Question

Company Law

ILAC

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

The Law gives the power to Board of Directors to use it whereever it is necessary to run the business smoothly & efficiently. The poewrs of Dirctors of a Company entitled to make any and all decisions and thus exercise all the powers, which the company has authority to enact. However there were some restriction/ limitation  to use the discretionary powers by the Board of Directors.While using the power vested in the Board of Directors, they must abide by i) Memorandum of Association, ii) Article of Association, iii) The Corporation Act, iv) Any Regulation made by the company during the General Meeting. This power include Investment, Sale/Disposed of any assets, Buyback of shares, Makes a Call on shares, Borrowing monies, Granting of loans,Approving financial Statements ,merger-demerge of the compan etc... Additional Power of the Board are Making politcal/charitable contribution, Appointing or removing Internal & Statutory Auditor, Appointing or removing Key Managerial Personnel.

In the given case as the Company (Truck Hire Pty Ltd)  already faces Financial difficulties, the formost challenge infront of the Board of Directors to overcome this situation at the earliest. To Overcome the same they may Sell the Asset lower than its market value. In such case the Board may exercise its discretionary Powers and sold such Assets to over come the situation. Hence the Court may deny any action against the Board of Directors of Truck Hire Pty Ltd & no action were taken under section 236/237 of Corporation Act 2001.