Question

Question B.1

Vishal, Ajay and Jasper are students who are keen to make some money in their spare time in order to kick-start their future. Vishal owns a small van, Ajay has a lawnmower and Jasper has a computer. They thought about starting a lawn mowing service business and decided to establish a company, Freakdew Pty Ltd, to launch their dream business with everyone as equal shareholders and directors in the company.

Jasper prints flyers for the business and the three business partners dropped them in the local neighbourhood mailboxes and distributed at the train and bus stations. It did not take long for them to develop a stream of regular clients, and it suddenly became a lucrative business. Because of the increase in the demand, Ajay decides to purchase on a loan a state-of-the –art lawn mower for $100,000 from a company called ORCO. Ajay told ORCO that he was the Head of Operations as well as a director of Freakdew Pty Ltd. Ajay did not inform nor consult Vishal and Jasper about this purchase.

As the business continued to grow, Jasper then hatched a plan to develop a separate business with some of their existing clients and started channelling some of their income to his other business.

The company’s business suddenly slowed and their profits dried up. As a result, Freakdew was unable to service its loan with ORCO for the lawn mower that Ajay ordered. ORCO are now demanding Freakdew to pay for the lawn mower.

Answer the following questions with reference to specific provisions of the Corporations Act 2001 (Cth) and case law:

1. Advise Vishal and Ajay if they can lodge a complaint against Jasper for breaches in the Corporations Act.                                                                                                 

Answer 1

ANS 1. First of all, we should know what are the duties of a director under section 180 of Corporation Act, 2001:

1). Director should make a good judgement for a better purpose.

2). He should not have a material personal interest in any business dealing.

3). Every judgement should be in the best interest of corporation.

4). Inform other directors about the decision. etc.

Above are not exhaustive list, a lot of other duties are also there. Every director is prohibited under section182 for using their position for any personal gain or even use any information obtained during the course of business, for any personal gain, or giving benefit to some other person at the cost of entity interest.

So Jespher, by conducting separate business has breached the duties of director of Freakdew Pty Ltd. So he other two directors can raise the complained with ASIC under Corporation Act. Then ASIC can initiate investigation against Mr. Jespher. If the investigation finds that he has breached the duties under corporation act then he can be personally liable for the loss to the company, occurs due to his misdeeds.