内容讲义分析claw6002-2017lecturefor breach of duties

1、CORPORATE STRUCTURES IN PRACTICELECTURE 11Consequences and Remedies forBreach of DutiesBreach of Duty consequences + remediesThe General Law and the Statute Law provide for consequences and remedies for breach of duty:Breach of General Law DutiesBreach of Statutory DutiesAction available to the comp

2、any Action available to ASIC (civil)Action available to DPP (criminal)Action available to other partiesDefences and exceptions to breachExoneration and relief from breachBreach of Duty approvalApproval:persons can avoid breaching their duties by making full disclosure of all relevant information to

3、the company and obtaining by way of ordinary resolution the companys:authorisation (statute law and general law)approval before taking the actionratification (general law only not statute law:)approval after taking the actionNote: the above is based on obiter in Angas Law Services Pty Ltd v Carabela

4、s and so is yet to be affirmedBreach of Duty approvalapproval only is available:for general law duties (authorization and ratification) and statutory duties (authorization only)if company is solvent: Kinsela v Russell Kinsela Pty Ltdapproval by company does not prevent:ASIC bringing an action for br

5、eachStatutory Derivative Action: s 239(1)approval is not effective where:directors who also are members purport to ratify their own breach by resolution of a members meeting: Cook v Deeksconduct is oppressive to members: Hannes v MJH Pty LtdBreach of Duty general law and statute law actionsAny of th

6、e following may bring an action for breach of duty owed to a company:Company under general law and statute lawASIC under statute law (Corporations Act + ASIC Act)DPP under criminal provisions (statute law)Third parties (limited to creditors insolvent trading)ASIC = Australian Securities & Investment

7、s CommissionDPP = Director of Public Prosecutions (Cth)Breach of Duty general law actions & remediesDirectors owe duties to the company, that is, to the members as a collective group: Greenhalgh v Arderne CinemasCompany is the proper plaintiff for wrongs done to the company: Foss v HarbottleAt gener

8、al law, only the company may bring action for remedies available to the company, including:damages: Daniels v Andersonaccount of profits: Regal (Hastings) Ltd v Gulliverrescission: Transvaal Lands Co v New Belgiumconstructive trust: Cook v Deeksinjunction: Parke v Daily News LtdIf a company is in li

9、quidation, then liquidator can bring action on companys behalf (s 9 “officer” (f): includes liquidator)Breach of Duty statute law actions & remediesCompensation order under s 1317H may be sought by:ASIC (s 1317J(1)company (s 1317J(2)liquidator (if company is in liquidation)Injunction under s 1324 (f

10、or breach of Corporations Act only) may be sought by:ASICperson whose interests are affectedliquidator: AGBC Pty Ltd & Anor v Dessa & Orscreditor: Phoenix Constructions Queensland Pty Ltd v Coastline Constructions Pty LtdBreach of Duty statute law actions & remediesActions available to ASIC (s 1317J

11、(1):sue for breach of civil penalty provisions (ss 1317DA + 1317E) including:ss 180(1), 181, 182, 183, 209(2), 588G(2)subject to any relevant defences or exceptions (eg s 180(2), s 189, s 190, s 211, s 588H), ASIC can seek :management banning order: s 206Cpecuniary penalty order (up to $200,000): s

12、1317Gstatutory compensation order: s 1317HBreach of Duty statute law actions & remediesActions available to the DPP for prosecution of criminal offences include:s 184(1),(2)&(3)conduct amounting to breach of ss 181, 182, 183 (civil penalty provisions distinct from s 184) andsuch conduct is either:re

13、ckless, orintentionally dishonest (objective test: R v Fodera)s 588G(3)where failure to prevent the company from incurring a debt during or resulting in insolvency is dishonestBreach of Duty statute law actions & remediesActions available to DPP for s 184 and for s 588G(3) attract:Penalty (max) s 13

14、11:$420,000 fine (2,000 x PU) or 5 years jail or both:Schedule 3 Item 30 s 184Schedule 3 Item 138 s 588G(3)Penalty Unit (PU) = $210 (Crimes Act 1914 (Cth), s 4AA)Breach of Duty statute law actions & remediesMaterial personal interestCompanies (all types):s 191(1) disclosure of material personal inte

15、rest to boards 191(4) breach does not cause invalidity of actionPublic Companies:s 195(1) unless sub-s (1A) applies (resolution of disinterested directors), a conflicted director must not: be present when the matter considered by boardvote on the matters 195(5) breach does not affect validity of any

16、 resolutionBreach of Duty statute law actions & remediesMaterial personal interests 191(1A) offence against s 191(1):Penalty s 1311 & Schedule 3 Item 32$2,100 (10 x PU) or 3 months imprisonment or boths 195(1B) offence against s 195(1):Penalty s 1311 & Schedule 3 Item 33$1,050 (5 x PU)Breach of Duty

17、 statute law actions & remediesRelated Party Transactions (public companies only)s 208: prohibits a “financial benefit” (s 229) to a “related party” (s 228) of public company unless:approval by resolution of a members meeting is granted, or an exception to the prohibition appliess 209(1) consequence

18、s of breach:contravention does not invalidate contract / transactionno offence by companyBreach of Duty statute law actions & remediesRelated Party Transactions (public companies only)s 209(2) person involved in contravention in breach: s 79civil penalty provision s 1317E Item 3management banning or

19、der: s 206Cpecuniary penalty order (up to $200,000): s 1317Gstatutory compensation order: s 1317Hs 209(3) offence against s 208 if persons involvement is dishonestPenalty s 1311 & Schedule 3 Item 50$420,000 fine (2,000 x PU) or 5 years jail or bothBreach of Duty statute law actions & remediesDuty to

20、 prevent insolvent trading: s 588GASIC, a liquidator or a creditor can sue the directors for a statutory compensation order:s 588J ASICs 588M(2) liquidators 588M(3) creditor (the amount of the compensation is the loss to the creditor incurred while the directors are in contravention of the duty to p

21、revent insolvent trading)Breach of Duty exoneration & reliefExoneration and relief for breaches of directors duties are available as follows:Approval (authorisation and ratification) by:company (members in general meeting) for:general law breaches (authorisation and ratification)statute law breaches

22、 (authorisation only)board (directors in board meeting) for:material personal interest (s 191)Breach of Duty exoneration & reliefExoneration and relief for breaches of directors duties are available as follows:Court:s 1317S Relief from liability for contravention of civil penalty provision:the court

23、 can grant relief from liability to directors, officers and employees from liability for contravention of civil penalty provisions (as contained in s 1317E) but excluding criminal provisions provided that the person:has acted honestly, andought fairly to be excused for the contraventionBreach of Dut

24、y exoneration & reliefExoneration and relief for breaches of directors duties are available as follows:Court:s 1318 Power to grant relief for negligence, default, breach of trust or breach of duty:the court can grant relief from liability to directors, officers and employees from liability for negli

25、gence, default, breach of trust or breach of duty provided that the person:has acted honestly, andought fairly to be excused for the contraventionBreach of Duty exoneration & reliefRational of the court when granting relief under s 1317S and s 1318:Hallv Poolman2007 NSWSC 1330 at 325 (Palmer J):when

26、 considering whether a person has acted honestly for the purposes of a defence under s 1317S or s 1318 of the Act, the court should be concerned only with the question whether the person has acted honestly in the ordinary meaning of that term, that is, whether the person has acted:without deceit or

27、conscious impropriety,without intent to gain improper benefit or advantage for himself, herself or for another, andwithout carelessness or imprudenceBreach of Duty exoneration & reliefRational of the court when granting relief under s 1317S and s 1318:Hallv Poolman2007 NSWSC 1330 at 325 (Palmer J):a

28、 failure to consider the interests of the company as a whole, or more particularly the interests of creditors, may be of such a high degree as to demonstrate failure to act honestly in this sensehowever, if failure to consider the interests of the company as a whole, including the interests of its c

29、reditors, does not rise to such a high degree but is the result of error of judgment, then no finding of failure to act honestly should be made but the failure must be taken into account as one of the circumstances of the case to which the court must have regard under s 1317S and s 1318Breach of Dut

30、y exoneration & reliefMatters to be considered by the court when granting relief under s 1317S and s 1318:ASIC v Vines; McLennan v Carroll; Advance Bank v FAI:degree of care with which the person has acteddegree to which the contravening conduct departed from the standard of reasonableness prescribe

31、d by the dutypresence or absence of contrition after the eventseriousness of the contraventionwhether competent advice was obtained and followed before the conductwhether conduct was in accordance with some established practicecircumstances surrounding default or breachBreach of Duty exoneration & r

32、elief - examplesMcLennan v Carroll:Facts:Carroll was the sole director of The Stake Man Pty LtdThe company was in an insolvency context and so the advice of an expert accountant experienced in the industry was obtained who considered that the company was solventCarroll relied on that advice and so c

33、ontinued to cause the company to tradeOver the following few years, despite receiving a number of assurances from the expert that the company was not insolvent, the companys financial position continued to deteriorate and, finally, it went into liquidationBreach of Duty exoneration & relief - exampl

34、esMcLennan v Carroll:Held:Carroll was liable for breach of the duty to prevent insolvent trading under s 588G(2)The court rejected Carrolls defence under s 588H(2) because, given the extent of the outstanding and unpaid debts of the company and the extent to which future debts would be incurred, it

35、was not reasonable for Carroll to expect that the companys inventory could be sold within a sufficiently short timeframe to enable all the companys debts to be discharged as and when they fell due and payableBreach of Duty exoneration & relief - examplesMcLennan v Carroll:Held:The court also rejecte

36、d Carrolls defence under s 588H(3) because, although the expert accountant gave advice about whether the company was solvent, the evidence did not demonstrate that he was specifically given the role of providing Carroll with “adequate information about whether the company was solvent” the advice pro

37、vided was given as part of the general accountancy and advisory work that the accountant was undertaking for the companyBreach of Duty exoneration & relief - examplesMcLennan v Carroll:Held:However, Carroll was (totally) exonerated (typically, exoneration is partial) from that contravention under s

38、1317S on the grounds that he acted honestly and ought fairly to be excused for the breach considering that he:obtained and relied on the advice of an accounting expertremained active in trying to increase production and sales, and to raise further capitalacted promptly to appoint an administrator up

39、on a claim being made against the company by the ATOdid not profit personally from permitting the company to trade as he didBreach of Duty exoneration & relief - examplesAdvance Bank v FAI:Facts:The directors of Advance Bank spent company funds in an election campaign for the primary purpose of seek

40、ing to ensure the re-election of retiring directors and so to defeat the election of the candidates proposed by a large shareholderIn seeking that primary purpose, the directors sent information to shareholders that was misleading and prejudicial to the other candidatesBreach of Duty exoneration & r

41、elief - examplesAdvance Bank v FAI:Held:While the directors were not in breach of (the equivalent of) s 181(1)(a) in that they acted in good faith in the best interests of the company, they were in breach of (the equivalent of) s 181(1)(b) in that they did not act for a proper purposeThose directors

42、 were not exonerated from that contravention under (the equivalent of) s 1318 because:directors are required to act honestly in relation to all the circumstances of the casewhile the directors acted honestly in relation to the best interests of the company, they did not act honestly in relation to t

43、he proper purpose of the power (misleading and prejudicial information used)Breach of Duty s 588GA: Safe harbours 588GA Safe harbour taking course of action reasonably likely to lead to a better e for the companyFrom the discussion of McLennan v Carroll (above), it was observed that the grounds for

44、exoneration of Carroll from breach of s 588G(2) included that he:remained active in trying to increase production and sales, and to raise further capital,acted promptly to appoint an administrator upon a claim being made against the company by the ATO, andobtained and relied on the advice of an acco

45、unting expertBreach of Duty s 588GA: Safe harbours 588GA Safe harbour taking course of action reasonably likely to lead to a better e for the companyFrom September 2017, the Corporations Act 2001 (Cth) has been amended to include a new provision, s 588GA, which operates to exclude the operation of s

46、 588G(2) in cases where directors have taken a course of action reasonably likely to lead to a better e for a company in an insolvency contextBreach of Duty s 588GA: Safe harbours 588GA Safe harbour taking course of action reasonably likely to lead to a better e for the company(1)s 588G(2) does not

47、apply in relation to a person and a debt if:(a) at a particular time after the person starts to suspect the company may e or be insolvent, the person starts developing one or more courses of action that are reasonably likely to lead to a better e for the company i.e. an e that is better for the comp

48、any than the immediate appointment of an administrator, or liquidator, of the company; and(b) the debt is incurred directly or indirectly in connection with any such course of action during the period starting at that time, and ending at the earliest of any of the following times:Breach of Duty s 58

49、8GA: Safe harbours 588GA Safe harbour taking course of action reasonably likely to lead to a better e for the company (i) ifthe person fails to take any such course of action within a reasonable period after that time the end of that reasonable period;(ii) when the person ceases to take any such cou

50、rse of action;(iii) when any such course of action ceases to be reasonably likely to lead to a better e for the company;(iv) the appointment of an administrator, or liquidator, of the companyBreach of Duty s 588GA: Safe harbourWorking out whether a course of action is reasonably likely to lead to a

51、better e(2) For the purposes of (but without limiting)s-s (1), in working out whether a course of action is reasonably likely to lead to a better e for the company, regard may be had to whether the person:(a) is properly informing himself or herself of the companys financial position; or(b) is takin

52、g appropriate steps to prevent any misconduct by officers or employees of the company that could adversely affect the companys ability to pay all its debts; orBreach of Duty s 588GA: Safe harbourWorking out whether a course of action is reasonably likely to lead to a better e (c) is taking appropria

53、te steps to ensure that the company is keeping appropriate financial records consistent with the size and nature of the company; or(d) is obtaining advice from an appropriately qualified entity who was given sufficient information to give appropriate advice; or(e) is developing or implementing a pla

54、n for restructuring the company to improve its financial positionBreach of Duty s 588GA: Safe harbourWorking out whether a course of action is reasonably likely to lead to a better e(3) A person who wishes to rely ons-s (1) in a proceeding for, or relating to, a contravention ofs 588G(2) bears an ev

55、idential burden in relation to that matter i.e. bears the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not existBreach of Duty exemption and indemnification Restrictions on exemption from liability and indemnification (information o

56、nly not examinable):s 199A Indemnification and exemption of officer or auditor:(1) A company or a related body corporate must not exempt a person (whether directly or through an interposed entity) from a liability to the company incurred as an officer or auditor of the companyBreach of Duty exemptio

57、n and indemnification s 199A Indemnification and exemption of officer or auditor:(2) A company or a related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against any of the following liabilities incurred as an officer or auditor of the company: (a) a liability owed to the company or a related body corporate; (b) a liability for a pecunia