Conflicts of interest and secret profits statutory

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Conflicts of interest and Secret Profits – Statutory Duties (s 182-183 Civil penalty provisions where s184(2)- 184(3) are criminal along with s 1311) The directors’ and officers’ fiduciary duty to avoid conflict of interest, at general law, is reinforced under the Corps Act. S 182 and S 183 provide than an officer or employee must not improperly use their position (s182) or information (s183) obtained because of their position: In order to gain a benefit for themselves or someone else; To cause detriment to a company ASIC v Vizard (2005): Vizard was a non-executive director of Telstra. During his time, Vizard obtained info from board meetings and internal briefing documents that outlined a strategy of acquisitions of other IT firms. Vizard established a family trust, managed by his accountant and purchased shares in IT firms that Telstra had intended to take over or acquire large stakes in. Most of these share trades were losses, and no Telstra funders were used for the acquisitions. ASIC sued Vizard for breach of s183. Decision: Vizard admitted liability and was ordered by the court to pay close to $400k in pecuniary penalties and was disqualified from being a company director for 10 years. Defences Generally Defences: Disclosure – General rule is that a fiduciary (e.g. company director) may avoid liability at general law for actin improperly, such as acting for an improper purpose, if the fiduciary has given full disclosure to the principal and the principal consents to the fiduciary acting under the conflict S189: Reliance on information or advice provided by others S190: Responsibility for actions to delegate S180: Care and diligence – civil obligation only S1318: Power to grant relief S317: Certain persons to assist in prosecutions S588G: Director’s duties to prevent insolvent trading S588H: Defences Indemnification and Insurance S199A prohibits against exemption and indemnification S199B: Prohibits in relation to payment insurance premiums S199C: Avoidance of related indemnities or insurance
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To whom are Directors’ Duties Owed? (Individual shareholder) Brunninghausen v Glavanics (1999): B & G were shareholders and directors in a family company. After a disagreement between them, G took no active part in the management of the company until their mother-in-law intervened to make peace. Shortly after, G agreed to sell his shares to B. However, G was not aware that B was selling the company for a higher price per share than B was offering to G. B sold the business and profited from the higher price to the detriment of G. Decision: Relationship between B & G was fiduciary in nature because G had been effectively locked out of the company and had no way of verifying the true value of his shares in the company. Elements of vulnerability and control in a small family company give rise to fiduciary obligations on B to provide full disclosure.
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