This website uses cookies to ensure you get the best experience on our website. Learn more

Law Notes Business Associations Notes

Restrictions On Indemnities Notes

Updated Restrictions On Indemnities Notes

Business Associations Notes

Business Associations

Approximately 289 pages

These are comprehensive yet succinct notes. They set out the relevant legal principles, and material facts from a range of cases in order to demonstrate how those legal principles have been applied.

At the beginning of each document on each topic, there is a table of contents (hyperlinked so you can navigate easily through the document), and also an 'exam checklist', which you can use during revisions or exams to remind yourself of the key issues you have to address.

You can use these to q...

The following is a more accessible plain text extract of the PDF sample above, taken from our Business Associations Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

15 Restrictions on Indemnities, exemption and insurance: s 199A – 199C

Table of Contents

15 Restrictions on Indemnities, exemption and insurance: s 199A – 199C 1

Intro 2

1.Ways in which directors/officers can secure release from liability arising from doctrines 2

(a) general meeting consent 2

(b) board consent? 4

(c) Court s 1318 4

(d) Company’s constitutions – except note the following restrictions 11

2. Prohibitions against exemptions and indemnifications from liability of officer/auditor: s 199A 12

3. Directors and officers insurance 14

Intro

  1. Rules

  2. Exemption from liability as officer or auditor

  3. Indemnification against liability as an officer or auditor

  4. Directors and officers insurance

  1. Ways in which directors / officers can secure release from liability arising from doctrines:

    1. May be released by general meeting resolution ratifying their breach of duty or otherwise validating the transaction resulting from it.

    2. Board can be empowered to release one of its number from duty or the consequences of its breach: Queensland Mines

    3. Court is empowered to grant relief in particular circumstances under s 1318.

    4. The company’s constitutions can indemnify them against liabilities arising from their office. Rule: Officers/auditors may not be exempted at all by their company for a liability incurred as officer/auditor of company; but indemnification and payment of insurance premiums are permitted in circusmtacnes other than those expressly prohibited.

      1. Provisions do not authorize anything that would otherwise be unlawful: s 199C(1)

      2. Anything that purports to indemnify or insure an officer or auditor against liability or exempt them from a liability is void to the extent that it contravenes these provisions: s 199C(2).

1.Ways in which directors/officers can secure release from liability arising from doctrines

It may suit a company to allow a director to receive a personal benefit from some transaction involving the company. The company may believe that "it is better to have directors who may advance the interests of the company by their connection, and by the part which they themselves take in large money dealings, than to have persons who would have no share in such transactions as those in which the company is concerned": Imperial Mercantile Credit Assn v Coleman.

Unless the constitution provides otherwise, the company in general meeting can with full knowledge of the director's interest:

  • authorise an interested director to act in what would otherwise be a breach of duty; or

  • ratify a completed act in breach of duty: Regal; Furs v Tomkies

The disclosure required before the consent of the company in general meeting can be said to be informed must be of both the nature and extent of the conflicting interest or duty or the profit-making opportunity. There should be disclosure of information which the "average commercial man in the street" would think the members should have, remembering that there are problems in presentation, in that too much information can pose difficulties for members as much as too little information: Buttonwood Nominees

When the company in general meeting considers giving consent, can the interested director use the voting power of any shares held by the director? There is old authority allowing the director to vote, provided there is no improper dealing with the company's property: North-West Transportation Co Ltd v Beatty (1887) 12 App Cas 589 ; Burland v Earle [1902] AC 83 . However, the legislature, ASIC and the ASX have thought it appropriate in recent times to exclude interested parties from voting at shareholders' meetings. The circumstances in which this occurs are discussed at [10.040] , where it is suggested that Australian courts may ultimately move towards treating the controlling shareholders in general meeting as fiduciaries. If this were to occur, the controlling shareholders would not be able to use their voting power in a self-interested way. Consequently directors who were also controlling shareholders would be subject to similar fiduciary constraints in each capacity. But Australian law has not yet taken this step.

Nevertheless, the power of shareholders to vote in a self-interested way is subject to some constraints. Shareholders cannot vote in such a manner as to perpetrate a fraud on the minority, and Pt 2F.1 provides a statutory remedy in cases of oppression, unfair prejudice or unfair discrimination. At least on occasion an attempt by shareholders to authorise or ratify a breach of fiduciary duty would constitute fraud on the minority or oppression or both.

The clearest case of an invalid attempt to authorise or ratify a breach of duty would be where the breach is tantamount to theft of the company's property, contrary to the misappropriation rule. It is arguable that breaches of this kind cannot be condoned even by a unanimous decision of shareholders. Conversely, the Regal (Hastings) case and Furs v Tomkies tell us that certain kinds of breach of duty are ratifiable by ordinary resolution. It may be relevant that in these cases the fiduciaries were acting honestly, believing that their conduct would not harm the company. It may also be relevant that in neither case did the directors misappropriate any company property.

Cook v Deeks cannot be confidently reconciled with these principles. In that case the Privy Council held that a purported ratification of the directors' conduct by majority resolution of the shareholders was ineffective, on the ground that the contract which the directors had acquired for their own benefit "belonged in equity" to the company. If the case was truly one of misappropriation of property, it would be easy to understand the conclusion that the breach was not ratifiable. But the contract as an item of property came into existence only pursuant to the breach, just as the profit of the Regal directors arose out of their breach.

Perhaps Cook v Deeks is best explained as...

Buy the full version of these notes or essay plans and more in our Business Associations Notes.