Australia Federal Register of Legislation - Myassignmenthelp.Com

Question: Discuss about the Australia Federal Register of Legislation. Answer: Introduction There are different types of business structures in Australia and each one is governed in a different manner. Corporations Act, 2001 is the legislation which governs the companies in the nation. As this is an act of commonwealth, it applies uniformly over all the parts of the nation (Latimer, 2012). This legislation imposes various duties on the directors of the company, and on the other officers of the company, which have to be upheld properly. Where the duties are not fulfilled in the manner as have been stated under the legislation, it results in the contravention of these duties, which in turn results in civil and criminal provisions becoming applicable over the directors (Rosa, 2015). Fodare Pty Ltd v Shearn [2011] NSWSC 479 is a leading case in which the director duties had been contravened by the sole director, as a result of which penalties were imposed on the breaching director (Moores, 2014). This discussion is focused on the quoted case, and would shed light on what actually transpired, the duties breached and the analysis of the decision given by the court. Background of Fodare Pty Ltd v Shearn In this case, the director of Fodare Pty Ltd was Shearn, and on being instigated by the liquidator of the company, Clout, the company initiated the claims against him. The plaintiff of this case had been the trustee of the trust named as Alexandria Trust, a settlement trust, and this trust had been created through a deed. This was like a family trust, and for the Shearn family, this benefitted them. Some of the property had been obtained by Fodare Pty Ltd as a trustee and this had been sold off by the director of the company to an independent purchaser. And the entire case was based upon this very sale (NSW Case Law, 2011). The case is deemed as a substantial ruling particularly in the recent time period and had been given by the Supreme Court of New South Wales. This case had Shearn as the sole director of the company during the time when the sale took place. He had cleared the registered mortgages and also had diverted the funds, the value of which was AUS$383,000 in her personal account. This was in addition to the diversion of AUS$251,000 for discharging and paying up the mortgage on the property which had been held by her daughter. In due course, the company had to be wound up. The liquidators started a case against the defendant and sought declaration which provided that the defendant had contravened the fiduciary duties which had been imposed on her. This case saw the charges being brought against the daughter of Shearn also on the very same grounds due to the scope of constructive trustee which led to her being covered owing to the fact that she held a clear knowledge regarding the funds which s he got being the sum out of proceeds, which had been obtained owing to the undertaken sale (INSOL, 2012). Contravened Duties Section 180(1) of the Corporations Act, 2001 it is the civil duty of the directors and other officers of the company to use their powers and discharge their duties in a manner which depicts care and diligence; and this has to be done on such basis as would be undertaken by a prudent person holding the same officer as of the director, with the same responsibilities, and facing the same situation, as was faced by the director on which the duty is imposed (Australasian Legal Information Institute, 2018). Under section 1317E of the Corporations Act, the penalties for the contravention of section 180(1) have been provided. As per the quoted section, the court can make a declaration of contravention upon finding the breach of the relevant sections and this declaration clearly states the reasons for holding the breach, the conduct which resulted in such violation, the penalty details and the other relevant factors. This declaration allows the ASIC to make an application of getting a disqualification order from the court against the breaching director as per section 206C of this act; and the ASIC can also make an application for imposition of pecuniary penalties on the director based on section 1317G of this act (ICNL, 2018). As per section 181(2) of this act, the directors can make use of the defence of business judgment rule. This subsection provides that a director would not be made responsible for the breach of subsection 1 where such director can prove that the undertaken decision had been the result of making proper enquires, based on the knowledge which they held, and that this decision of the director had been based on good faith and for the proper purpose. The directors are also required to show that they actually believed on this rationally and that they genuinely had the viewpoint that the decision had been in the best interest of the company (WIPO, 2015). This defence has been provided in order to safeguard the directors from making such decisions which could transform in losses, even after carefully analysing the case and undertaking the relevant decision. This allows the directors to freely make the decision without having to face the threat of being made responsible for such decision which resulted in loss, and in avoiding any risky decision from being taken just due to the possibility of contravening this section (Cassidy, 2006). Under section 181(1) of this act, the directors have been given the duty of acting for proper purpose, in best interest of the company and in good faith. The same has to be undertaken when the directors discharge their duties and make use of their powers. As a result of the section being contravened, the civil penalties which had been discussed earlier, as covered in section 1317E of this act (Federal Register of Legislation, 2018). Section 182(1) of this act further imposes a duty on the directors to restrict from making use of the position which they hold in the company in such a manner which causes detriment to the company or whereby advantage is attained for the director themself or for someone else. Again, the contravention of this section results in civil penalties covered in section 1317E of this act being imposed on the breaching director (Federal Register of Legislation, 2018). Courts decision Initially, it was stated by the court that there was an absence of allegations against the property being sold, which had indeed taken place at the value which had been stated in the application provided by the plaintiff. Quite a large sum had been owed by the company to Bruce Dennis; and the company director, along with her daughter, had clear knowledge of the company being under this debt owing to the high amounts which had been paid to them. As a result of this, the company was left with no money to make the relevant payment of Dennis. In the matter of the property being the trusts asset, there was absence of sufficient evidence which could result in the judges stating that the same had been the case or not. However, in order to consider the events leading the indebtness of Dennis, the court had to consider this (Australasian Legal Information Institute, 2011). The knowledge of Shearn was taken into consideration by the court regarding the payment of money to her, as a result of which the company was left without insufficient funds for paying its debts, which were not much significant. The court adopted an approach where in place on raising the question regarding the application of assets, which resulted in the company being left with an inability of paying off its debts, the question took the question on the very purpose for which these assets had been applied for. In the view of the court, there had to be a proper purpose in order for the fulfilment of the duties discussed in the preceding segment. The money which was held in trust was done in a metaphorical sense. In addition to this, Shearn had been a sole director of this company and in the view of the court she had the duty of safeguarding the company funds and to make use of these for the purpose of discharging the liabilities which the company owed for the corporate reasons. The pay ment which the sole director made to her and her family in form of gift resulted in her own benefit and this was a clear lack of proper discharge of the duties which she owed for the reasons of being a director of the company (Jade, 2011). In this matter, the court also shed light over the cardinal rule binding the directors and as a reason of which, the duties covered under Part 2D.1 are imposed on the directors (Boone, 2012). This provides that the interest of the director has to be kept below the companys interest and in this regard the company directors were required to account for the gains or the profits which had been made by them owing to the fiduciary duties owed to the company. As a result of this, the money of the company which got in the directors hand or which is essentially under their control, which has to be in the possession of company in order for it to be recognized as being the company property. There was also a need of providing the explanation for why this sum had not been put in the companys possession and also the reasons for applying the amount in other ways. For these reasons, the records had to be kept in form of receipts and of the payments of the company, where the use of money was properly recognized (Jade, 2011). This case had a single director and this required the adequacy and accuracy of records to be kept in a proper manner; and this was required to be undertaken on the basis whereby the compliance to the fiduciary duties was reflected in order for the company to be made aware of the very fact that the property was being used in a specified way and had been applied in such way. The evidence depicted that the sole director of the company had not performed the duties which she owed in a proper way. Where the liquidator appointed for the company asked for records and books of company, in context of the property of the company, nothing was provided by her to the liquidator. Also, the report provided to the liquidator afterwards depicted that the company had no liabilities or assets. Shearn further gave statements which provided that the company had no tax liability and that no accounts had been maintained for the last three years by the company. There was absence of recognition of the settlem ent cheques as company property. The money was sued for benefit of her daughter and this was known to the daughter. It was held by the court that even when the daughter was not aware of fine details, she knew about the ownership interest of the company in the assets in question. The Supreme Court held that the sole director had to be made liable for the equitable compensation for the two sums, and for the statutory compensation along with interest and cost. The daughter also had to be made liable for equitable compensation with interest (Jade, 2011). Conclusion From this case, it becomes clear that a sole director of the company has to follow the same duties as is the case with any director of the company. Where the same is not done, they would be made liable as was done with Shearn. It is crucial that the directors of the company refrain from making benefits for themselves, and causing damage to the company. This is the reason why this case saw the daughter also being made liable along with her mother, for the benefitted attained by the two, and the two being made liable jointly and severally. References Australasian Legal Information Institute. (2011) Fodare Pty Ltd v Shearn [2011] NSWSC 479 (25 May 2011). [Online] Australasian Legal Information Institute. Available from: https://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWSC/2011/479.html?stem=0synonyms=0query=Fodare%20Pty%20Ltd%20v%20Shearn [Accessed on: 04/01/18] Australasian Legal Information Institute. (2018) Corporations Act 2001. [Online] Australasian Legal Information Institute. Available from: https://www.companydirectors.com.au/director-resource-centre/organisation-type/organisation-definitions [Accessed on: 04/01/18] Boone, J.W. (2011) International Insolvency: Jurisdictional Comparisons. 3rd ed. London: Thomson Reuters. Cassidy, J. (2006) Concise Corporations Law. 5th ed. NSW: The Federation Press. Federal Register of Legislation. (2018) Corporations Act 2001. [Online] Federal Register of Legislation. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 04/01/18] ICNL. (2018) Corporations Act 2001. [Online] ICNL. Available from: https://www.icnl.org/research/library/files/Australia/Corps2001Vol4WD02.pdf [Accessed on: 04/01/18] INSOL. (2012) Duties Of Directors A Holistic View. [Online] INSOL. Available from: https://www.insol.org/emailer/Jan2012_downloads/India_Duties%20of%20Directors.pdf [Accessed on: 04/01/18] Jade. (2011) Fodare Pty Ltd v Shearn [2011] NSWSC 479. [Online] Jade. Available from: https://jade.io/article/217574 [Accessed on: 04/01/18] Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia Limited. Moores. (2014) The Directors Series: Part 2 - Fiduciary Duties. [Online] Moores. Available from: https://www.moores.com.au/news/the-directors-series-part-2-fiduciary-duties [Accessed on: 04/01/18] NSW Case Law. (2011) Fodare Pty Ltd v Shearn [2011] NSWSC 479. [Online] NSW Case Law. Available from: https://www.caselaw.nsw.gov.au/decision/54a635133004de94513d87f6 [Accessed on: 04/01/18] Rosa, D.D. (2015) Are you in breach of your duties as a director of your company?. [Online] Di Rosa Lawyers. Available from: https://dirosalawyers.com.au/breach-duties-director-company/ [Accessed on: 04/01/18] WIPO. (2015) Corporations Act 2001. [Online] WIPO. Available from: https://www.wipo.int/wipolex/en/text.jsp?file_id=370817 [Accessed on: 04/01/18]