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Whether Joe Johnson has incurred any liability with respect to his breach of duties as a director of Scintillators.
The person who has been appointed to have the position of the director in any company will automatically have the duty to ensure all the measures have been taken while discharging his authority as a director in conducting the affairs of the company in the most cautious and diligent manner possible as per CA 2001, s. 180(1). The cautions and the diligent behaviour that the person appointed as director in that particular company is required to maintain is to the same extent to which any person having a reasonable thinking power would exercise while conducting his responsibilities in the operations of the company having similar situation as that of the director of the company. This provision has been applied to held a director liable in the case of ASIC v Cassimatis (No 8) [2016] FCA 1023.
The directors appointed in a company in that capacity needs to take measures to ensure good faith and beneficial interest of that company being restored and no action taken by them should of the essence of causing detriment to the company. This has been seen in the proceeding of ASIC v Rich (2009) 75 ACSR 1. All the individuals who have been appointed as directors in Australian companies requires the adequate skill and is needed to maintain care along with diligent actions while is charging there responsibilities as the director of that particular company. This can be best explain with the case of ASIC v Healey [2011] FCA 717.
The individuals appointed in any company operating in Australia as a director need to abide by the duties both mentioned in the statute or evolved in the common law that needs to be imposed in all the directors designated in the Australian companies. Any discrepancy in a binding by the duties inculcated would land directors to have incurred a civil penalty as provided in CA 2001, s. 1317E. When the breach of the duties conferred upon the directors has suffered from utter recklessness and dishonesty, the director might also incurred criminal liability for such a contravention of their duties in an intentional manner as provided in CA 2001, s. 184. However, in most of the cases the contravention of the duties that directors owes results in civil penalty as seen in the proceeding of ASIC v Adler [2002] NSWSC 171.
The individuals appointed in the position of a director in any company are required to refrain from incurring any debt, if they have the knowledge of or has this suspicion of or even any reasonable ground for having the suspicion of the presence of any financial distress that the company might have been facing. This has been inculcated CA 2001, s. 588G. This can be termed as insolvent trading and any director indulged in the same would be liable to have breach their duty as can be illustrated with the case of The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239.
In the present situation, Scintillators Pty Ltd has been engaged in event management for celebrities. The company has been owned by a family in which Joe Johnson has been the sole director of the company who is a former bankrupt and the shares of the company have been owned by Joe Johnson, his wife and his three adult children. The company has been engaged for organising the wedding of the daughter of Jerome Best, the wealthiest gardening equipment manufacturer with Simon Stash who has been the son of the wealthiest marketing magnet of Australia. Joe considered this to be an opportunity for the company place them in the centre of celebrity events market. Keeping in mind this aspect, Joe has refused to take the 50% deposit along with the security that was a general practice organising events in the company as visible from previous dealings. Joe has explain the risk of not taking the deposit and the security to be worth giving a shot as this event would bring in a lot of fame and resources for the company. Eventually the company proceeded with the organisation of the wedding without any security or advance and has delegated for wedding planners for organising the wedding. This can be treated as a breach of duty of director of a company in relation to being cautious and diligent as mentioned in CA 2001, s. 180(1). This is because person who has been appointed to have the position of the director in any company will automatically have the duty to ensure all the measures have been taken while discharging his authority as a director in conducting the affairs of the company in the most cautious and diligent manner possible as per CA 2001, s. 180(1).
Again, all the suppliers have been paid out of the funds of the company and all these have put the company in financial difficulty. Joe who has not been enough acquainted with the clear picture of the financial position of the company took 5 year lease of an office premises of the most expensive building in Melbourne which has been owned by Jerome Best Pty Ltd. He has been owning the building for nurturing the further developments that he has been expecting from the grand wedding which according to his wishes would place the company among a high profile wedding organisers. As a consequence, wife of Joe who has also been a shareholder in the company has left him and clean to proceed with lawsuit against him for the breach of the duty he has been owning as a director towards the company. She has also warned him regarding notifying ASIC with respect to the bankruptcy of the company for the wrong choices of the director. Moreover, the wedding has eventually been cancelled by the groom and the daughter along with his father has refused to pay any money to the company for the expenses it has incurred relating to the wedding. This can be treated as an act of insolvent trading on the part of Joe as he has all the reasonable ways to former suspicion regarding the company being insolvent if he has initiated with his endeavour. Hence, he will be liable for insolvent trading as individuals appointed in the position of a director in any company are required to refrain from incurring any debt, if they have the knowledge of or has this suspicion of or even any reasonable ground for having the suspicion of the presence of any financial distress that the company might have been facing. This has been inculcated CA 2001, s. 588G.
Hence, Joe Johnson has incurred any liability with respect to his breach of duties as a director of Scintillators.
Whether Brian, Rakesh and Michael have breached any of their general or statutory duties as a director and what are the remedies or penalties that would be applicable.
The person who has been appointed to have the position of the director in any company will automatically have the duty to ensure all the measures have been taken while discharging his authority as a director in conducting the affairs of the company in the most cautious and diligent manner possible as per CA 2001, s. 180(1). The cautions and the diligent behaviour that the person appointed as director in that particular company is required to maintain is to the same extent to which any person having a reasonable thinking power would exercise while conducting his responsibilities in the operations of the company having similar situation as that of the director of the company. This provision has been applied to held a director liable in the case of ASIC v Cassimatis (No 8) [2016] FCA 1023.
The person who has been appointed to have the position of the director in any company will automatically have the duty to ensure all the measures have been taken while discharging his authority as a director in conducting the affairs of the company to ensure good faith and all their take all the measures to cause beneficial things to the company as per CA 2001, s. 181. The actions taken by the director while conducting the operations of the company needs a proper purpose to serve to the company. This has been applied in the case of ASIC v Hellicar [2012] HCA 17.
The person who has been appointed to have the position of the director in any company will automatically have the duty to ensure all the measures have been taken while discharging his authority as a director in conducting the affairs of the company to taken while refraining from taking any benefits for themselves at the cost of the benefits of the company causing the company detrimental effects as provided in CA 2001, s. 182.
The person who has been appointed to have the position of the director in any company will automatically have the duty to ensure all the measures have been taken while discharging his authority as a director in conducting the affairs of the company to utilise any information that they have acquired from the company by virtue of his position to make personal benefits and injure the benefits of the company as provided in CA 2001, s. 183.
The directors appointed in a company in that capacity needs to take measures to ensure good faith and beneficial interest of that company being restored and no action taken by them should of the essence of causing detriment to the company. This has been seen in the proceeding of ASIC v Rich (2009) 75 ACSR 1. All the individuals who have been appointed as directors in Australian companies requires the adequate skill and is needed to maintain care along with diligent actions while is charging there responsibilities as the director of that particular company. This can be best explain with the case of ASIC v Healey [2011] FCA 717.
The individuals appointed in any company operating in Australia as a director need to abide by the duties both mentioned in the statute or evolved in the common law that needs to be imposed in all the directors designated in the Australian companies. Any discrepancy in a binding by the duties inculcated would land directors to have incurred a civil penalty as provided in CA 2001, s. 1317E. When the breach of the duties conferred upon the directors has suffered from utter recklessness and dishonesty, the director might also incurred criminal liability for such a contravention of their duties in an intentional manner as provided in CA 2001, s. 184. However, in most of the cases the contravention of the duties that directors owes results in civil penalty as seen in the proceeding of ASIC v Adler [2002] NSWSC 171.
In the present situation, Brian has been a non executive director of OTC Ltd. Rakesh has been the CEO and the director of the company. Michael has been a finance controller along with a directory in that company. All these directors allowed an advance to be paid to Dithery Pty Ltd after making arrangements with another company named H2O Pty Ltd which is a fully owned subsidiary of that OTC Ltd. This company to whom the advance has been extended was fully controlled by Brian. Some of the funds that has been extended as an advance has been used by the company to purchase shares in OTC Ltd only. This has been used for creating a unit trust where Dithery Pty Ltd has been a trustee. This unit trust has been sold to H2O Pty Ltd by the company at a price of 10 million dollars. An additional 10% of that units within the trust were issued to another company named Myne2 Pty Ltd which has also been controlled by Brian. The property of this trust has been comprising of the shares of OTC Ltd and the residue amount from 10 million advance. Dithery Pty Ltd had the option of selling the shares of OTC Ltd at a profit but it has retained it and sold at a loss of 2.5 million dollars. The remaining amount has been utilised for purchasing shares from Myne2 Pty Ltd which was having no value and has subsequently sold at a loss of 3.8 million dollars and the money has also been used for making and secured loans to other companies controlled by Brian.
This can be treated as a breach of CA 2001, s. 180(1) and CA 2001, s. 181 by Brian, Rakesh and Michael as we have been in contravention of their duty to act in a diligent and careful manner as well as to ensure their actions for a proper purpose being served to the company. Moreover they have failed to declare dividend to their preference shareholder. This can be stated as a breach of CA 2001, s. 182 and CA 2001, s. 183 as the directors have been utilising their position in the company for acquiring personal benefit to them causing injury towards the company. Hence, Brian, Rakesh and Michael have breached any of their general or statutory duties as a director and what are the remedies or penalties that would be applicable as inculcated in CA 2001, s. 1317E.
Brian, Rakesh and Michael have breached any of their general or statutory duties as a director and what are the remedies or penalties that would be applicable.
ASIC v Adler [2002] NSWSC 171
ASIC v Cassimatis (No 8) [2016] FCA 1023.
ASIC v Healey [2011] FCA 717
ASIC v Hellicar [2012] HCA 17
ASIC v Rich (2009) 75 ACSR 1
The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239
The Corporations Act 2001 (Cth)
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