Question

AGC Software Pty Ltd (AGC) is a small proprietary company limited by shares that develops, tests and markets its own “anti-malware” software products. Ben has been the sole director at AGC for two years, and prior to that appointment he had served in many other executive roles for a variety of software companies. Ben also holds 40% of the shares in AGC. The remaining shares (60%) are held by 5 other shareholders who are not directors in AGC.

Ben and the employees of AGC consider themselves to be highly skilled and knowledgeable in their field. AGC has been increasing its share in the anti-virus software market over the last year which has attracted the attention of the market-leading company, Big Nanny Ltd (Nanny). Nanny makes an offer to Ben that the company will purchase as many shares in AGC as Ben can sell to them, paying him $18.95 per share. This offer is very generous as a recent independent valuation valued AGC shares at only $12.95 each.

Ben swiftly makes an offer to buy the shares of the other 5 shareholders in AGC. These shareholders accept Ben’s offer of $13.50 per share to sell most of their shares. However, after the sale is completed, the shareholders are shocked to find out that Ben subsequently sold his newly acquired shares to Nanny for $18.95 each. The shareholders are further shocked when they learn by chance that Ben’s wife is the Managing Director of Nanny.

Question 1: Answer both A and B

A). Discuss Ben’s liability as a director in terms of the Corporations Act 2001 (Cth) and the relevant case law .

B). Discuss the possible remedies that AGC and the shareholders of AGC could seek against Ben .

Answer 1

Answer:

As per Section 180 corporations Act 2001, A company director or any other officer should at all times exercise their powers and discharge their duties with due care and diligence, whereas,Ben has acted out on his personal interest rather than to act in best interests of the company and also any important decisions shall be communicated to the required persons (Shareholders and other relevant persons).

And also section 181 imposes a"civil obligation"on directors to exercise their powers and discharge their duties in good faith, in the best interests of the corporation and for a proper purpose.

By hiding the information regardingbuying of shares from the other share holders from a higher price of 13.50$ per share and simulatneously selling all the share along with his at a much higher price of 18.50$ pe share shows that Ben has carried out all the transactions on his own personal interest and had violated thesections of  180 &181 of corporations act .

And also the buying company (Nanny company) has his wife as the managing director, which shows that it was done with an intentional purpose of acquiring the former company with the consent and communication to the other share holders.

Possible Remedies that the company and its shareholders can take against Ben:

As per the Corporation act 2001:

Penalties ranging upto 2,00,000$ may be imposed on the directors in case of any breach with regarding to performing their statitory duties and they shall also be disqualified to continue as a director and shall vacate the office. and also the aggreived parties can claim compensation charges from Ben.

In this particular case, court order (Injunction) may be taken to stop the transactions regarding sale of shares to other company and the court may declare the transactions as null and void as they were done on the self interest of the director.

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