Essays on Directors' Liabilities When Things Go Wrong Assignment

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The paper "Directors' Liabilities When Things Go Wrong" Is a great example of a Management Assignment. The company directors are tasked with the management of the company's business. The replaceable rule allows them to exercise every company’ s power apart from the power, which the law or a company's constitution provision (if any) that needs the power to be exercised during the general meeting. Apart from their responsibility of ensuring their company complies with specific and general laws that are applicable to the operations of the company, the primary duty of the directors is to the shareholders.

Still, in case the company is insolvent, or there is a probability of insolvency, the directors’ duties will involve the creditors. The directors according to ASIC (2016) have an involvement requirement that is irreducible and core in the company’ s management. They must ensure that they take rational steps that can help them monitor and guide the company’ s management. Imperatively, their responsibilities are not just limited to background experience as well as knowledge, they must understand their company business, and makes sure the company is managed.

When a director decided to be part of the audit committee, he/she must ensure to work responsibly and diligently. Directors must ensure the company adhered to the audit and financial reporting requirements as stipulated by the Corporations Act, which includes keeping records and books properly. When directors overstep their mandate issues such as board independence and governance issues start cropping as evidenced in the case of Colonial First State quitting its stake  in James Packer's Crown Resorts (Williams, 2016).   Still, a director can responsible for debts that the company incurs, especially when the company is unable to pay the incurred debts. This is attributed to the fact that the director has the responsibility to make sure that no trade takes place when the company is insolvent.

Furthermore, the director can be personally liable when they breach their duties, which consequently cause the company to experience some losses. When directors act illegally in a way that infringes the Corporations Act 2001, then they can be held responsible (ASIC, 2016). This can be evidenced by a case of Murray Goulburn, whereby the company and the board  the investors for violation of continuous disclosure  obligations.

According to Danckert (2016), Murray Goulburn failed to tell the market sooner that it will not be able to meet its profit forecasts. In Australia, there is legislation that allows stakeholders such as creditors affected by company wrongdoing to sue the directors as evidenced by Murray Goulburn's case for debts incurred. Although risk-taking is accepted as an important element of business success, the insolvent trading laws as cited by Seng (2009) can possibly discourage directors from risk-taking activities that can result in the recovery of the firm rather than its demise.

Therefore, a company’ s director can be held responsible if the company is unable to repay the debts or if the company experiences losses because of his/her violation of a particular director's duties. Problem Two Generally, shareholders have a number of rights such as attending shareholder meetings and voting on important issues. Besides that, shareholders have a right to receive company announcements and reports as well as to transfer ownership; entitlement to distributions; a right to sue the company in case they act unlawfully.

The right to sue the company is evidenced in a case where Murray Goulburn, the biggest milk producer in Australia and its board  were sued by the investors for  purportedly giving misleading information to the investors.   According to the investors, the board members of the board of Murray Goulburn knew the company would not meet its targets months prior to informing the market (Danckert, 2016).   According to the case, the company together with its directors knew that there were no sound grounds to make the misleading PDS representations; therefore, continuous disclosure  obligations were violated.   Basically, a company is owned by the shareholders, but the legal existence of the company is different and the available assets are owned by the company.

Many of the company’ s decisions are made by shareholders by passing resolutions, normally at a meeting. The ‘ special resolution' normally involves more crucial questions that generally affect the company or are concerned with the rights of the shareholders. Normally, the shareholders are given some rights within the company, and these rights are different from one company to another, and in most companies, it depends on the class of shares that are held by the shareholders.

The majority of companies have only ordinary shares (one class of share), but creating different classes of shares is allowed by Australian law.

References

ACCA, 2012. Corporate governance: the board of directors and standing committees. Technical Report. London, United Kingdom: ACCA.

ASIC, 2016. Directors' liabilities when things go wrong. [Online] Available at: HYPERLINK "http://asic.gov.au/for-business/your-business/small-business/small-business-resources/asic-guide-for-small-business-directors/directors-liabilities-when-things-go-wrong/" http://asic.gov.au/for-business/your-business/small-business/small-business-resources/asic-guide-for-small-business-directors/directors-liabilities-when-things-go-wrong/ [Accessed 30 May 2016].

Castledine, L., 2015. What are the rights and liabilities of a shareholder in a company? [Online] Available at: HYPERLINK "https://legalvision.com.au/rights-liabilities-shareholder-company/" https://legalvision.com.au/rights-liabilities-shareholder-company/ [Accessed 30 May 2016].

Danckert, S., 2016. Class action filed against dairy giant Murray Goulburn. [Online] Available at: HYPERLINK "http://www.smh.com.au/business/class-action-against-filed-against-dairy-giant-murray-goulburn-20160516-govz40.html" http://www.smh.com.au/business/class-action-against-filed-against-dairy-giant-murray-goulburn-20160516-govz40.html [Accessed 5 May 2016].

Lorsch, J.W. & Zelleke, A., 2005. Should the CEO Be the Chairman? [Online] Available at: HYPERLINK "http://sloanreview.mit.edu/article/should-the-ceo-be-the-chairman/" http://sloanreview.mit.edu/article/should-the-ceo-be-the-chairman/ [Accessed 30 May 2016].

Nisbet, E.T., 2013. Influence of Board Structure on the Performance and Governance Framework of Australia’s Superannuation Funds. Research Paper. Bedford Park SA: Flinders Business School.

Seeking Alpha, 2009. Why A Company's Chairman and CEO Should Not Be the Same Person. [Online] Available at: HYPERLINK "http://seekingalpha.com/instablog/399221-tom-au-cfa/4594-why-a-companys-chairman-and-ceo-should-not-be-the-same-person" http://seekingalpha.com/instablog/399221-tom-au-cfa/4594-why-a-companys-chairman-and-ceo-should-not-be-the-same-person [Accessed 30 May 2016].

Seng, V.Y.C., 2009. Directors' Duties: Financial Crisis and the obligation to consider the interest of creditors. [Online] Available at: HYPERLINK "http://www.sid.org.sg/web_publications/articles_detail/58" http://www.sid.org.sg/web_publications/articles_detail/58 [Accessed 30 May 2016].

Shanahan, L., 2015. Arasor shareholders win right to sue even if prospectus not read. [Online] Available at: HYPERLINK "http://www.theaustralian.com.au/business/legal-affairs/arasor-shareholders-win-right-to-sue-even-if-prospectus-not-read/news-story/163d9d9211bea61a27dcd11a7874d629" http://www.theaustralian.com.au/business/legal-affairs/arasor-shareholders-win-right-to-sue-even-if-prospectus-not-read/news-story/163d9d9211bea61a27dcd11a7874d629 [Accessed 30 May 2016].

Tan, M.G.-S. & Cam, M.-A., 2013. Explaining Pension Fund Product and Governance Disclosure in Australia. Australasian Accounting, Business and Finance Journal, vol. 7, no. 3, pp.49-68.

Williams, P., 2016. Colonial exits James Packer's Crown citing board independence. [Online] Available at: HYPERLINK "http://www.smh.com.au/business/colonial-exits-james-packers-crown-citing-board-independence-20160511-gosfaz.html" http://www.smh.com.au/business/colonial-exits-james-packers-crown-citing-board-independence-20160511-gosfaz.html [Accessed 30 May 2015].

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