Question

After several months of negotiations, the CEO of BIG Pty Ltd made the long-awaited announcement to board members that BIG Pty Ltd would be buying Melbourne based company, YAY Pty Ltd for $25m. The following persons were present at the meeting: Helen and Liam (Company Directors) and Tammy (Receptionist taking meeting minutes). News of the take-over would not be released to the public until the following week.
(a) Assume Helen owns 50,000 shares in YAY Pty Ltd . Discuss whether she would be breaching any duties if she makes a secret profit of $500,000 from the takeover. What can Helen do to avoid breaching any duties?

answer structure

Issue: Whether Helen would breach any duties…
Rule: According to Hospital Products Ltd v US Surgical Corp…
Furthermore: According to Aberdeen Railway Co v Blaikie Bros…
Analyze: Here, the facts tell us…
Conclusion: Clear that Helen would be breaching Duty __   … (remember to also mention what she can do to avoid the breach)

Answer 1

Issue: In the given situation BIG Pty Ltd is buying YAY Pty Ltd and Helen being a director in the puchasing company has some fiduciary duties towards BIG Pty Ltd. Here the issue is whether she would breach any of those fiduciary duties, if she makes any secret profit in the takeover.

Rule: As held in the case of " Hospital Products Ltd. v US Surgical Corp., the director's fiduciary duties include:

1. Duty to act in good faith in the interest of the company

2. Duty to use powers for a proper purpose

3. Duty to avoid any conflict of interest

a) Not to be a party to any contract with the company

b) Not to use corporate property, information and opportunity to make secret profit

c) Not to compete with the company.

Furthermore, in the case of Aberdeen railway co. v Blaikie Bros., it was stated that: no one having fiduciary duties to discharge, shall be allowed to enter into engagements in which he/she has or can have , a personl interest conflicting, or which possibly may conflict, with the interest of those whom he is bound to protect. It laid down a basic rule that if a director had an interest in a corporate transaction, the transaction is voidable at the company's will and it is the duty of directors to avoid any possibility of a conflict of interest.

The directors are a body to whom the duty of managong the general affairs of the company is delegated and it is their duty to act as best to promote the interest of the company whose affairs they are conducting.

Facts of the given case: Here in the given case, the facts clearly states that Helen is director in the purchasing compny and is making secret profits in the takeover process.

Conclusion: Therefore, it is clear that Helen would breach the fiduciary duties of the directors towards the company as held in the above mentioned cases.

In order to avoid such breach , the director (Helen) should declare her interest in YAY Pty Ltd to other directors and to the company and should not make any secret profits. Also proper resolutions should be passed before the takeover to avoid any breach of duties.