Law management help on: Corporation act 2001

AssignmentSolution 1

The Corporation Act, 2001 deals with several provisions which govern the functioning of the Directors and other Officers of the Company. Section 180-184 of the Corporation Act deals with various powers and duties of a Director which are imposed on him, the contravention of which results in several liabilities. At times, the interest of a Director comes into conflict with the interest of the Company, in such situations, it is the interest of the Company which prevailes, provided, the interest of a Director should be material personnel interest. This is an obligation and a duty which is desired by a Director as per Section 191 of the Act. Further, it is an obligation on a Director that if a Director seeks any interest from the Company, than the same must be communicated to the other Directors (Section 192). If the Communication is not made, it results in the breach of duty.

Similarly, a Company Secretary also holds an important position in the Company. In a leading case of Northside Developments Pty Ltd v Registrar-Generalit  was held that a Secretary can bind a Company.

But, in order to bind the Company but the actions of the Directors or Company Secretary, it is important that the actions must lie within their authorities. If the acts of Directors or Secretaries exceeds the scope of their authorities than the transactionsare considerednon-binding.There are various types of authorities that can be possessed by the members of the Company, such as; a) Actual Authority- In a leading case of Freeman&Lockyer v Buckhurst Park Properties (Mangal) Ltd, the concept of actual authority was considered; b) Implied Authority- In a leading case of Hely-Hutchinson v Brayhead Ltd, the concept was dealt with and c) Ostensible Authority- it is an authority which is obtained as per the acts of the parties. [Ford H, 2001]

At times, transactions are undertaken by the representatives of the Company, such as, Directors and Secretaries which are beyond the scope of their authority with an outsider. In such circumstances, the Company does not validate the transaction by taking a Defence that the transaction was without authority and makes the transaction voidable.  Thus, an outsider must be cautious while dealing with a Company. [Alan Krawitz, 2002]The Corporation Act, 2001 specifically enacted provisions which safeguards an outsider while dealing with a Company. In a leading case of Bank of New Zealand v Fiberi Pty Ltd, it was held that an outsider can assume certain things as mentioned under Section 128-129 of the Corporation Act, 2001.

Further, in Common law, the rule of ‘Indoor Management’ was established. The rule was an exception to the decision of a leading case of Royal British Bank v Turquand. According to the decision if a contract was formulated by a person who does not have the requisite authority than the contract is voidable at the option of the company. This rule was considered inappropriate as an outsider who is dealing with the company on good faith that the internal requirement of the company are met and the person with whom he is formulating contract has the authority will face consequences if the contract turns out to be voidable[Woodward et al, 2001]. Thus, an exception is created according to which an outsider does not have any obligation to know the internal proceedings of the Company and can assume that the representative of the Company has requisite authority. This exception is called the rule of ‘Indoor Management’. The rule is not followed if an outsider is aware of irregularity. [Hanrahan P et al, 2001]

Further, Section 130 of the Corporation Act, 2001 has over ruled the concept of constructive notice and was validly held in a leading case of Irvine v Union Bank of Australia.

As per the present given problem, the Managing Director of the Company is A, who has the authority to issue cheque on behalf of the Company. The Company deals with the TravelAgent frequently. It can be submitted that the Directors and the Secretaries are regularly dealing with the travel agent and had taken packages. Thus, the Company is liable to compensate the agent as the officers has acquired the ostensible authority and there is no obligation on the agent to know the internal requirements of the company, provided, the agent does not have any prior knowledge regarding the irregularity. However, A can make the Directors and Company secretaries’ personal liable for the dues as they have breached their authorities and duties to act in good faith, no personal interest etc as mentioned under the Corporation Act, 2001.

Solution 2

Section 180-184 of the Corporation Act, 2001 deals with powers and duties of the Directors. The Directors is under an obligation to fulfill his duties, the non-compliance of which results in bringing civil and criminal consequences as per section 184 and Section 1317E of the Act. A Director has an obligation to not to misuse the funds of the Company and take every appropriate step to safeguard a Company. [RedChip Layers, 2001]

The Corporation Act, 2001 has enacted provision according to which a Managing Director does not cease from his position when he ceases to become the Director of the Company (section 203F). A Director is terminated from his position as per the provisions of Section 206A of the Corporation Act, 2001. However, cessation does not result in the removal of a Managing Director. A Director can only be removed from the Company by proper procedure as provided in the Constitution or by passing a resolution in this behalf. [Peter Surgeon, 2003]As already said, if there is no Constitution, than a Director can be removed by passing a resolution. This is specifically submitted under section 203C of the act [ Replaceable Rules] . A resolution can only be passed by calling the meeting as per the provisions of section 249C. In a meeting, normally, there are two kinds of resolution that can be passed. First, Ordinary resolution which requires a simple majority (Section 248G) and which is normally passed at the times of election, re-election, appointment, removal of Directors etc. Secondly, Special resolution which is passed by a majority of 75% of voters and the specialty of the resolution must be specifically mentioned in the notice. The period of notice is 21 days except in certain circumstances. [Company Resolution]

Thus, to remove a Director proper procedure needs to be passed. Further, a Director has authority to appoint any person as the Managing Director of the Company (Section 201J). Breach if duties of Directors bring civil as well as criminal penalties. [General duties Of Directors]

In the present given problem, E can be removed from his position by passing aresolution since there is no Constitutional procedure that has been provided. It is suggested that an Ordinary resolution is passed by providing a notice of 21 days as an ordinary resolution requires simple majority. Further, E can make himself appoint for the day to day affairs of the Company. E can also make A, B, C, D, liable for the breach of their duties and responsibilities Further, he can convey the mate that no dealing should be made with respect to the Directors as they are not authorized to represent the company.

Solution 3

There are various duties and obligations of Directors which are incorporated under section 180-184 of the Corporation Act, 2001. Breach of any duties brings civil as well as criminal consequences [Corporation Law]. Further, a Director or an officer can be removed from the Company by passing a resolution [A Practitioners Guide to corporate Law]. In a leading case of Re TasbianLtd , it was held that a professional at times become a deemed Director of the Company if involved into certain acts [The Professional advisor as the Deemed Director]. A deemed Director can be removed by following the same procedure which is required to remove a Director.In the present given problem, Clare was appointed as per the Constitution of the Company. Thus, she can be removed only as per the procedure provided in the Constitution. If no procedure is provided than she can be removed by following the procedures which is required to remove the director of the Company as she is considered as the deemed Director because of her involvement in the Company. If the procedure is not followed, Clare can sue the Directors& shareholders of the Company for the breach of their duties and misuse of their position. Even, if Clare is removed by due process, then also she can make the Company and Director liable for the breaches of their statutory duties.

Solution 4.

A director is a very important officer of a Company. The Corporation Act, 2001 has enacted provisions which deals with the remuneration of the Company. As per section 202A of the Corporation Act, the Directors are eligible for the remunerations. It is necessary to pass a resolution which determines the remuneration of a Director. A Company can pay travelling expenses to the Director only if such expenses are incurred by a Director in a) attending meetings or committees of Directors; b) attending the general meeting; c) when the expenses are incurred with respect the company’s business [Replaceable Rules]. The Expenses can also include the out of pocket expenses [Peter Surgeon] provided the same are recognized and approved in the meetings of Directors. [Australian Blindless Forum]

It is the Constitution of the Company which signifies the remuneration of the Directors. If the Company does not have a Constitution of its own than it is necessary that a resolution is passed by the board of the members of the Company acknowledging the remuneration of the Director.

In the present given problem, there is no Constitution that is provided. Further, there is no resolution that has been passed by the members of the company which acknowledges the expenses that has been incurred by Sussie. Thus, Sussie can claim her expenses only if the same are approved by passing a resolution in this behalf. Sussie must get the claim acknowledge since the expenses are within the scope of the Act.

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