Application of law
i. Whether Luigi is authroised to appoint Marco as director?
ii. Whether Theresa and Franco outvote Rita from the meeting.
iii. Whether Luigi is in breach of his directorial duties under the Corporation Act 2001.
The Corporation Act 2001 is the applicable law.
Section 9 of the Act submits that a director is the person who carried out the function of the director irrespective of the fact whether he is appointed at such position or not and is held in (Chameleon Mining NL v Murchison Metals Ltd, 2010). Thus, a de factor director and a shadow director and alternate directors are also the company directors and is held in (ASIC v King, 2020) and (Standard Chartered Bank of Australia Ltd v Antico, 1995). In Corporate (Affairs Commission v Drysdale, 1978), a person is appointed to fill in the vacant position of the director temporarily but he keeps on acting even after the period is over. He was held to be the director of the company.
As per section 201B, any natural person above 18 years of age can become the director of the company. As per section 198A of the Act, the affairs of the company must be managed and controlled as per the directions of the director of the company. If any director is granted exclusive powers then the such power cannot be intervened even by the board itself and is held in (Automatic Self-Cleansing Filter Syndicate Co Ltd v Cunninghame, 1906). The only manner to avoid the control of the director is in the hands of the shareholders by reelecting such director and is held in (John Shaw & Sons (Salford) Ltd v Shaw, 1935).
When any director is appointed then there are various duties that he mut comply with:
i. General duties – these includes the duty to act with care and skill and to act in good faith for the best interest of the company and is held in (Re City Equitable Fire Insurance Co Ltd, 1925).
ii. Statutory duties –
a. duty to act with care and diligence (section 180) – The concept of breach of section 180 was evaluated in (Daniels v Anderson, 1995) and (ASIC v Adler, 2003). In (ASIC v Cassimatis (No 8) , 2016) inappropriate investment advice was held to be breach of section 180.
b. As per section 588G of the Act, the director has the responsibility to avoid any kind of insolvent trading and is held in (Kinsela v Russell Kinsela Pty Ltd (in liq), 1986). As per section w section 588GAAA relief can be sought in COVID-19 situation if it can be proved that the business will return to normality after the cessation of the pendemic.
c. Duty to act in good faith an din the best interest of the company as per section 181 and is held in (Equiticorp Finance v BNZ, 1993).
The director of the company has the power to call meeting in the company. As per section 249 of the Act, a single director of a listed company can conduct meeting.
The members can also call meetings. As per section 249Q, the member can only call the meeting for proper purpose. As per section 249D, the members holding at least 5% of the votes can ask the directors to conduct the meeting. The members can also conduct the meeting provided they have at least 5% of the votes and is held in section 249F.
The meeting can only be held to be valid when as per section 249T (RR), the minimum number of quorum is 2.
The minority shareholders can protect their own interest at the hands of the majority shareholders. As per section 232, the court can make an order if the company affairs or the resolution by the members are found to be oppressive or unfairly discriminatory against a member. As per section 234 , a member can bring an action (Wayde v New South Wales Rugby League Ltd (1985) 10 ACLR 87 text 342.
Twirls and Curls Pty Ltd runs a hairdressing salon.
Luigi is the governing director.
The other directors are Theresa and Franco who are not active participants in the salon.
Rita is the director appointed by Luigi.
Yes, Luigi is authorised to appoint Marco as the company director. This is because Luigi is the governing director who is empowered by the constitution to appoint additional directors provided there is no more than a maximum of five directors.
Further, Marco is 18 and thus as per section 201B he can become director.
Theresa and Franco has no right to outvote Rita from the meeting. Rita holds 10% shares in the company. Being the minority shareholder, the actions of Theresa and Franco are nothing but oppressive upon Rita. Thus, as per section 234, Rita can bring an action under section 232 as the conduct of the directors are not fair and unfairly discriminatory in nature.
Luigi has violated several duties which includes:
i. Luigi can be held for insolvent trading as per section 588G of the Act as he approved of the loan to $20,000. Considering the that business is no more working still they approve of the debt. However, considering as per section 588GAAA, he can protect himself from the breach of insolvent trading because of the presence of COVID-19. But, the protection will only be given provided the business can recover after the cessation of the pandemic.
ii. Luigi also violated his duty under section 180 as he did not acted with care and diligence. If he would acted with care and diligence, then, he would not have permitted the grant of loan. Neither they would have outcasted Rita from the voting in the general meeting.
iii. The duty under section 181 is also violated as he did not acted in good faith and not in the interest of the company.
It is thus advised to Rita that Luigi was right in appointing Marco as he was eligible to be the director. But, he has breached various directorial duties of his. Also, Rita can sue the directors under her minority rights.
Affairs Commission v Drysdale, 141 CLR 236 (1978).
ASIC v Adler, NSWSCA 131 (2003).
ASIC v Cassimatis (No 8) , FCA 1023 (2016).
ASIC v King, HCA 4 (2020).
Automatic Self-Cleansing Filter Syndicate Co Ltd v Cunninghame, 2 Ch 34 text 135 (1906).
Chameleon Mining NL v Murchison Metals Ltd, 28 ACLC 10-073 (2010).
Daniels v Anderson, 37 NSWLR 438 text 239 (AWA case (1995).
Equiticorp Finance v BNZ, 32 NSWLR 50 text 13.120) (1993).
John Shaw & Sons (Salford) Ltd v Shaw, 2 KB 113 text 135 – 136 (1935).
Kinsela v Russell Kinsela Pty Ltd (in liq), 137 CLR 1 (1986).
Re City Equitable Fire Insurance Co Ltd, Ch 407 (1925).
Standard Chartered Bank of Australia Ltd v Antico, 13 ACLC 1381 (1995).
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