Business Affairs and Internal Management

Question: Discuss about the Business Affairs and Internal Management . Amswer: Introduction The company appoints its directors in accordance with the provisions as stated in the Corporation Act 2001. The directors are said to be the in-charge of the management of the company. They have the complete control over the business affairs and the internal management of the company. As the corporation act contains the law relating to a company, section 183 of the act is referred to be as an important section. This section deals about using of information by the directors or any other officers. A civil obligation is present in this section. As per the section 183 (1) of the Act, a person holding a position of a director in the company at present or used to be in the position of a director or any additional or other officer of the company is not supposed to utilize any kind of information in a manner which is improper, and should not get into a work in order to make profit for himself or for others, in respect to the affairs of the company. This responsibility prevails in spite of the fact that the person is no more a director of the said company or any other officer. The subsection (2) of section 183 of the said act states that any of the persons who are involved in any activity which is contravening the subsection (1) is infringing the said section. Preliminary Issues: In order to breach the section 183 of the Corporation Act, the person should hold the position of a director, an officer or an employee of the company. To understand what amounts to breach of sec.183, it is important to understand the meaning of a director that has been prescribed in section 9 of the Act. A person, who is holding the place of a director in a company or has been appointed as an alternate director of the company, is said to be a director of the concerned company. The directors should work according to the authorization that has been given to them by the company. Any person not being a proper director can hold the place of the director, or the directors who are presently holding the position can act as per the instruction given by that person, if there is no contradiction between the decisions taken by the present directors. Any person being a director, secretary, trustee, a liquidator or an administrator of a company, who participates in the working of the company or in making of any important decision which will affect the business affairs of the company, is referred to be an officer of the said company. In the case mentioned here, Dr. Dawes has declared to be bankrupt and thus gave a formal resignation from the company, GML. After his resignation, he continues to draw his fees for the position of a Consultant Director which has been given to him with unanimous decision made by the board of directors. Hence, he is a director. Mr. Foster has joined Queensland Equity Capital Group Ltd.(QECG) in the position of CFO, which is an executive Board position after resigning from GML after making the proposal of buying the shares of MMM by Mr. Boon in the board meeting. Therefore, Mr. Foster cannot be considered as a director at present. In the position of an Audio Visual Technician, Mr. Huckenfusser has been working in GML since last 5 years. He is an employee of GML. His work is to display any presentation to the board at the time of the board meetings. Mr. Huckenfussers sister-in-law is Mrs. Duck and she is not holding a position of a director in the company and is also not an employee. Possible breaches of the Corporation Act: To see if there is any breach of section 183 of the corporation act, there are certain elements that should be proved. These elements have been discussed in the decision of the famous case of Commissioner for Corporate Affairs v Green. The person should be an officer of the company. He should have important and proper information regarding the company affairs which he has got in respect of the position in the company. That person should have misuse the information for his personal gain or for any other person either directly or indirectly. The misusing of the information should have cause damage or loss to the company. If these conditions are fulfilled, a person is held guilty of breach of section 183. The reason behind Dr. Dawes being a Consultant Director is that the members of the board are not willing to lose his expert knowledge in this field. Dr. Dawes requested his wife to buy MMM shares on 2nd April after the board meeting where a discussion for the buying of shares in MMM has been done by Mr. Boon. Dr. Dawes wife bought 20,000 shares @ $5.00 per share. He again asked his wife to sell those shares @ 12.70 on 6th June after attending the meeting. By this act he made an indirect profit in the name of his wife. After resigning from the post of director and joining as CFO in the QECG, Mr. Foster recommended his employer to get shares of MMM and instantly QECG bought 40,000 shares of MMM @ 4.70. The information Mr. Foster had about the shares of MMM was in respect of the position of director which he was holding at the time of the meeting where the discussion about the MMM shares has taken place. He has misused the information for his own direct advantage. The Audio Visual Technician of GML, Mr. Huckenfusser was also present during the meeting on 2nd April where he had assisted the board in the meeting with Mr. Boon where the discussion about the shares has been done. Therefore, he was also having the knowledge about the shares of MMM. Mrs. Duck always wanted to have stock information from Mr. Huckenfusser and said that she will give him relief from the debt of $5,000 if he gives her any useful information regarding shares. Mr. Huckenfusser has shared the information of MMM shares for his own advantage. Mrs. Duck on 15th May bought 5000 shares of MMM @ 5.20. she then sold the same on 6th June @ 12.05 and made a profit. After all these external happenings, Mr.Boon again held a meeting on 12th June where he suggested that the time is not perfect to have shares in MMM and this matter should be ended. No announcement of bid has been made further. MMM by the end of June was trading at $3.20. Because of the directors and the employee of GML, the company had to face loss which amounts to breach of section 183 of the Corporation Act. Defences: If the court finds that using of information by any officer of a company has been done with honesty in respect to the position and by considering all the circumstances and situation of the case that is connected with such persons appointment, the concerned person may be granted relief by the court or be exempted. This has been mentioned in section 1317S of the Corporation Act. Proving honesty is a tough work and is hard to prove by any test. The burden of proving honesty depends on the perception of the quality of the case which is different from one another. Any personal benefit received in any exchange of information by the officer of a company is a relevant fact that is to be taken into account at the time of determining the chance of fair exemption granted by the court. The most important thing to be considered is the way by which the breach has been committed. Dr. Dawes will be excused from the civil penalty and will be exempted from the court though being a consultant director, he misused his position. He worked dishonestly. He asked his wife to purchase shares in her name and he himself did not buy any share which leads to indirect profit. Exemption will be granted to Mr. Foster also as he is not an acting director of GML but is a CFO in QECG and is working with that company. Mr. Huckenfusser has provided general information to his sister-in-law, Mrs. Duck out of the service he was into. His intention was to get relief from his own personal debt of $5,000, which may not be proved in the court. Therefore, he will also be exempted from the civil penalty referred in section 1317S. Mrs. Duck is not at all guilty of breach of section 183, so there is no question of granting exemption to her. Remedies: Section 1317S of the Corporation Act applies to the proceedings which is eligible for proceeding in court. It is not applied on the way of commencing the offence. A relief from the liability of breach of section 183 may be granted by the court to a person partially or in full. A person may make an application to the court in order to get exempted from the civil penalty, if he anticipates that a suitable proceeding may arise against him in the near future. If satisfy, the court may grant relief to him. Conclusion: Dr.Dawes, Mr. Foster, Mr. Huckenfusser, who are or used to be an officer of the company, GML has been committing an offence of breach of section 183 of the Corporation Act 2001. The concerned officers have contravened the section 183 and not breach has been done by Mrs. Duck as she is not an employee of the company.