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he legal issues raised by this problem are: 1. Whether Kath has breached the duty under both the general law or the Corporations Act 2001(Cth) 2. Whether Sharon and Brett have breach their duties under the Corporations Act 2001 (Cth)

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MLM 731 CORPORATIONS LAW ASSIGNMENT ISSUES: The legal issues raised by this problem are: 1. Whether Kath has breached the duty under both the general law or the Corporations Act 2001(Cth) 2. Whether Sharon and Brett have breach their duties under the Corporations Act 2001 (Cth) 1. Whether Kath has breached the duty under both the general law and the Corporations Act 2001(Cth) (1) The duty of act in bona fide (good faith) in the interests of the company (Kath) RULES (legal principle): in the general law and the Corporations Act 2001(Cth) Kath is the managing director in HorseCare Pty Ltd. The directors of a company are required by both common law and by statute to act bona fide and in the best interests of the company.1 That means director must exercise their powers and discharge their duties in good faith in the best interests of the corporations: s 181(1) CA. APPLICATION (Applying the law to the facts of the problem) The meaning of acting in good faith in the best interests of the company means that the directors must act honestly2 in the whole company all the time. As Kath is the director of HorseCare Pty Ltd, it is responsible for her to act honestly in the exercise of her powers and discharge of her duties. The fact of this case is that HorseCare Pty Ltd hasn't gotten the best interests by selling product in market. ViraHerb Ltd entered a contract to buy HorseCare's herbal tonics for resale to riding schools and pony clubs in Australia under Kath proposal, which helped VitaHerb Ltd made a lot of money and Kath received a large number of commission on the first three months sales. In another words, if Kath propose HouseCare to sell its product to riding schools and pony clubs directly, the company will make much more money than to enter contract with VitaHerb. ...read more.


meanwhile, executive directors may breach their duties to the company if they work for a rival business in their spare time, using skills and knowledge that assists the rival business to compete with the employer company. (Hivac Ltd v Park Royal Scientific Instruments Ltd16) VitaHerb Ltd is an unlisted company selling over-the-counter herbal treatments for small domestic pets. HorseCare Pty Ltd is selling Kel's herbal treatment in domestic market and oversea market. Because these two companies are all focus on herbal treatment, the competitive relationship does exist. Kath, as the managing director of VitaHerb Ltd shouldn't work for any other competing companies in both normal working hours and spare time. Meanwhile, Kath shouldn't use her skills and knowledge to assist the rival business to compete with VitaHerb. However, she registered the competitive company-HorseCare Pty Ltd with Kel and placed themselves as the only shareholders and directors. In addition, because Kel has no business experience, it's likely that Kath did the main work in operating the company. For this reason, it may be ratiocinated that Kath works not only in the working hours but also in spare hours for HorseCare by using her skills and knowledge. The principle that a person can be a director of two competing companies does not apply to executive directors. They are unable to join the boards of competing companies. Kath, as the board members of VitaHerb, shouldn't join other competing companies. However, she has registered another company with Kel and joined the board of HorseCare. ARGUMENT Kath will argue that VitaHerb and HorseCare are not competing companies. first of all, VitaHerb focus on the domestic pet market including horse, however, HorseCare just focus on horse. Secondly, VitaHerb just focus on the domestic market, whereas, HorseCare focus on native and overseas markets. They can't become virtual competition. Above all, she can be the director in HorseCare. Sharon and Brett will argue that these two companies are all focus on the herbal treatment, in another words, the main product of two companies are the same-herbal treatment. ...read more.


A director who makes a profit because of a breach of fiduciary duty may have to pay that profit to the company. This remedy can be appropriate where the company has not suffered any loss as a result of the breach of duty. (Regal Hastings Ltd v Gullive23r) For this reason, Kath has to repay the commission the VitaHerb. 4. Kath may be ordered by court to pay a fine of up to $1,100, or be sent to prison for up to three months, or both: Schedule 3 to the Corporations Act According to the above items, Kath may has to: 1. pay $200,000 to Commonwealth Government; 2. repay the commission to VitaHerb; 3. been sent to prison for up to three months; 4 been ordered disqualifying from managing VitaHerb for a special times. In addition, because Sharon and Brett has breached their duties of care and retain discretions, they may face a prescribed offence. So they has to pay $550 as a penalty. 1 Robert Baxt, Case and materials on corporations and associations, 1988, p 533 2 Pamela Hanrahan, Lan Ramsay & Geof Stapledon, Commercial applications of company law, 2004, p 244 3 (1993) 32 NSWLR 50; 11 ACLC 952; 11 ACSR 642. 4 Hanrahan, Ramsay & Stapledon, 2004, p255 5 (1987) 5 ACLC 421 6 (1984) 156 CLR 41 at 103 7 [1967] 2 AC 46 at 124 8 Hanrahan, Ramsay & Stapledon,, p260 9 Hanrahan, Ramsay & Stapledon,, p 261. 10 Robert Baxt, 1988, p 578 11 (1936) 54 CLR 583 12 Hanrahan, Ramsay & Stapledon, p 262 13 (1936) 54 CLR 583 14 Hanrahan, Ramsay & Stapledon, p 270 15 (1990) 8 ACLC 1050 16 (1946) 1 ALL ER 350 17 Hanrahan, Ramsay & Stapledon, p 274 18 S 191(3) CA 19 (1995) 13 ACLC 614; 16 ACSR 607 20 Hanrahan, Ramsay & Stapledon, p 242 21 Robert Baxt, 1988, p 578 22 Hanrahan, Ramsay & Stapledon, p 289 23 (1967) 2 AC 134n ?? ?? ?? ?? 1 ...read more.

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