This is an extract of our Table Of Cases Directors Duty To Act In Good Faith Best Interests Proper Purposes document, which we sell as part of our Business Associations Notes collection written by the top tier of University Of New South Wales students.
The following is a more accessble 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:
Intro to Rule
(1) Good faith (subjective test: Smith and Fawcett (2) Best interests or interests of the co: Bell. Cannot disregard certain interests (Greehalgh; Parke; Ngurli):
Corporate groups: (s 187) (2) > Creditors?
(2) > Corporate Groups?
VALID: Smith; Ure; Harlowe - and consider Canadian law - that INVALID: Ngurli; Kinsella; Bell Group; Hogg; Howard Smith v belief that a TO will substantially damage co will prevent a Ampol; Whitehouse; Mills v Mills breach of duty: Teck; Cayne 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.
2. 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. The test is subjective, court will be reluctant to infer mala fide: Smith and Fawcett In Smith: director refused to register a transfer of shares to an ex directors' son after the director died. constitution provided directors had absolute and uncontrolled discretion. No ground for concluding that refusal was subjectively bona fide. The test is subjective, so valid where directors refuse to Breach where (court infers that the) director was intent only on register transfer of shares where subjectively believe it is in advancing own interests, didn't think of benefting corporators as a best interests of co, can be valid: Smith. Any consideration of the whole: Ngurli objective reasonableness of the directors' belief is only relevant
* Here a co owed a trustee co $; D was entitled to that $ from trustee. for considering the credibility of the directors' assertions of D caused the co to issue shares to the trustee to pay off the $, and honesty (Bell Group 2012) then those shares were transferred back to D. D declared a dividend
* (best interests) Refused to register a transfer of shares to a on basis of shareholdings after. shlds challenged capitalization of shareholder who was a leading member of one faction who the debt. 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. where company very illiquid or insolvent no directors power can be exercised for proper purposes if it prejudices the interests of creditors: (Walker; Kinsella; Bell group 2012 (Drummond J)). (In Bell co was insolvent at time securities were granted to one creditor the banks over the others creditors). Interests of creditors cannot be overriden by shareholders in ratification resolution either: Kinsell Charterbridge vs walker tests
Charterbridge test - whether honest and reasonable directors
Buy the full version of these notes or essay plans and more in our Business Associations Notes.