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Corporate governance exercise

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Introduction

Facts Various conduct by Bernadette and Charles raise concerns of breaches of directors' duties on their part. The conduct in issue essentially include the information disseminated by Bernadette and Charles to prospective investors of Dextrous Investments Pty Ltd ("DIL"), the sale of shares in Indonesian electricity companies held by Acme Energy Limited ("Acme"), Bernadette's unilateral undertaking of issuing Acme's shares to DIL to cover DIL's loss in the sale, and the purchase and sale agreement prepared and signed by Bernadette and Charles. Roles As Bernadette is a director of Acme,1 she owes general law and statutory duties to Acme. Charles, on the other hand, is not a director under the statutory definition. Nevertheless, his position as the Deputy Chief Financial Officer ("DCFO") of Acme indicates that he, being part of Acme's senior management, has the capacity to affect Acme's financial standing, or participates in making decisions that affect the whole or a substantial part of the business of Acme. Accordingly, Charles is an officer of Acme and therefore he also owe duties to the company. 2 Issue One: Common law and Statutory duty of care, skill and diligence (S 180 (1)) Common law and statutory duty of care are equivalent,3 except where the statutory duty applies to both directors and other officers of the company.4 Under common law, there is no uniform standard of care but the minimum requirement of care is what a reasonable person, being objectively ascertained, in the director's position in particular company would exercise.5 Considerations should also be awarded to factors such ...read more.

Middle

In this case the 'but for' test is the dominant authority.20 One of Bernadette's purposes of issuing shares to DIL was to cover DIL's losses and accordingly to ensure she would receive her management fee, which is arisen from self-interest and therefore improper. But for this improper purpose, there appears to be no other legitimate purposes for Bernadette to issue such shares to DIL, considering there is no genuine necessity for Acme to obtain immediate finance from DIL. Therefore, together with Bernadette's misuse of her position in Acme,21 these findings indicate that she has breached her duty for acting for improper purposes. Issue Four: Common Law duty of loyalty to avoid conflicts of interests This duty applies to both direct and indirect interests of Bernadette. Firstly, a breach of this duty requires a real and sensible possibility of conflict that is objectively ascertained, rather than the mere potential for such.22 The issue of Acme's shares to DIL in the present case was entirely motivated by Bernadette's remuneration, which is in clear conflict with the interest of Acme's shareholders. Secondly, where conflict exists, Bernadette can act if she makes adequate disclosure and obtains the consent of Acme, or any other steps that are reasonable upon the circumstances.23 Bernadette, however, has not disclosed this matter to Acme's board of directors. In fact, from Bernadette's conduct it seems likely that she deliberated concealed such matter from the knowledge of Acme's management. ...read more.

Conclusion

5 Daniels v Anderson per Clarke and Sheller JJA. 6 ASIC v Rich per Austin J 7 Daniels v Anderson per Clarke and Sheller JJA. 8 s1041A - Although after this sale there is Acme will still have to report a loss on other business areas, without having to report its losses on Indonesian investments will reduce the potential negative impact on Acme's share price. In the present case, whether there is market manipulation depends on the motive of the sale. If it was to minimize reportable losses which may affect its share price then it could amount to market manipulation. As present facts indicate that the setting up of DIL is one of Bernadette and Charles' innovative solutions to prevent Acme having to report its first ever loss, s1041A is breached. 9 ASIC v Alder 10 S180(2) 11 S181(1)(a) 12 Greenhalgh v Arderne Cinemas Ltd (1946) 1 All ER 512 13 Equiticorp Finance v BNZ (93) NSW 14 Fitzsimmons v R 15 Parke v Daily News Ltd 16 State of SA v Marcus Clark 17 Explain - or see above 18 ASIC v Alder 19 S181(1)(b) 20 (obiter in Whitehouse - Whitehouse rejected a 'dominant purpose' test advocated in Ngurli, Mills, Harlowe's. 21 ASIC v Alder 22 ASIC v Adler, Phipps 23 ASIC v Adler 24 S 191 25 S53a 26 S208(1) 27 s229(3) 28 s229(2) 29 s228(4) 30 S210 31 ss212(1)(c) 32 R v Byrnes 33 ASIC v Adler; R v Byrnes. 34 ASIC v Alder 35 s1317(2) 36 S1317AA ?? ?? ?? ?? ...read more.

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