Laws2301 Company Law-Corporate Governance Answers Assessment Answers

Law:

As per the Corporations Act 2001, Sections 236 of the Act states that any aggrieved party to the company can bring action against the company. To understand the application of statutory derivative action it is necessary to fulfill two issues; Firstly, directors duties and liabilities and Secondly, the remedies available to the shareholders (Conaglen & Hill 2017). Sections 236 also states that the action should be brought in the name of the company. Under Section 237 of the Act, also, states that a person who is aggrieved by the workings of the company can bring action against the other members of the company and the court must grant the application if it finds that there is reasonable cause and the company will not take any action to bring the proceedings.

Moreover, the applicant must be acting in good faith. The shareholders of a company have various rights such as the contractual rights and the procedural rights (Hedges et al,. 2016). Under Section 237(3) it says about the rebuttable presumption that granting leave is not in the best interest of the company. With reference to the “business judgment rule” means that the directors shall act in good faith and shall not have any personal interest in the decision making process (Moll 2014). Section 180(2) of the Act applies to the directors to take the duty of care and diligence. The statutory derivative action stated in Section 242 says that the court may order for cost if any person contravenes any provision of Section 237 of the Act (Puchniak  & Tan 2016). The person aggrieved by any act of the members of a company may take plea under Section 232 of the Act where in it states the conducts of the directors are contrary and prays before the court for orders under Section 233.

Application:

According to the given facts of the case, Morris can bring action John and Paul this can be enumerated by applying the rule as laid in Foss vs. Harbottle (Stout et al,. 2016). Under the general rule of law in Foss vs. Harbottle, two aspects have been determined, firstly the internal management rule and proper plaintiff rule. It was held in the case that the directors duties are for the company and not for the individual shareholders. There are certain exceptions to this rule as enumerated in the case of Foss vs. Harbottle, which states that a shareholder is entitled to bring a derivative action against a director in the name of the company (Stylianou 2016). 

The exceptions to the rule is applied in case where the personal rights of the member are infringed or the matter for which complaint was made can only be sanctioned by a majority or a fraud is done by the directors against the minority or where a justice is required under the exceptions. Therefore, in short the rule in Foss vs. Harbottle a shareholder can bring a derivative action. According to the given case, Morris can bring a derivative or personal action against John and Paul as per Section 236 of the Corporations Act 2001 and the rule as laid down in Foss vs. Harbottle. As per the rule, the statutory derivative action is not only available to the shareholders but also available to the former shareholders of the company. Moreover, Morris can bring personal action against John and Paul under Section 232 and 233 of the Act. The Section states that the shareholders of the company if aggrieved by the conduct of the directors can bring personal action against them or can seek orders for winding up of the company, changes in the constitution or purchase of shares (Tricker & Tricker 2015).

Under Section 191 of the Corporations Act, it is the duty of the directors to material concerning conflict of interest by giving notice and if the director does not serve any such notice he is responsible for strict liability as mentioned under section 6 of the criminal code. Part 2F.1 of the Corporation Act states that to strengthen the position of the minority shareholders of being oppressed by the majority shareholders, the legislation has been brought to protect and enhance their position.

Conclusion:

Thus, to conclude Morris can bring both statutory derivative action as well as personal action against John and Paul.

Issue:

Whether Morris should bring action against the John and Paul under general law or under Section 232.

Law:

The person aggrieved by any act of the members of a company may take plea under Section 232 of the Act where in it states the conducts of the directors are contrary and prays before the court for orders under Section 233.

Application:

Morris can take plea in both the sectors, He can take plea under Section 232 as the Morris as an individual shareholder has the right to plea under section 232 for acts of the directors contrary to the duties or responsibilities. He can take plea under general law by applying the rule laid down under Foss v. Harbottle.

Conclusion:

Thus, it can be concluded that Moriss can bring action by applying both the procedures but much favorable would be statutory derivative action as it involves application of both statutory derivation action as well as the general law.

Issue:

Whether Moriss would seek orders under Section 233 or in any other law.

Law:

Section 233 of the Corporation Act 2001 states that the party can seek order under this section for wounding up, modifying the constitution, regulation of company’s future conduct, purchase of shares and many more.

Application:

Morris wanted his shares to sell but John and Paul does not allow him to do so. Therefore Morris can take plea before the court under Section 233 for the purchase of any shares by any of the members of the company.

Conclusion:

Thus, to conclude Morris can seek order under Section 233. 

Reference:

Conaglen, M., & Hill, J. G. (2017). Directors’ Duties and Legal Safe Harbours: A Comparative Analysis.

Hedges, J., Bird, H. L., Gilligan, G., Godwin, A., & Ramsay, I. (2016). An Empirical Analysis of Public Enforcement of Directors’ Duties in Australia: Preliminary Findings.

Moll, D. K. (2014). Shareholder Oppression and the New Louisiana Business Corporation Act.Mitchell, R., O'Donnell, A., Ramsay, I., & Welsh, M. A. (2014). Shareholder protection in Australia: Instit

Puchniak, D. W., & Tan, C. H. (2016). Company Law (2015).

Stout, L. A., Robé, J. P., Ireland, P., Deakin, S., Greenfield, K., Johnston, A., ... & Dine, J. (2016). The Modern Corporation Statement on Company Law.

Stylianou, A. (2016). Evolution of the derivative action as an enforcement of rights mechanism under the Companies Act 71 of 2008 (Doctoral dissertation, University of Pretoria).

Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.s