A Derivative or Personal Action - Assignment Example

Corporation Law Name Tutor CLW 3100 (a) Should she bring a derivative or personal action against Anne and Elizabeth? What factors should she take into account in making this decision? The issue of law is that of the action that Kate should bring; either derivative or personal. According to Hanrahan et al. (2014), a derivative action is an action brought by a member on behalf of the company. It is brought in an individual capacity since the member has a personal right or is affected individually. It enables shareholders to bring an action on behalf of the company against the insiders for damages underwent by the company in situations where the company cannot or reluctant to bring the action. If the derivative action is prosperous and the director is instructed by the court to pay compensation, the reparation is paid to the company and not to the single member given that it is the company that has the right to institute the legal action. The derivative action is contained in Pt 2F.1A of the Corporations Act. The individual requiring to bring a derivative action ought to seek permission of the court, because, where a duty is owed to the company, the decree is that the company ought to carry out that duty. This follows from the case of Foss v Harbottle, in which Sir James Wigram VC ruled that regarding crimes done to the company, “the corporation should sue in its own name and in its corporate character, or in the name of someone whom the law has appointed to be its representative”. Section 236 of Pt 2F.1A permits some categories of people to apply to the court for consent to bring a derivative action. They include: a member, previous member, or person eligible to be registered as a member of the company or of an associate company, or an officer or previous officer of the company. On the other hand, a personal legal actions are instigated in a private capacity because the member has a personal right or is affected as a person. Since the legal action is not brought on behalf of the company, if the individual member is prosperous in the legal action, then he or she receives a direct benefit of any direction made by the court. A personal action is brought if the person’s personal right is affected. A member derives a personal right: as part of an express contract concerning the member and other members, or between the member and the company, or by decree or general law. Moreover, the member has a legal right to put in force the constitution as a statutory contract under s.140 of the Corporations Act. Where an action of the directors or other members affects a personal right, the member has a personal action to enforce the right. An individual can either bring a derivative action or a personal action against the directors of a company. The question is which action fits Kate’s circumstances. Kate has been forced to resign from Artistic Property Developers Pty Ltd (APD) by the other two directors, Anna and Elizabeth. This infringes on her personal right since she reluctantly resigned from her position as one of the company’s directors. Moreover, ever director has the right to give their opinion regarding the decisions made. She was prosecuted for her decision to urge Anna and Elizabeth to change the company policy and start paying dividends. In conclusion, Anna should bring a personal action against Anna and Elizabeth (b) If she brings a personal action, should she bring it under general law or make an oppression claim under s.232? What factors would influence your recommendation? The issue of law is that of the sort of personal action to be initiated either under general law or oppression claim under s.232. According to Hanrahan et al. (2014), an individual member can instigate legal action if the person has been oppressed or unfairly prejudiced or unfairly discriminated against. An oppressive claim principally applies to the directors of the company. On the other hand, a general law claim is developed by the courts. An oppression claim can be instigated under various circumstances. In general, an oppression claim brought by a member implicates the court to determine whether the judicious expectations of the member have been breached. Most of the reasonable expectations crop from the cases that involve exclusion from the company’s management; lack of information being delivered by the directors to the member; shots to force the member to sell their shares. Hanrahan et al. (2014) states that in many of these cases, 41per cent, the member bringing the action purported that they had been oppressed because they had been left out from management of the company. This shows that oppression claims are frequent in small companies with just a few shareholders, whom are mainly tangled in the management of the company. The court may well have to balance varying expectations implored by the members of a company. For instance, a member can hold the belief that the company ought to pay more dividends to members, while other members hold that the company had better retain its profits for other commitments. In the case of Thomas v HW Thomas Ltd, the issue was to sale some of the company’s property and invest in income-generating ventures that would rise dividends to members. The company had a conservative financial management policy. It did not borrow capital and, granting that it distributed small dividends, it had built up large property holdings. Malcolm Thomas’ brought an oppression claim given that his plea had failed at the company level. The court held that Malcolm Thomas had not been oppressed by the actions of the directors in embracing a conservative financial policy seeing as all the other members of the company were at ease with the company’s operations. Nonetheless, if the majority directors intentionally pay low dividends or no dividends as part of a plot to favour their own interests, then this can mount to oppression. As an oppression claim by a person is instigated when there has been oppression, unfair prejudice, or unfair discrimination as one of the requirements under section 232 of the Corporations Act. The question is whether these conditions are manifest in the case of Kate v Anna and Elizabeth. The three have been the directors of APD. However, the actions of Anna and Elizabeth seem to oppress Kate. First, she has been forced to resign due to her demand for the company to pay dividends. Second, Anna and Elizabeth refused to buy her shares and forced her to resign, and therefore does not participate in the management. Also, Anna and Elizabeth denial to pay dividends, evidently was driven by the desire for some personal gain through deriving a lot of ‘management fees’ from the company. In conclusion, Kate should bring a make an oppression claim under s.232. (c) If successful, what remedies should she seek? The issue of law is to indicate the remedies the oppressed individual can seek. Section 233 of the Corporations Act permits the court to pick from wide-ranging remedies where it establishes that there has been oppression. Some of the orders that the court can execute include: Winding up the company, A modification or repeal of the company’s constitution (if it has one). For example in the case of Re Spargos Mining NL v Enterprise Gold Mines NL, the court ordered particular provisions of the company’s constitution which permitted the directors of the company to engage additional directors be deleted. A regulation of the manner in which future affairs of the company will be conducted, In the same case of Re Spargos Mining NL v Enterprise Gold Mines NL, the court ordered the exclusion of some directors of the company and fixed other people as directors. Moreover, the court ordered the new board to scrutinise various past dealings of the company so as to determine whether there would be additional legal action. A purchase of the shares of Kate by other members or by the company, thereby allowing her to sell the shares at a price which the court concludes is fair, That the company starts or defend specific legal proceedings, or be allowed to introduce or defend specific legal proceedings in the name and on behalf of the company, Appointing a receiver, or a receiver and manager, of any or all of the company’s property up till when the court proceedings are concluded. References Hanrahan, Pamela, Ian Ramsay and Geof Stapledon (2014). Commercial Application of Company Law 15th CCH Australia, Sydney. Re Spargos Mining NL v Enterprise Gold Mines NL Thomas v HW Thomas Ltd Foss v Harbottle Read More