Week 7 Tute

lOMoARcPSD|17432564 Week 7 Q1) Brenda, Victor and Linda are the directors and equal shareholders of Tan Pty Ltd. The company made high profits last year and Brenda and Linda decided not to declare a dividend for the current year. Instead, they gave themselves pay rises and arranged for the company to lease two new Mercedes-Benz cars for their personal use. Nothing was given to Victor, he questioned Brenda and Linda about their pay rises and new cars. He also asked about the failure to declare a dividend. Brenda and Linda resented these questions and took the following actions. a)They formed another company called James Pty Ltd, in which Victor was not involved, and diverted a valuable design contract that they had been negotiating on behalf of Tan Pty Ltd to James Pty Ltd. b)They also called a General meeting at which it was resolved that Victor would be removed from his position. Victor consulted you seeking your advice as to whether Brenda and Linda's conduct are oppressive, and whether Victor is entitled to legal remedies in these circumstances. Advise Victor on the following: i) How does he get access to the documents relating to the above matters; Here we are interested in Victor obtaining access to the relevant financial records, books, reports etc. Victor has been removed as a director, so his access to the records, books etc will have to relate to his status as a shareholder Under s247D of the Corporations Act , Directors or GM of the company may grant a member permission to allow inspection of the company's books . On these facts, it is unlikely that either GM or directors would grant permission since the directors Brenda and Linda have conducted in a way that benefits themselves (giving pay rise and lease 2 Benz cars for personal use) and would not like the company books to be inspected. Victor will have to turn to s247A which allows the Court to make an order requiring a company to give a person access to the books. However, there are requirements under s247A(1) where the applicant must prove that the application was made in good faith and for a proper purpose - breach of Duty of Car/ Oppression (i.e. whether there has been breach of duties or wrongdoing, and is the purpose to protect the company and not for shareholder benefit). What is Victor's purpose on these facts? Attempting to investigate possible breach of director's duties, Attempting to determine whether directors have acted oppressively. Would this request to the court under s247A be considered good faith and proper purpose? Probably, since he is simply trying to investigate any possible conduct that occurred was prohibited by the Corporations Act Victors Is investigating application oppression of other directors ii) The decision not to declare a dividend for the current year, the pay rises and leasing of two new Mercedes-Benz cars for personal use ; OPPRESSION s232 , Who can apply?? s234(a) Victor has the ability to seek for an oppression remedy as he is a shareholder First limb of the oppression remedy: s232(a), (b) and (c) To get an oppression remedy the `ct of the directors must fit within s232(a), (b) or (c). Here, the conduct is not declaring a dividend, giving themselves pay rises, leasing two new cars. Downloaded by Oliver Chappell ([email protected])
lOMoARcPSD|17432564 o S232(a) relates to the company's affairs (business, trading, transactions, finances promotion, membership, control, business, internal management and proceedings) - Failure to pay a dividend relates to the conduct of company affairs, whilst pay rises is part of the company's internal management and finally leasing two new cars is using company money to pay for it, relates to transactions within the company o S232(b) relates to the act/omission by or on behalf of Company - All three things fit within this as they are all acts or omissions by the company. o S232(c): resolution (decision of GM) - No. So, we can conclude at this stage that both s232(a) and (b) would be satisfied. We only need one, so we are fine at this stage. Second limb of the oppression remedy : s232(d) or (e ) Again, the directors conduct has to fit within one of these two sections to satisfy the second limb of the oppression remedy. o S232(d): contrary to interests of members as a whole Arguably, yes the directors have made decisions which favour themselves personally , at the expense of favoring the company in its entirety. Despite Brenda and Linda own 66% of the shares in the company ?????? Their conduct can still be considered contrary to interests of members as a whole since they (directors) rewarded themselves using the high profits from last years, without the shareholders as a whole receiving dividends. o S232(e): conduct is oppressive, unfairly prejudicial or unfairly discriminatory against members in that conduct or any other capacity The fundamental consideration here is 'commercial unfairness': Wayde v New South Wales = (one team had to be cut out of the league and BOD decided to cut Wayde's team. HELD: No oppression, BOD decision was made in good faith for the best interests of the company, Court will not substitute its views for those of the directors who had special expertise in the league and will onl intervene if no reasonable director would have acted in that way. We are asking whether a reasonable director would have acted the way the directors did. Important to not second guess the directors. Compare this case to Re G Jeffrey = Minority shareholders owned 30% of shares in family company, complaints included low level of dividends and low purchase price. In that case, mere fact that dividends were low was NOT CONSIDERED oppression. Here, however, there are no dividends at all. Also, we can see that there was high profits last year, and the directors appear to be using those profits to reward themselves. o If we conclude that oppression remedy will likely be granted, what will happen? Under s233(1), Court can make any order they want. Court unlikely to wind up the company: John J Starr; Hannes . >>>>>>>> Likely Court order requiring the directors to buy out Victor's remaining shares at a fair price. iii) Diversion of the valuable design contract; and o Starting position here is that the diversion of the contract is a breach of duty by Brenda and Linda. S182(1) Use of position, s183(1) Use of information >>>> Directors owe Fiduciary duty, not members o Cook v Deeks Diversion of Contract: directors diverted a contract that was on behalf of the Company to another company that they controlled, hence directors deemed to hold the contract in constructive trust for the Company. Another way is to seek Account of Profits from the company they created. No need for detailed duty analysis here (but if on exam you would need to discuss it). Downloaded by Oliver Chappell ([email protected])
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