Question

Truck Hire Pty Ltd (Truck) is a company that hires out large machinery. Since January 2020 the company has been in a difficult financial position. The Board of Truck have passed a resolution to sell some of the assets to reduce their debt. Sally and Tom are two shareholders of Truck, they obtained a valuation report that shows the assets have been sold off at a significant undervalue in breach of s 180 of the Corporations Act 2001 (Cth). Advise Sally and Tom whether the court will grant them leave to bring a statutory derivative action under ss 236/237 of the Corporations Act 2001 (Cth).

Answer 1

Section 180 :- A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: were a director .

Section 237(3):- The Sally and Tom may apply to the court as per provisions but the court will take rebuttable presumption that granting leave is not in the best interests of the company unless it is established that:

all of the directors who participated in that decision:

(i) acted in good faith for a proper purpose;

(ii) did not have a material personal interest in the decision;

(iii) informed themselves about the subject matter of the decision to the extent they reasonably believed to be appropriate

(iv) rationally believed that the decision was in the best interests of the company.

The director's belief that the decision was in the best interests of the company is a rational one unless the belief is one that no reasonable person in their position would hold.

Hence Section 180 Makes sure directors exercise powers and Duties with utmost care and due dilligence as they are to act in good faith .Section 237 Protect them by rebuttable assumption unless any Allegations are proved against directors it will be considered directors decision was in the best interest of the company .Shareholders have to prove under section 237 (3) to court while applying for leave that Directors had material Interest in the decision making and had not acted in good faith and decision was not in the best interest of the company only then they will be succeed otherwise the court under section 237 (3) Will refuse to grant them Leave to bring statutory action .

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