Question

Amy, James and Laura are the directors of Elite Editing Pty Ltd (“Elite”), a company that provides online thesis editing for university students. The company is performing badly and Amy seeks the professional advice of Marie, a business advisor. Marie advises Amy that she has designed new software that can reduce overhead costs and help generate profit. Marie asks whether Amy and Elite would be interested in marketing and using this new software. Amy tells Marie that there is no way Elite could afford the new software but Amy would be keen to market the software herself. Amy and Marie establish a separate company called Proofmate Pty Ltd (“Proofmate”) and become its directors. Amy is the majority shareholder. The business of Proofmate is an overnight success. The board of directors of Elite is unaware of this new business. 5 Advise Elite Editing Pty Ltd as to whether Amy has breached section 182 of the Corporations Act 2001 (Cth). As part of your answer, you should consider section 182 and the supporting common law, and what remedies are available to Elite and ASIC.

Answer 1

Section 182 of the Corporations Act provides a civil obligation that prohibits a director, secretary, other officer or employee of a corporation from making improper use of their position to gain an advantage for themselves or someone else, or to cause detriment to the company. Section 184(2) of the Corporations Act specifies that directors, other officers or employees of a corporation commit an offence if they use their position dishonestly.

Under this circumstance Amy has the knowledge that Elite cannot afford the software and knowing the fact she herself forms another company and uses the software there which is contravention of Section 181 of the Corporations Act which imposes a civil obligation on directors, secretaries and other officers of a corporation to exercise their powers and discharge their duties in good faith, in the best interests of the corporation and for a proper purpose. Also the board of directors of elite have no information about the software .

So there is a breach of statutory duties which draws penalties under the Corporations Act which range up to $200,000. Under both the common law and the Corporations Act, officers may also be required to pay compensation or to account for profits. In some cases directors may also be disqualified from office.