Public Potential Of Corporate Law

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Public Potential Of Corporate Law

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Question:
Discuss about the Public Potential of Corporate Law.

Answer:

Introduction:
The present case is consisting of certain questions that are specifically engraved under the provision of the Corporation Act 2001. The subject matter of the case is evolved with the continents of Australia and it depends upon the duties of the director in a company or the corporation (Hiller 2013). The company related matters of Australia is dealing by Corporation Act 2001. It has been stated under the Act that it is a duty of the director to act in good faith while performing his duties and should treat all the shareholders and the colleagues similarly (Li 2014). The Acct binds the director of a company so that they could not take any arbitrary steps. The primary objective of the Act is to protect the interest of the shareholders. Under the Act, it has been mentioned that a director of a company should work for the best interest of the company (Huggins, Simnett and Hargovan 2015). Therefore, a director should have to adopt necessary policies for the betterment of the company. A difference between two terms- best interest of the company and interest of the company as a whole has also been done in this case.
The term good faith means an intention to do a job sincerely (Anderson 2014). In the continents of Australia, the term good faith is particularly goes with the acts of the directors of the company. Directors are holding an important position in a company and all the important works are executed by the directors (Welsh 2014). Therefore, the future of a company is vehemently depends upon the acts of the directors. The primary motto of a director should be doing certain works for the benefit of the company. They should be intended to use the power imposed by the company positively and they should not act for gaining illegal money from the company (Dixon 2016).
The principle of good faith is depending upon the principle of equity. It is considered as the fiduciary obligation of the directors and under this provision; a director is obliged to perform his duties for the benefit of the related persons of the company (Viven-Wilksch 2015). The term fiduciary means trust and in the sectors like company or corporation, the person who acts on behalf of another, is said to hold the fiduciary position. Under the law it has been mentioned that the person upon whom the fiduciary conditions are imposed ought to act honestly.

Good faith has also been discussed under the provisions of the Corporation Act 2001. From the definition of the director under section 9 of the Corporation Act, the importance of the director can be assessed properly (Whincop 2017). They represent the company in various issues and therefore, it is required by them to perform the duties diligently. The term good faith has been discussed under section 181 of the Corporation Act where it has been mentioned that it is mandatory for the director to exercise their power in good faith. This is a principle duty of the director as mentioned under the Act for the better interest of the corporation. It has been stated under section 184 of the Act that if there is any violation regarding the provision for the good faith has been made by the director, he shall be liable to penalise under the necessary provisions of the Corporation Act. A director is said to violate the provision regarding good faith if they become reckless regarding their work and/ or perform their work dishonestly. However, section 184 is a provision regarding the criminal responsibility of a director. The term good faith mainly engraved under section 181 of the Corporation Act 2001 (Hannigan 2015 ).
In ASIC v Adler [2002], Adler was the non-executive director of Adler Corporation Ltd. and Pacific Eagle Equity Pty Ltd (PEE). One insurance company has granted a loan of $10m. Adler had bought shares of the insurance company to deceive the shareholders and the Equity Unit Trust of Australia had given $2m to Adler. However, he had not disclosed the facts to the other director or the shareholders of the company. As one of the directors of the company, it is his primary duty to act in good faith and for the interest of the company. however, there is a violation regarding the same has been observed and the Australian Court was pleased to held him liable under different provisions of the Corporation Act 2001 including section 181 (Chia, and Ramsay 2016).
In ASIC v Macro Realty Developments Pty Ltd [2016] FCA 292, it was held by the court that macro Realty had failed to meet the requirements of section 181 of the Corporation Act 2001 and violate the fiduciary duties by deceiving the investors and to feather their own nest without think about the interest of the company.
In Bell Group Ltd v Westpac Banking Corp (2008) 225 FLR 1, the court had observed that there is a distinction present in between power to exercise duties to meet certain criteria and act in good faith is different to each other.

Best interest of the company:
The phrase “best interest of the company” means for the interest of the shareholders. Shareholders are the most common part of a company. The economic backbone of a company is very much depended upon the shareholders (Riaz, Ray, and Ray 2015). They invest their money to buy the shares of the company and in this way, the share capital of a company increased. Apart from the shares, shareholders are playing important role in the inner management of a company. The shareholders have a right to join in the Annual General Meeting of the company. They are also taking participation in the meeting regarding the appointment or removal of the directors. Therefore, it can be stated that the shareholders are the most important part of the stakeholders (de Melo Bandeira 2013).
The director of a company owes certain duties towards the shareholders. Under the Corporation Act 2001, there are certain sections that are stated about the director’s duties towards the shareholders. According to section 180 of the Corporation Act, it is the duty of the director of a company to show certain care to the shareholders and act diligently while dealing with them. In Sharp and Others v Blank and Others [2015] EWHC 3220, it was held that the duty of the directors is to be loyal to the shareholders and have to provide the shareholders clear information about any relevant facts. In Australia, there is a case that evaluates section 180 of the Act and determines the duties of the director of a company. In ASIC v Cassimatis [2016] FCA 1023, the director of the company had projected one financial model and prayed for investment from the persons to invest money in to the project and gain lifelong benefit from it. It was known to the director of the company that there were risks but he had not disclosed the fact to them. After the investment, the company had faced a financial breakdown and the investors lost their money. It was held by the court that it is the duty of the director of the company to disclose all the essential facts to the shareholders. Therefore, he had failed to take good care and diligence to the shareholders and held liable under section 180 of the Corporation Act 2001 (Mills 2014).
In Starlink International Group Pty Ltd v Coles Supermarket, an allegation has been brought against the Coles that they had terminated a contract with Starlink without maintaining any conditions of the contract made in between them. It was supported by the court of New South Wales and it was held by the court the super market had failed to show the care to the terminated company and the steps taken by the authority of Supermarket is arbitrary in nature. It was also held by the court that the alleged authority had failed to act in the best interest of the company (Tills and Wills 2016).
The doctrine behind the interest of the company is intending to create a relationship between the director and the other stakeholders of the company. It is an obligation so that the directors of the company can perform their duties in good faith. The directors are under an obligation not to secure their own interest in lieu of the company’s interest. If certain acts are done by the directors, their acts will be void in nature. In Hutton v West Cork Railway Co (1883) 23 Ch D 654, it was held by the court that there is no other cakes or ales of the director except for the benefit of the company. It was held in Multinational gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258, it was held by the court that if a director of a company can do anything, which is beyond the scope of their power, the shareholders of the company can rectified the same and they can bring the work within the purview of the company.
From the above mentioned discussion, it has been observed that the phrase “best interest of the company” relates to the interest of the shareholders. Shareholders are the most important part among the other stakeholders of a company. The word stakeholders denoted the person without whom it is not possible to run a company. The word stakeholders include shareholders, directors and other staffs of the company. The shareholders of a company have certain powers imposed by the respective law of Australia. In the light of the important duties maintained by the shareholders, they become the best interest of a company and it is the primary duty of the director of the company to secure the interest of the shareholders.

In the interest of the company as a whole:
The phrase “in the interest of the company as a whole” means that it is the duty of the director to act in such way that the interest of the company can be retained at any cost. A company is composed of certain stakeholders who are directed the company and the administrative work of the company is vehemently depended on them. The phrase “as a whole” can be interpreted that include all the essential and related character of the company. That means a director of the company must be loyal to the stakeholders of the company. There are certain differences present in between the two phrases. In Aberdeen Ry v Blaikie (1854), it was held by the court that a director should have to take care of the stakeholders of the company and should not throw light any one of the parts of the stakeholders.
In Sharp v Blank and Others [2013] it was held by the court, shareholders are not separate from the company. They are one of the integral parts of the company. In this case, a serious question has been generated and the base of the question made conflicts between the facts that state that a company is separate from its shareholders. In a famous case of Salomon v Salomon & Co [1897], it was for the first time found by the court that a company is a separate legal entity and the interest of the court should not be mismatched with the shareholders of the company. A well known principle of the Company law “lifting the corporate veil” has been based on the same principle. The case was followed in another popular case Re a Company [1985] BCLC 333, where the principle of Lifting the corporate veil has been discussed. In Jones v Lipman [1962] 1 All ER 442, the director of the company had sold the company to another as an order specific performance had been passed against them and they wanted to avoid the same. It was held by the court that the directors were acted in bad faith and their acts cannot be treated for the interest of the company as a whole. In this case, the court had passed an order to lift the corporate veil of the company (Brown and Lawrence 2017).

However, in the case of Sharp v Blank and others [2013], the court had passed its view in favour of the company. It has been stated by the court that a director owes duty to the company only and shareholders are the part of the company and the case is denied the principle regarding the separate legal entity of the company. Therefore, in this case, it has been stated that the director should have to work for the interest of the company as a whole. There is no principle regarding the best interest of the company. It was held in the case that the shareholders are the part of the company (Nicholls, Donald and Liu 2015).
The contradiction regarding the director’s duties is an old problem and in the case of Perceval v Wright [1902], a similar dilemma was arose and it was held by the court that director of a company is only liable to the company and not to the shareholders of the company.
Conclusion:
Therefore, from the above mentioned discussion, it can be stated that the phrases “best interest of the company” and “interest as a whole” are different in nature. It has also been discussed in the case that the director of a company should have to perform his duties under section 180 and section 181 of the Corporation Act 2001.

Reference:
Anderson, H., 2014. Directors’ Liability for Fraudulent Phoenix Activity—A Comparison of the Australian and UK Approaches. Journal of Corporate Law Studies, 14(1), pp.139-173.
Barker, S., Baker-Jones, M., Barton, E. and Fagan, E., 2016. Climate change and the fiduciary duties of pension fund trustees–lessons from the Australian law. Journal of Sustainable Finance & Investment, 6(3), pp.211-244.
Bolimos, I.A., Bolimos, I.A., Choo, K.K.R. and Choo, K.K.R., 2017. Online fraud offending within an Australian jurisdiction. Journal of Financial Crime, 24(2), pp.277-308.
Brown, A.J. and Lawrence, S.A., 2017. STRENGTH OF ORGANISATIONAL WHISTLEBLOWING PROCESSES–ANALYSIS FROM AUSTRALIA & NEW ZEALAND.
Chia, H.X. and Ramsay, I., 2016. An Analysis of Shareholder Resolutions Involving Australian Listed Companies from 2004 to 2013.
de Melo Bandeira, G.C.S., 2013. “Corruption” and social and economic criminal law: Criminology, criminal policy, political science and law & economics–A new idea about criminal liability of legal entities. Tékhne, 11(2), pp.105-113.
Dixon, O., 2016. Honesty without Fear-Whistleblower Anti-Retaliation Protections in Corporate Codes of Conduct. Melb. UL Rev., 40, p.168.
Hannigan, B., 2015. Company law. Oxford University Press, USA.
Hiller, J.S., 2013. The benefit corporation and corporate social responsibility. Journal of Business Ethics, 118(2), pp.287-301. Hiller, J.S., 2013. The benefit corporation and corporate social responsibility. Journal of Business Ethics, 118(2), pp.287-301.
Huggins, A., Simnett, R. and Hargovan, A., 2015. Integrated reporting and directors’ concerns about personal liability exposure: Law reform options. Company and Securities Law Journal, 33, pp.176-195.
Li, Y., 2014. The impact of corporate governance on the corporate social responsibility of small corporation in australia: a structural equation modeling approach. In WEI International Academic Conference Proceeding, New Orleans, USA.
Mills, C.W., 2014. The racial contract. Cornell University Press.
Nicholls, R., Donald, M.S. and Liu, K., 2015. It’s a Small World after All: Using Social Network Analysis to Investigate Systemic Risk in the Australian Superannuation Sector.
Riaz, Z., Ray, S. and Ray, P.K., 2015. Collibration as an alternative regulatory mechanism to govern the disclosure of director and executive remuneration in Australia. International Journal of Corporate Governance, 6(2-4), pp.241-274.
Tills, M. and Wills, C., 2016. Corporate law: Directors found guilty of breaching duties following corporation’s breaches. Governance Directions, 68(10), p.624.
Viven-Wilksch, J., 2015. The adventures of good faith: can legal history and international developments provide guidelines for Australia?. Alternative Law Journal, 40(2), pp.89-92.
Welsh, M., 2014. Realising the public potential of corporate law: Twenty years of civil penalty enforcement in Australia. Fed. L. Rev., 42, p.217.
Whincop, M.J., 2017. Corporate governance in government corporations. Routledge.

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