, who will act accordingly. In absence of any contrary opinion, a person who is not an appropriate director, can work beings in the position of a director or the present director/s can act or work according to the persons instructions. An officer is a person who is a director or secretary of a corporation, or a person who actively takes part in making active decision that effect the whole or larger part of the business of the corporation, or a liquidator, trustee or administrator of the corporation. Dr. Dawes, though after his formal resignation by declaring himself to be bankrupt from the GML continues working in the said company and draws fees as a Consultant Director with the permission as well as consent of the other board members. Therefore, he is considered to be a valid director of the company. Mr. Foster cannot be considered as a director as he has resigned from his position of being a director of GML after the board meeting where the proposal of buying shares of MMM was discussed by Mr. Boon, in order to join an executive board position as CFO with Queensland Equity Capital Group Ltd (QECG). Mr. Huckenfusser has been working in GML for five years as an Audio Visual Technician. His work or duty is to assist with board meetings to show any kind of presentation to the board. He is an active employee of the GML but not a director. Mrs. Duck, being sister-in-law of Mr. Huckenfusser is neither an employee of the company nor a director of the said company. Possible breaches of the Corporation Act There are certain ingredients of s 183 which needs to be proved in order to see whether there has been a breach of the said section. These ingredients have been referred in the decision in Commissioner for Corporate Affairs v Green [1978]. The ingredients are: the person concerned at the relevant time was an officer of the corporation, the person must be having proper information, the information he got was by virtue of his position, the person has made an improper use of the information in order to gain direct or indirect advantage, the gain made was either for himself or for any other person, and the improper use of the information leads to loss or damage to the corporation. Dr Dawes was holding a position of a Consultant Director after his resignation as the other board members does not want to lose his expert mineralogical knowledge. He after attending the board meeting on 2nd April 2016 where Mr.Boon has discussed about the shares of MMM, asked his wife to buy the shares of MMM in her name without giving any proper reason. And she purchased 20,000 shares @ $5.00 per share. On 6th June after the board meeting, he asked his wife to sell the shares @ 12.70 per share. He made a secret profit for his wife which also leads to an indirect gain for him. Mr. Foster has attended the meeting on 2nd April 2016 and on 30th April 2016 he gave a resignation from his position as a director of the said company to join QECG as CFO. The first recommendation he gave to his new employer is to buy shares of MMM. QECG immediately bought 40,000 shares @ $4.70. Here, Mr. Foster has used the information which he has got by virtue of his position in an improper way to gain profit or advantage directly. Mr. Huckenfusser who is working as an Audio Visual Technician is an employee of GML. He was also present during the meeting on 2nd April in order to do his duty of assisting the board meeting with Mr. Boon. He also has the knowledge about the shares of MMM. He in order to get relief from his own personal debts of $ 5000, has given the information of the shares of MMM to Mrs. Duck, who is the sister-in-law of Mr. Huckenfusser and said that she will forgive his debts for any useful information and was also persistently asking him about stock information. Mrs. Duck bought 5000 shares @ $5.20 on 15th may. Mr.Huckenfusser being an employee of the company shared information for his personal advantage. Mrs. Duck sold the shares on 6th June @ $12.05 making a profit. On 12th June in a meeting, Mr. Boon suggested that the time is not suitable to continue with the MMM purchase and the board resolved to end the matter and make no bid announcement to the exchange. By 30th June MMM were trading at $3.20. This leads to huge loss for the company which has been caused by the director or employees of the company itself. Therefore, these are the breaches of s 183 of the Corporation Act. Defence According to sec.1317S, the court if thinks fit may give relief to the person from the liability if the court thinks that the person has done the work with honesty with respect to the position and considering all the circumstances of the case including those which is connected with the persons appointment, the person ought to be fairly grant exemption. It is very hard to define or prove honesty by any test because the onus of honesty is based on perception of quality which differs in each case, Maelor Jones Investments (Noarlunga) Pty Ltd. V Heywood-Smith. Whether the contravention made by the officer leads to any personal benefit to the person from the transaction is a relevant consideration in determining the relief ought fairly given, Australian Securities and Investment Commission V Manito Pty Ltd. It is very necessary to understand and consider the way the breach has taken place. Commonwealth Bank of Australia V Friedrich. Dr Dawes though continues to work as a consultant director, he did not work honestly. But still will be excused from civil penalty provisions as he himself did not buy any shares of MMM rather his wife Ms Dawes did and he acted in accordance with the scope of his employment or position. Mr. Foster is no longer a director of GML and is now working with QECG. So Mr. Foster is also exempted from the civil penalty provisions. Mr. Huckenfusser being an employee of GML has not acted honestly. But he may get relief from civil penalty service as he has given general information about the shares to Mrs. Duck in order to get relief from his own personal debts. Remedies In section 1317S it has been clearly mentioned that it applies only to eligible proceedings and not on the commencement of the offence. The court may grant relief to the aggrieved person wholly or partially from the liability. If the person concerned anticipates that an eligible proceeding may or will begin against him, he may apply before the court for the grant of relief. Conclusion From the whole discussion, it becomes clear that there have been breaches of section 183 of the Corporation Act. All the three persons, viz., Dr Dawes, Mr. Foster and Mr. Huckenfusser are an active director, resigned from the position of a director and an employee respectively of the said company GML. These persons being an officer or employee of the company have acted in contrary to the subsection (1) of sec.183 which leads to breach of the said section. No breach of sec.183 has been done by Mrs. Duck, as she is neither an employee of the company nor an officer.