20 Jul WHAT RIGHTS DOES JONES HAVE IF HE IS REMOVED IN BREACH OF HIS SERVICE AGREEMENT WITH X LTD?
Directors duties:
4. (a) The Secretary of X Ltd. advises you that a proposal has been put forward to remove Jones as a director of the company although his term of office has not expired. He asks you if this can be done, and if so, how? s203D
(b) What rights does Jones have if he is removed in breach of his service agreement with X Ltd?
(c) How would you answer differ, if Jones were a director of X Pty. Ltd?
Duties are imposed on directors at common law and under the Corporations Act 2001 by virtue of the fiduciary relationship which exists between them and the company? (See s180-184,s588G) Consider the common law and statutory duties as they may apply in the following questions.
5. Simpson is the managing director of Developers Ltd., a company engaged in the business of acquiring and developing building sites.
Developers Ltd. wishes to buy a piece of land on which to erect a factory. Simpson, whilst out looking for a site which would suit the company for this purpose, discovers a piece of land which will soon adjoin a new main highway. Realising the value of the land for development as a factory site, Simpson, without informing the shareholders in Developers Ltd., purchases the land on his own behalf and subsequently sells it to an engineering company at a substantial profit. Hawkins, a major shareholder in Developers Ltd. learns of these transactions and tells Simpson that he objects to his conduct and intends to raise the matter at the forthcoming annual general meeting. Simpson replies that he is not aware that he has done anything improper, especially as Developers Ltd. might not have been able to raise sufficient funds to purchase this particular site itself.
(i) Advise Hawkins generally and state what action, if any, can be taken against Simpson for any possible breaches of his duties as a director.
(ii) What penalties (civil penalty regime) may be imposed on Simpson for breaching the common law and Statutory duties under the Corporations Act? What are the possible remedies available to Developers Ltd if Simpson is found to have breached such duties?
6. Happy Day’s Ltd operates child day care centres. In 2008 the directors of the company decide to sell a large block of land in Footscray to Victoria University for $750,000, without consulting the shareholders. The directors believed the land was surplus to its needs. On advice of its merchant banker the directors decided to invest the money from the sale into high growth biotechnology shares. The company invested $700,00 in Biotech Ltd. By 2011 the shares in Biotech Ltd were worth about 50% if the initial purchase price while the land sold to Victoria University was now worth $2.2m.
Despite the adverse effect the fall in this asset the directors sign off on the 2011 financial reports on the recommendation of Jill the CFO. At the time the board approved the financial statements the shares in Boitech Ltd had fallen to 30% of the initial purchase price.
Discuss the duty of care owed by directors and other officers to the company and advise whether action can be taken against them. (S180(1) Also advise whether the directors can rely on the business judgement rule. (S180(2).
7. Mr Loosley is a director of his wife’s personnel consulting company, Femplacement Pty Ltd. He does not take an active part in the company but does receive a small income from directors fees paid to him
Unbeknown to Mr Loosley, one of the company’s main clients goes into liquidation, owing Femplacement $½ million. Femplacement cannot pay its debts and obligations.
Mrs Loosley suffers a nervous breakdown as a result and can no longer run the affairs of the company. Mr Loosley takes control of the company and for some 8 months tries to restore its fortunes without success. Femplacement Pty Ltd fails financially.
Friendly Consulting, a creditor of the company, was engaged by Mr Loosley to do some consulting work, and has not been paid for the last two months wishes to bring an action against Mr Loosley for insolvent trading.
a) Advise Friendly Consulting whether it can take action against the directors of Femplacement Pty Ltd for breach of s588G.
b) Advise whether the directors of Femplacement Pty Ltd have any defences they can rely on under the Corporations Act 2001.
c) Finally, advise what penalties may be imposed on the directors of Femplacement Pty Ltd for breaching the insolvent trading provisions under Act.
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