Commercial applications of Corporation Law - Myassignmenthelp.Com

Question: Discuss about the Commercial applications of Corporation Law. Answer: Introduction ASIC v Maxwell Ors [2006] is one of the significant cases of Australia where an important role has implemented the directors duty according to the Corporation Act 2001. The duties and responsibilities of the directors is one of the important parts under any corporation or organization where the directors implement the duties. Due to the global financial crisis, it affects on the responsibilities, which are taken care by the directors of any organizations. In most of the time the members, creditors and employees affected due to such context of potential insolvency. The Australian Securities and Investments Commission (ASIC) make the potential on the behavior of the corporate officers who hold the position of the directors and the spotlights on the abilities that will regulate their behavior (Keay 2015). ASIC v Maxwell Ors [2006] is one the case of breach directors duty where the ASIC has taken legal actions against the corporation for the failure due to the dissatisfaction of the statutory duty of care towards the corporation. The ASIC has taken several against the directors of a group of companies where they had carried the financial services. The directors have found with number of beaches the directors duty towards their organization. Maxwell was one of the directors of two groups of companies - the ProCorp Group and the Central Development Group. Here, he runs another company, Business Express Success Techniques Pty Ltd (BEST) that acted as a consultant for the two groups of companies. However, he has placed an advertisement in a newspaper, which was consist of misleading promotional materials and provided to the prospective investors. The court has found that Mr. Maxwellhas failed to satisfy the duties and responsibilities of the directors and improperly used his position to g ain a financial advantage. The ASIC has also complied that he has breached the directors duty according to the terms of the Corporation Act 2001 (CTH). He also disqualified permanently from managing corporations and from providing financial services. Mr. Maxwell was ordered to pay $936,500 in compensation, a pecuniary penalty of $110,000 and $55,500 costs (Keay 2015). However, due to the breach of the statutory duties of the directors, ASIC has alleged the complaint for carrying out a financial services business without an Australian Financial Services Licence (AFSL). Therefore, the court has sentenced of 12 months imprisonment, to serve eight months by way of periodic detention. (Deegan, and Shelly 2014). The duties and responsibilities breached According to the Corporation Act 2001, the term of Director has defined in the section 9 where it describes that a person who holds the duty of towards the organization. The Commonwealth Parliament has implemented the general duties of the directors in the Corporations Act 2001. Under the Corporations Act 2001 the general duties has been corporate according to the section 180 to section 184 under the legislations. For the fiduciary duties, those are implemented under the section of 185 as the general law provisions. The General Duties The general duties of the directors have classified in several classes. Those are: The general duties only imposed by the directors of the organizations. The duties are recognized as statutory duty, which must be acted with proper care and diligences according to the section of 180(1) under the Corporation Act. It is the duty of the directors that they must acted their general duties with honesty and as per the best interests of the company. According to the section 181(1) (a) of the Corporations Act, this duty is corporate for the good faith of the best interest for the organizations (Keay 2015). The general statutory duties must corporate for the exercising powers for appropriate purposes. The section 181(1) (b) of the Corporations Act has defines the duties where the directors are bound to supplemented act with their powers and discharge their duties for appropriate reasons. The directors are bound to do their duties with duty of loyalty. The must not incorporate the position in the organization for the formation of any conflict or other personal profits. It is applicable according to the section of 182(1), 183(1), 191 196 and Chapter 2E under the corporation Act. Therefore, the directors should not use the directors position for gaining their personal advantages. The section 588G of the Corporations Act stated the legislations, which describe that the directors must prevent the organization from engaging in insolvent trading pursuant. Including the general statutory duties, the directors hold other duties, which concern the operation and administration of a corporation. They also look after on the lodgment of documents with ASIC financial statements and reports, members meetings, and related with the corporation. The Duty of Care, Skill and Diligence The Duty of care defines to take reasonable care according to the performance towards the office. Therefore, the standard of care is one of the basic principles of the duty of the directors. Section 180 of the Corporation Act stated the duty of care and diligence where the director of the corporation must exercise their power with degree of care and diligence. In the case of ASIC v Adler [2002], the court has stated that a director is entitled to cause to have a reasonably formed opinion according to financial capacity of the corporation. According to the business judgment rule it stated that in section 180(2) provides the liabilities and protection for a breach of section 180(1) where decisions are made in certain prescribed circumstances. According to the section 180(2) and (3) of the Corporation Act the Business Judgment Rule, the director of any corporation must form the business according to the requirement of their equivalent duties under the corporation law. Therefore, the bus iness rule is form for the good faith for a proper purpose (Langford, Ramsay and Welsh 2015). The Duty to Act for a Proper Purpose The directors duty should act according to the companys best interest where the director will exercise their powers for the appropriate corporate purpose. The section 181(1) (b) of the Corporation Act, the director acts for a proper purpose. Honest or altruistic behavior never able to prevents the finding of improper conduct (Keay 2015). The Duty to Avoid Conflicts The directors have the standard of duty of care where they must avoid their positions of conflict as per the interest of the corporation. The directors must not disclose any materials of the corporation for their personal interest. It will breach the standard duty of care of their position. The section 191 to 196 of the Corporation Act defines the statutory provisions which are related to the duty on directors for disclosing of the conflicts (Deegan, and Shelly 2014). The Duty to Prevent Insolvent Trading The section 588G (1) and (1A) of the Corporations Act defines that a director has a statutory duty to prevent insolvent trading by the company. The director of the corporation to incur a debt owns the duty of care. In the case of ASIC v Plymin (No. 1) (2003), the court has stated the nature of the Authority where a debt has been incurred the contract and provided a debt which is entered in it. This is occurred when there are contingencies, which may affect the debt, or the debt of the future one. For the insolvent transaction, the directors of the corporation must prevent the insolvency while the debt was incurred according to the section of 588G (1) (b) of CA act. Financial Statements and Reports It is the duty of the director that they must comply with the financial record requirements of the corporation according to the Part 2M.2 of the Corporations Act. The accurate financial records must explain the actual position and performance of the company where the director will enable true ad fair financial statements. A director must comply with the director report requirements and financial reports, which are contained in Part 2M.3 of the Corporations Act. Liability of Directors According to consequences of the standard duty of care, if the directors breach their duties then they will face legal consequences (Keay 2015). The court may penalize them for the severity of the breach. According to the terms of the general law, for breach of the directors duty, the legal action will be taken which may include the claims for compensation for damages, injunctions, and an account of profits. For such breach of the standard of duty of care, the Corporation Act stated provisions for the civil penalty. The civil obligations of care and diligence (section 180(1)), good faith (section 181(1)), use of position (section 182(1)) and use of information (section 183(1)) all attract civil penalties under Part 9.4B of the Corporations Act if they are contravened. In the civil penalties under Part 9.4B of the Corporations Act the financial reporting and statement requirements (section 344) and the duty to prevent the company from trading while insolvent (section 588G) (Langford, Ramsay and Welsh 2015). The contravention of all the above provisions may stated into a declaration of contravention under section 1317E (1) of the Corporations Act. According to the section 1317J only ASIC can seek for such declaration. In relation to the insolvent trading provisions, the liquidator has rights for may bring an action under section 588M (2) or section 588J(2) to join in a civil penalty action brought by ASIC for the purpose of seeking an order that the director compensate the company in an amount equal to the loss suffered by a secured creditor (Deegan, and Shelly 2014). Critically Analysis A number of significant breaches have been found in this case where the directors have found in relation with the misleading and deceptive conducts. In this case, the directors are also found with breaches of duty of care due to the insolvency towards the position of the director. As per the duty of standard care, Brereton J has stated the interests of the corporation and does not provide a backdoor method for imposing accessorial liability for contraventions, which do not give rise to such liability (Deegan, and Shelly 2014). According to Reeves J has stated regarding the case that in any circumstances directors are must held liable as per the section 180 of corporation act and also faced civil penalties or other liability under this act. There are also has possibility that the section might set a minimum standard of conduct for directors where there is a risk of the company breaching the Corporations Act, in parallel to any accessorial liability. In this case, the defendant also fu nd to running a financial services business without a license. Therefore, it is held that an Australian Financial Services License under new legislation for purposes has been served according to the section 708(10) of the CA Act. The misleading and deceptive conducts also found while carrying out the Financial Business by publishing advertisements and distributing brochures. Therefore, the evidence does not implicate director in any relevant conduct after the defendant is shown to have knowledge of matters, which falsify representations (Keay 2015). Therefore, the corporation of provisions under the Corporation Act has breached the duties of the directors while those are authorizing or failing to prevent or permitting for the contraventions. The duty of good faith is contravened in absence of deliberate conduct known to be not in interests of companyand along with such issues the corporation it makes conflicts while providing the legal and accounting advises. It is necessary to hold a Australian Financial Services License for carrying out a fina ncial business in Australia as per the section 911A of the Corporation Act. The ASIC has alleged that the defendant has conducts in the financial products and financial services that were misleading or deceptive or likely to mislead or deceive, contrary toAustralian Securities and Investments Commission Act (Deegan, and Shelly 2014). The Court has made the judgment and provided decision about Declarations of contravention pursuant to Corporations Act according to the section 1317E for the pecuniary penalty orders pursuant according to the section 1317G Injunctive relief pursuant according to the section 1324 compensation orders pursuant according to the section 1317H and Banning orders pursuant according to the section 206C, 206D and 206E. Reference ASIC v Adler [2002] NSWSC 171 ASIC v Plymin (No. 1) (2003) 175 FLR 124 Coffee Jr, J.C., Sale, H. and Henderson, M.T., 2015. Securities regulation: Cases and materials. Deegan, C. and Shelly, M., 2014. Corporate social responsibilities: Alternative perspectives about the need to legislate. Journal of Business Ethics, 121(4), pp.499-526. Hanrahan, P.F., Ramsay, I. and Stapledon, G.P., 2013. Commercial applications of company law. Keay, A., 2015. The shifting of directors' duties in the vicinity of insolvency. International Insolvency Review, 24(2), pp.140-164. Langford, R.T., Ramsay, I. and Welsh, M.A., 2015. The origins of company directors' statutory duty of care. Thirarungrueang K. Rethinking CSR in Australia: time for binding regulation?. International Journal of Law and Management. 2013 May 9;55(3):173-200.