Question

The Board of Dental Assist Pty. Ltd. has five directors: three are executive and two non-
executive. Dental Assist provides an employment agency for dental nurses. The Board
recently approved the purchase of a complex computer system from Singsong
Computers Pty. Ltd., on the recommendation of Sharif Omar, one of the non-executive
directors.
A minority shareholder of Dental Assist, Pam Yates, is aware that Sharif and the other
non-executive director, Jing Jao, are the shareholders and directors of Singsong
Computers. Pam believes that an equivalent quality computer system could have been
purchased for a fifth of the cost.
Pam Yates has another concern. She believes that one of the executive directors, John
Stone, is approaching the dental nurses who have registered with Dental Assist to offer
them training courses with ‘ProTrain’, a partnership he conducts with his spouse. Pam
Yates considers that Dental Assist should be diversifying so that it provides this training.
Required:
a) Advise whether any of the directors breached sections 181-4 of the Corporations
Act 2001. Consider the position of each director. and
b) Advise Pam Yates, whether she has any rights as a shareholder to take legal
action and if so, under which section or sections of the Corporations Act 2001 (5
marks)
In your response you must give reasons and refer to sections of the Corporations Act
2001 (Cth) and cases where relevant.

Answer 1

a) As per Corporations Act 181-184,

A director or other officer must excercise their power and discharge their duties:

(i) in good faith, for proper purpose an in the best interest of the company;

(ii) to not to gain undue advantage of their position for themselves or other, which may be detrimental for the organization;

(iii) For proper use of Information.

As given in the question, the directors are clearly purchasing the complex computer system from a related concern at 5 times the Arm's Length Price. Also trying to take benefit to train from their own venture, which is not in the best interest of the corporation, hence violation is there.

b)As per section 232 the court may make an order under section 233 if:
(a) the conduct of a company’s affairs; or
(b) an actual or proposed act or omission by or on behalf of a
company; or
(c) a resolution, or a proposed resolution, of members or a class
of members of a company;
is either:
(d) contrary to the interests of the members as a whole; or
(e) oppressive to, unfairly prejudicial to, or unfairly
discriminatory against, a member or members whether in that
capacity or in any other capacity.
For the purposes of this Part, a person to whom a share in the
company has been transmitted by will or by operation of law is
taken to be a member of the company.

Section 233: The Court can make any order under this section that it considers
appropriate in relation to the company, including an order:
(a) that the company be wound up;
(b) that the company’s existing constitution be modified or
repealed;
(c) regulating the conduct of the company’s affairs in the future;
(d) for the purchase of any shares by any member or person to
whom a share in the company has been transmitted by will or
by operation of law;
(e) for the purchase of shares with an appropriate reduction of
the company’s share capital;
(f) for the company to institute, prosecute, defend or discontinue
specified proceedings

As per above Martha is well within her rights to complaint.