Company Law: Canadian Aero Services Ltd. v. OMalley - Case Study Example

Name: Lecturer: Course name: Course code: Date Preamble Company law confers a broad and implied power to corporation manager in which they are suppose to exercise the powers during the normal course of business so as to guarantee achievement of goals and objective laid down. Under the common law and corporation Act 2001, it imposes some safeguards regarding the duties of the directors because others will not act in accordance with powers conferred to them and hence would lead to misuse of powers by fraudulent directors who want to gain from the company without consent of the board or other directors by way of consultation. A fiduciary association is depicted between the directors and the corporation and consequently equity enforce responsibility on executives. The issue in this case is whether Don as breached any contract by entering into an agreement with Myco Pty Company in which he holds 20 % shares in that company and also whether Don the director action was ultra vires and if Bryan should seek legal redress from the court as a result of oppression by Don during the normal course of the business. Duty to observe care, diligence and skills The common statute provides that all director of the company are supposed to observe the responsibility of care and in accordance with certain framework lay down. Duty of care is a set of performance beside which the dealings of the administrators and any senior officers in the company will be ascertained. This act provides that any person acting as a director or senior officer should exercise due care, skills and diligence that are sensibly cautious an individual would otherwise apply in the similar situation. All the directors of the company are enforced to exercise the duty of care, skills, delegation and reliance as well as to observe diligence in all aspect of their responsibility. This act is governed under the common law of tort of negligence, equitable duty of care as well as the corporation act 180(1). An executive will be examining duty of care where is obliged to attend the entire board conference except where the exemption such as illness or not present in the country allows. From the above case analysis, it be depicted that don is limiting time for Bryan to speak as well as he attend s board meeting without full members and pass a resolution. (Rider, 1998) This act is deemed as undue care on the side of Don because he is not observing the duty of diligence and skill as a director. A manager is also mandated to delegate the responsibility to his assistant but in the case, Don is breaching the duty of delegation and reliance because he undermines Bryan as an assistant director and hence continues to take on the business of the company like a single a director. This consequently implies that Don is not observing the laid down policy and procedure and hence he has breach the duty of care, skills and diligence in which he is consented to observe under the corporation act 2001 as well as those of the coco company limited. Remedy for oppression Bryan has an option of filling a petition to court against the act of oppression from Don and to rectify the necessary issues. Personal liability may be imposed To Don by invoking this provision where the court deemed necessary. The court may issue an order where it is of the opinion that the powers of the directors have been exercised in a conduct that is unfair or harsh to assistant director. For this rule to be upheld Don must have acted in a manner either directly or indirectly that would amount to oppression on Bryan. Also, the situation of the case should make it relevant for Don to be compulsory reimburse Bryan. From this analysis, Don is treating Brain unfairly .it is evident that Don is limiting the time for Bryan as well as Don is dominating the meeting leading to serious dissimilarity amongst them. Therefore, Bryan has a remedy of going to court to file against oppression from Don and to seek appropriate remedy on the subject matter In conclusion, Bryan is supposed to report to the board meeting of such act made by Don. Directors of the company are mandated to delegate authority and responsibility to the subordinate as well as observing the duty of care .from the above case study, Bryan is not enjoying the fruitful corporation from Don and this would amount to breach of trust between both parties. (Professor Bob Baxt, 2005) To escape liabilities, the directors ought to be aware of the common law as well as the legislative responsibilities bestowed upon them in addition to the liabilities they will be incurring and hence comprehend the way to abide to such rules as well as extenuating such liabilities The Doctrine of ultra vires rule This rule states that the directors of the company are obliged from acting beyond the powers they are conferred to them by the company’s constitution. Any act that is deemed ultra vires will make the company director liable. Corporation act provides that the company’s director will not be liable to any act done during the normal course of business and if the act was within the powers conferred to him by the company’s constitution. Under the cooperation act 184(1) c and 184(1) a, directors are suppose to act with utmost good faith and in the company’s best interest. Don entered into a 3 year contract with Myco pty a resident company to supply coco. Though the agreement is binding, it is considered ultra vires because the director did not disclose the intention to create a contract with Myco Pty limited. The law provides that the director must act in good faith and in the best interest of the company but Don Action is doubtful. Don has s 20% shareholding in Myco Pty and hence the mode of contacting is for personal gain. (Loos, 2012) The responsibility discharged by the directors ought to contain mutually the aspect of objectives and subjective as clarified by Owen J in the Bell Group Ltd v Westpac Banking Corporation. Where the action of directors is deemed for personal gain and do not satisfy the duty to act with utmost good faith and with best interest of the company, the director’s action is deemed ultra vires and the duty of the director is breached. The consequence of this is that the director will be liable for any lose suffered by the company. It is disgusting where the directors act irresponsible or deliberately deceitful and be unsuccessful to implement their powers and discharge their responsibility with utmost good faith .this action is provided under Section 184(1) c. Don did not communicate with Bryn of the need to create a binding contract with Myco to supply coco and consequently the director is acting in conflict with provision of section 181(1) a of the corporation 2001 act. And therefore Don as contravene the fiduciary responsibility of acting with utmost good faith and in the best interest of the company Fiduciary responsibility to evade conflict of interest The company’s directors are obliged under the legal and fiduciary responsibilities from evading the unrevealed conflict involving the company’s interest and those of the directors. The directors of the company under this provision are averted from making a business arrangement from the company devoid of constructing a clear disclosure of their significance in the agreement to the consent of other directors or board members, or where the director is making an undisclosed income arising from the position of a director in the company. (Anon., 2006 - ‎Preview) The director should make a clear intention of interest on the contract to other directors .this provision is governed under the corporation act 191 and act as relief on ultra vires rule to directors of the company. The provision of section 181(2) excludes the directors from using their position inappropriately to take benefit of the business either directly or indirectly so as to profit themselves or intentionally making company run at a loss. From the above case study, it implies that Don ought to have communicated to Bryan of the intention to enter into a binding a contract with Myco Pty limited in which Don has a 20 % shareholding. Don has breached the fiduciary duty of acting with utmost good faith because he did not make any disclosure to the Bryan who is a director as well. Also a clear interest of Don in the contract is envisaged because he owns 20% of the shareholding and as a result Don is acting only for personal interest. Case study Canadian Aero Services Ltd. v. O’Malley, [1974] In this case, the Supreme Court held that the officers of Aero are legally responsible because the directors of the corporation took a gain of a contract, the origin of which the junior director had previously created as directors of the company. Justice Laskin declined the dispute on the ground that the directors of the company are simply the human resources and that superior representative are under fiduciary responsibility same to that owed to a company by its legislation. Clear intention of the director’s interest on the contract The directors of the company have a duty to explain the intention of their interest in the contract made by the company and other third party. This is because, the company policy will bestow the director’s powers to execute their duties on behalf of the company and with utmost good faith that the duties will serve to satisfy the interest of the company’s shareholders. Fraudulent directors will use the powers bestowed upon them to earn secret profit out of the companies name and this will hence course the company to run at a loss and hence might lead to insolvent and consequently wounding up. Where the directors decline to outline their interest in the contract, the cooperation or company shareholders should file a partition in court setting aside the contract as for individual and not a party to contract by the company. But to be given a relief by the court and not to set a side, the nature of the contract must be just and realistic the company at the time the contract was accepted. (Keay, 2007) The act provide that the director is suppose to unveil in letter the character and degree of his interest in the contract and to have it put in the minutes of meeting of directors or during the meeting of committee of members where the party has an interest in the contract. Hence the law prescribes that any director who has interest in the material contract is not allowed to take part in an election for any decision on the contract unless on the contract that transmit to his payment as a manager or is by means of an associate of the corporation Material interest in this context means any individual connection with a party to a material treaty. Where the director as much as he does not have any monetary attention individually but the dealing connects a close delegate of him, the contract should be doubted. Therefore the company’s directors have a legislative duty to act honestly and with utmost good faith .fiduciary duty commands director to disclose personal interest on the material contract or any business in which the corporation is party to the contract. Furthermore, if the executives and any officers in the company who authorize the company to be party to material indenture where the executives have an interest ought to guarantee that the treaty is just and realistic to the company. (Hirani, 1997) Consequently, if Don in this case adhered to the above laid down safeguards, it is doubtful that he can afterward be summoned upon to provide explanation to the company for the profit as of the contract. Further company will be in a difficult position to exercise the common law laid in its memorandum of association to void the agreement between the company and the Myco Pty limited Duty to act in the best interest of the company Where the directors are found that the y are not acting in utmost good faith and in the best interest of the company, the court will enforce liabilities as fiduciaries on directors on the ground of negligence during the execution their duties and responsibilities. Where the action of the director is not in agreement with best interest to satisfy the need to the shareholders, the contract can be set aside by the court. Where the court doubt any transaction made by the company directors as far the contract will earn profit and create an excellent representation to the corporation, the court may set aside the contract. Don entered into a contract with Myco Company in which he owns 20% of the shares. In this case the court may set aside the contract because Don a s a director did not disclose such intention to enter into a contract in board meeting neither did Don communicate to Bryan the assistant director of his move. Therefore according to my opinion, Don is deriving secret profit out of this transaction and therefore this would amount to personal interest and not interest to benefit the shareholders of the company. Don as also breached the law of due care and to observe diligence in his duty and thus an oppressed party ought to file a case in court for action of Don against the company constitution. (Griffiths, 2005) In conclusion, with the current globalisation and increasing competition, the accountability of company’s directors is rising because many courts nowadays adopt the Australian and those of American jurisprudence .Australian directors are topic to allegation every day for violation of their statutory responsibility as a result of the dissatisfied shareholders and distressed third parties such as the assistant director. To evade increasing liability being imposed on them, directors are allowed to abide by the rule and regulation provided under corporation act 2001 section 184(1, 2) as well as section 191. Where a part is oppressed by the action of the directors, he has a remedy of seeking legal redress from the court in which the court may consider the magnitude of the casse and provide the necessary action on the director .the company director should be able to include in writing his interest in the contract during the meeting of committee or board meeting to avoid consequences of rising conflict of interest because this may make the court to set aside the contract in which case the company will not be party to the contract and thus the director will be liable. (Anon., 2012) Reference Anon., 2006 - ‎Preview. In International Liability of Corporate Directors - Volumes 1-2. Anon., 2012. In Company Directors -. p.ppg 238. Griffiths, A., 2005. In Contracting with Companies. p.ppg 287. H.K, S., 2008. In Company Law (textbook) 5th Edn. p.308. Hirani, M.H., 1997. In The Company Law Related to Social Responsibility of Company. Keay, A., 2007. In Company Directors' Responsibilities to Creditors. Loos, A., 2012. In Directors' Liability: A Worldwide Review. p.270. Professor Bob Baxt, ‎.B., 2005. In Duties and Responsibilities of Directors and Officers. p.ppg 57. Rider, B.A.K., 1998. In The Realm of Company Law: A Collection of Papers in Honour. Roman Tomasic, ‎.B.‎.M., 2002. In Corporations Law in Australia. p.ppg 328. Read More