Lecture 6 directors duties cont fiduciary duties

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Lecture 6: Director’s Duties (Cont) – Fiduciary Duties Overview of Directors’ and Officers’ Duties – as per Lecture 5 overview
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Objective standard: Determined by what a reasonable person would do or would have believed, not what the director actually did or actually believed, which is a subjective standard. As part of a director’s duty, they must: 5. Act in good faith in the interests of the company; 6. Act for a proper purpose; 7. Avoid conflicts of interest and 8. Not to make a secret profit Fiduciary Duties in Principle Fiduciary: A person upon whom the law of equity imposes obligations because of the power, influence and responsibility that the fiduciary has over another vulnerable person (known as a principal). A company director occupies a fiduciary position over the company as principal. Overview of Fiduciary Duties Duty to Act for a Proper Purpose – Directors must exercise their powers “bona fide [in good faith] for the benefit of the company as a whole”, generally expressed as “for a proper purpose” Mills v Mills (1938): Director’s of Charles Mills Ltd passed a resolution which increase the voting power of the managing director by providing the company’s dividend distribution to be by way of bonus shares to ord. shareholders. The minority director (held only preference shares with triple voting rights) challenged the validity of the resolution on the basis that the majority of directors did not act bona fide in the best interest of the coy. - Decision: Court found that the resolution was made bona fide in the best interest of the company despite the fact that the directors received a benefit under the transaction. Latham CJ found that the directors would not necessarily breach their duties if they act in a manner that benefits a class of shareholder in which them themselves are shareholders. Howard Smith Ltd v Ampol Petroleum Ltd [1974]: Howard Smith and Ampol were competing to take complete control over the company Miller. Ampol and its associates owed approx. 55% of he shares in Millers. Directors of Miller wished to attract a higher bidder, so they issued shares to Howard Smith on that basis that he would offer more for the company than Ampol. The effect on issuing shares was to dilute Miller’s share capital and therefore turn Ampol’s majority shareholding into a minority interest and thus make Smith’s bid more likely to proceed. Ampol sought a declaration from the court that the share issue was undertaken or an improper purpose. - Decision: The shares were issued for an improper purpose because it was primarily engaged in to dilute the majority shareholding. The power to issue shares must not be used to manipulate control fo the company’s voting rights.
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Harlowe’s Nominees Pty Ltd v Woodside (Lake Entrance) Oil Co (1968): Woodside entered into a lucrative joint venture with another company and sought to further consolidate the business relationship by issuing shares to that other company. Harlowe (substantial shareholder in Woodside) sought a declaration from the court that the share was not for a proper purpose on the basis that Woodside did not require further capital.
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