Topic - Directors Duties:
Duties and Obligations of Directors:
- A director must act in accordance with the company's constitution
- A director must in good faith promote success of the company
- Must exercise independent judgment
- Must exercise skill careand diligence of a reasonable diligent man
- Must avoid conflict of interest
- Must not accept any benefit from third party which is conflict of interest
- Must declare personal interest
- They have duties of care, loyalty and obedience
Directors owe the duty to the company that employees them.
No, they are not liable for action of other directors
If they breach, they can be disqualified or a civil or criminal case can be filed against them.
Sarah being a financial partner would be a good alternative to Helen for 6 months.
Though employees can be made Directors, the first situation here is that though Tom has been elected Director, he has never attended any meeting. The duties of the Director under Company Law mandate that Directors have to be aware and fully understand the business of the company, attend board meetings and should be fully briefed about the company affairs apart from spending sufficient amount of time for the company affairs. Tom should also acquire knowledge on the financials and other aspects of company work. Therefore, Tom should be asked to attend the director's meetings.
As a Director, Helen should be aware of the latest accounting laws and regulations, acquire knowledge on motor parts business. In her accounting area she should be aware of MYOB or Quick books and cloud. Helen has a duty of care and diligence.
For better management, as company grows David who is the brain has to device the vision and provide direction to the company. He should further allocate specific responsibilities on specific directors. David also needs to understand the financial aspects of the business.
As Tom is one of the directors, the business of the company is separate from his personal holdings. Tom must act in accordance with the company's constitution. Tom has a duty of loyalty and obedience that requires him to make all corporate disclosures. Therefore the amount that he has received from a distributor should be put into the company accounts. Any amounts received from a third party and used for personal benefits should be disclosed. Tom also needs to disclose the extra expenses incurred on the parts. Being a Director in this company, it is his duty to work towards the interest of this company. Property of the company taken by Tom in the form of confidential marketing information and customer data would have to be returned to the company by Tom. Tom would also have to pay compensation to the loss of customer and business resulting from him taking away confidential data illegally.
Tom and Andy may have aspirations to own their own business. However, as long as Tom is a director in this company he cannot commit any fraud. Tom also should disclose his conflict of interest. Using the company confidential data for a personal purpose amounts to a criminal breach.
Andy as an employee will also be criminally liable for the breach of duty and providing wrong and fraudulent information that the items have been scrapped.
David should inform the other directors that there are tight cash flow situations. Directors have a right to know all the material information concerning the company. Tom being a director should be aware that the Company is going to be insolvent. He should act in a prudent and wise manner. His primary duty is towards this company.
The company can issue more shares to his wife as her family is ready to invest. As his wife will later on join the company and would be interested if the money is paid by her family. Entrenchment provisions can also be incorporated in the company's constitution. This will also prevent Tom and Helen from taking control of the company.
A company may get into cash flow difficulties due to inefficient management or governance. There should be forecasts monitored regularly and prospective sales analysed. Customer data should be electronically secured and any leakage should be addressed immediately.
Complaints should be make to ASIC against Andy as he has used confidential information of the company for his personal benefit.
Questions:
A. Section 22 of the Companies Act 2006 is the provision for entrenchment. It is made only in the company's articles on formation. The entrenchment provision makes any amendment difficult and only if certain conditions are met and these conditions are more restrictive that a special resolution can it made.
David may want to include this provision in the company's constitution so that it is difficult for Tom and Helen to take over and he has control.
B. Michelle has delegated authority for general purchasing. The company is bound to pay it if can be established that Tom had delegated this authority to Michelle. The scheme of delegation authority should be established and also the financial limits.
A schedule of delegation showing which areas have been delegated and to whom should be established. If the Company can show Michelle had the delegated authority in the scheme of delegation, the company is bound to pay her.
1500 words
8 references.