Table Of Cases Directors Duty To Act In Good Faith Best Interests Proper Purposes Notes

Rule: Duty to act in good faith in best interests of co and for proper purposes (two rules, three elements): s 181:

• GL vs statute: same content of duty under general law as under statute BUT: (1) Statutory list is longer – ‘director or other officer’. Under general law, must be a fiduciary. (2) Proving breach of s 181 might be harder to prove on the brigishnshaw standard taking into account possible civil penalty consequences (Adler).

• the onus of showing that a power has not been properly exercised is on the party complaining: Ure

• Criminal offence: s 184 – if dishonest or reckless, when breaching s 181, you can be found to have criminal liability. Under Adler judges need proof of lack of honesty or intention to act improperly to be proven.

1. Does the duty apply? Director or other officer (s 181(1) or a person involved in a contravention (s 181(2)). Section 79 provides that a person is involved in a contravention if, and only if, the person.. eg aid/abets/counsels/induces/ was directly or indirectly knowingly concerned in or party to the contravention or has conspired with others to effect the contravention: s 79.

(2) Best interests or interests of the co: Bell.

Cannot disregard certain interests (Greehalgh; Parke; Ngurli):

- Shareholders

- Creditors

• Corporate groups: (s 187)

The test is subjective, so valid where directors refuse to register transfer of shares where subjectively believe it is in best interests of co, can be valid: Smith. Any consideration of the objective reasonableness of the directors’ belief is only relevant for considering the credibility of the directors’ assertions of honesty (Bell Group 2012)

• (best interests) Refused to register a transfer of shares to a shareholder who was a leading member of one faction who purchased enough to get an ordinary resolution and procure election of husband to board – she was a disbarred solicitor – Constitution provided board could refuse to register without giving a reason – VALID: Ure.

Breach where (court infers that the) director was intent only on advancing own interests, didn’t think of benefting corporators as a whole: Ngurli

• Here a co owed a trustee co $; D was entitled to that $ from trustee. D caused the co to issue shares to the trustee to pay off the $, and then those shares were transferred back to D. D declared a dividend on basis of shareholdings after. shlds challenged capitalization of the debt.

Charterbridge vs walker tests

• Charterbridge test – whether honest and reasonable directors could have made the transactions in the interests of the company. (used by Carr AJA in dissent in Bell 2012); cf reservations expressed about test in equiticorp.

• Walker v Wimborne (Mason J) require that directors took into account the interests of the particular co.

• Note s 187 – A director of a co that is a wholly owned subsid of a body corporate is taken to act in good faith in best interests of the subsidiary if: (a) the constitution of the subsidiary expressly authorises the director to act in best interests of holding co; and (b) director acts in good faith in best intersts of the holding co; and (c) subsid not insolvent at time director acts and doesn’t become insolvent because of the act.