1.

Duty to Act in Good Faith in Best Interests of the Company

>Common Law fiduciary duty:

-Directors must act “bona fide” in best interests of company

>Statutory Duty:
-s181(1)(a) –Directors and officers must exercise powers and discharge duties in good
faith in the best interests of the company.

Elements of the Duty

-Subjective Element –honest belief that actions are in the company’s best interests
AND
-Objective element: missing if no reasonable director/reasonable person would have
considered actions in the company’s best interest (ASIC v Adler)

>Presumption in director’s favourother party (plaintiff must prove otherwise)-on

Balance of Probabilities

“Best Interests of the Company”

1>Company as a whole: (Greenhalgh v Ardene Cinemas)

-Shareholders as a collective group

-Shareholder primacy

2>Individual Shareholders: (Percival v Wright)

-Particularly dependent on information/advice given by a director: (Brunninghausen v

Galvanics)

-Close r/ship of confidence between member and director (Coleman v Myers)

-When a company manages a trust, directors may owe duty to beneficiaries (Hurley v
BGH Nominees)

3>Nominee Directors: Overriding duty to company > Duty to appointer (Scottish Co-
operative Wholesale v Meyer)
4>Corporate Groups: (Walker v Winbourne)
S187A-director of subsidiary assumed to act in good faith in best interest of subsidiary if:

a) Constitution of subsidiary expressly authorises director to act in the best interests

of the holding company AND
b) Director acts in good faith in the best interests of the holding company AND
c) Subsidiary not insolvent because of director’s act.

5>Employees: (Parke v Daily News)

6>Interests of Creditors (when company in financial difficulties): (Ring v Sutton)

-position changes on insolvency

2. Duty to Exercise Powers for a Proper Purpose

>Common La w Fiduciary Duty

-Directors must exercise powers for a proper purpose

>Statutory Duty
s181(1)(b)-Directors and Officers must exercise powers and discharge duties for a proper
purpose

Elements of the Duty

-Objective Element: the purpose for which the power was granted AND

-Subjective Element: purpose which motivated the exercise of power

-Mixed Purpose: “But For Test” (Whitehouse v Carlton Hotel)

>Presumption in Director’s Favourother Party must prove otherwise (Bl of Probs)

“Exercise Powers for Proper Purpose”

1>Issue of shares (fundraising measure-proper):

-Maintain majority control: (Ngurli v McCann) (improper)
-Alter voting pattern of majority shareholders: (Howard Smith v Ampol) (improper)
-Defeat Takeover Bid (improper)
2>Use of company funds to promote re-election (Advance Bank v FAI Insurances)

-OK if not ‘excessive’ and not slanderous and not deceptive

3>Refusal or Fails to register share transfers (Australian Metropolitan Life v Ure)

S1071F Remedies for wrongful application of this by directors

a) Order transfer be registered

b) Order permitting shares to be purchased/acquired

4>To Gain Personal Advantage (Improper – ASIC v Adler)

3. Duty to Retain Discretions

>Common Law Fiduciary Duty:

-Directors must retain their discretionary powers

-Cannot agree to vote in certain manner (Thorby v Goldberg)

-Unless believe in best interests of company

Lawful delegations of power:

S198C: MD (or delegate to MD)

S198D: Committee. Director, Employee
S190: Directors remain responsible unless:

1-believed on reasonable grounds that delegate would act in accordance with director’s
duties and Constitution AND
2-believed on reasonable grounds and in good faith that delegate was reliable and
competent (after making appropriate inquiry)

4. Duty to Avoid Conflicts of Interest (common+stat have diff. oblig)

>Common Law Fiduciary Duty:

-Directors must avoid conflicts of interest

-Fiduciary must not place themselves in position where duty and interest conflict:
(Phipps v Boardman)

-Liability can be avoided if: Full disclosure AND Shareholder approval

-Can be modified by constitution (Woolworths v Kelly)

Eg.
Contracting with company- Direct and Indirect (Transvaal v New Belgium)
Personal Profits (Regal Hastings v Gulliver)
Bribes (Furs v Tomkies)
Misuse of Info (Artedomus v Del Casale)
Misuse of Company Finds (Davies v Davies)
Taking up corporate opportunity (Cook v Deeks)
Competing with Company (while still Director-Bell v Lever Bros)

>Statutory Duty:
S182-Directors, officers, and employees must not improperly use their position to:
S183- Directors, officers, and employees must not improperly use info obtained from
position to:

a) Gain an advantage for themselves/ 3rd P OR

b) Cause detriment to the company (ASIC v Vizard)

Disclosure of Material Personal Interests:

S191(1)-Director with MPI that relates to affairs of company must inform board

-s53 Affairs of Co: business, trading, transactions, dealings, property, liabilities, profits,
losses etc

Eg.  has capacity to influence board (McGellin v Mt King Mining)

S191(2)Director does not need to give notice of interests if:

-a shareholder of the company

-if regards to director’s remuneration

S192 Standing notice at any time possible to other directors

Effects of Director giving notice of their MPI/matter

Pty Company – s194

-May vote on the matter
-Retain benefits related to matter
-Company cannot avoid the transaction related to the interest merely because of existence
of interest. Transactions related to interest may proceed.

Public Company – s195

Must:

-NOT be present when the matter considered by board

-NOT vote on matter

-Other Directors may resolve director should be permitted to be present and vote
-On application ASIC may give approval (if needed) s196

Related Party Transactions (Public Companies only)

-Must NOT give “Financial Benefit” to “Related Party” s208

s228 Related P –Relatives, Directors and Spouses, Other Companies (Past 6months,
Present and likely future)

s229 Financial Benefit – Financial Assistance (Broad Interpretation) --> Incl. Provision
of finance/property, buying/leasing, supplying/receiving services

s210-216 Exceptions (Otherwise need member approval s208)

**-Arm’s Length Terms s210

**-Reasonable remuneration /payment of expenses s211
**-<$2000 benefit per FY s213
**-Member approval not needed to give financial benefit under order of court s216

**-Process to be followed ss217-227

S209-Person involved in “breach” (ASIC v Adler)