Question

The members of Shifty Enterprises Ltd are not happy with the way the company is being managed. If members are unhappy with directors, outline two (2) legal courses of action that the members might take to influence the decision making within the company. List the relevant sections from the Corporations Act 2001 (Cth) to support your answer .

Answer 1

The Corporations Act 2001 (Cth) also sets out criminal offences where a director or other officer acts recklessly or is intentionally dishonest in their failure to exercise their powers and discharge their duties in good faith and in the best interests of the company or for a proper purpose.

The Corporations Act 2001 (Cth) requires that a company director or other officer exercise their powers and discharge their duties with care and diligence [s 180]. This duty is subject to a business judgment rule that requires a director making a business judgment to:

• make the judgment in good faith and for a proper purpose;
• not to have a material personal interest in the subject matter of the judgment;
• inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate;
• rationally believe that the judgment is in the best interests of the corporation.

In addition, directors and other officers of companies must exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose [s 181]. They are prohibited from improperly using their position to gain an advantage for themselves or someone else or to cause detriment to the corporation [s 182] and are prohibited from using information obtained as a consequence of their role with the company to gain an advantage for themselves or someone else or to cause detriment to the corporation [s 183]. These last two provisions also apply to employees of the company.

All of the provisions give rise to civil obligations. They are also civil penalty provisions. In a case where a court determines that a civil penalty provision has been contravened, it must make a declaration to that effect and may order the person pay the Commonwealth a pecuniary penalty of up to $200,000 and may order the person compensate the company for any loss as a result of the contravention [Part 9.4B]. The court may also disqualify the person from managing corporations for a period the court considers appropriate [s 206C].

The Corporations Act 2001 (Cth) also sets out criminal offences where a director or other officer acts recklessly or is intentionally dishonest in their failure to exercise their powers and discharge their duties in good faith and in the best interests of the company or for a proper purpose. Similarly, criminal offences are created where a person recklessly or intentionally dishonestly misuses their position or information they have gained through their position with the company [s 184].

Directors have a duty to make full and frank disclosure of information within their knowledge to enable shareholders to make properly informed judgments on any matter