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Duty to Act in Good Faith in the Co's Best Interests. The duty to the company: Percival v Wright [1902] 2 Ch 421The duty to an individual shareholder in special circumstances: Brunninghausen v Glavanics (1999) 17 ACLC 1247Nominee directors: Scottish Co-operative Society v Meyer [1959] AC 324Gr
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1. Directors’ Duties: Introduction Director’s fiduciary relationship with the company
To act in good faith in the co’s best interests
To retain discretion
To exercise powers for proper purpose
To avoid conflicts of interest
Further duties under the CA
To act in good faith and in the co’s best interests: s 181(1)(a)
To exercise their powers for their proper purpose: s 181(1)(b)
To avoid conflicts of interests: s 191
To act with care and diligence: s 180
To prevent the co engaging in insolvent trading: s 588G
2. Duty to Act in Good Faith in the Co’s Best Interests The duty to the company: Percival v Wright [1902] 2 Ch 421
The duty to an individual shareholder in special circumstances: Brunninghausen v Glavanics (1999) 17 ACLC 1247
Nominee directors: Scottish Co-operative Society v Meyer [1959] AC 324
Group companies and the exception in s 187
Creditors: Kinsela v Russell Kinsela Pty Ltd (1986) 2 ACLC 215
3. The Company: Percival v Wright [1902] 2 Ch 421
4. Individual Shareholder: Brunninghausen v Glavanics (1999) 17 ACLC 1247
5. Nominee directors: Scottish Co-operative Society v Meyer [1959] AC 324
6. Creditors: Kinsela v Russell Kinsela Pty Ltd (1986) 2 ACLC 215
7. Duty to Act in Good Faith in the Co’s Best Interests under the CA Directors must exercise powers in good faith in the best interest of the company: s 181(1)(a)
Directors fail to exercise powers in good faith in the best interest of the company commits an offence: s 184(1)(c)
Consequences of breach
Civil penalty: s 1317E(1) & s 1317G (1)
Disqualification: s 206C; ASIC v Adler (2002) 20 ACLC 1146
Compensation to the co: s 1317H & s 1317J
Criminal offence: eg, ASIC v Adler
Relationship with other duties: s 185
8. Duty to Exercise Powers for Proper Purpose (1) Directors breach their fiduciary and statutory duties if they issue shares to:
Maintain their control of the company;
Defeat a takeover bid; or
Create or destroy the voting power of majority shareholders: Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
Directors must exercise their power of refusal to register transfer of shares under ss 1072F(3) & s 1072G for a proper purpose: Australian Metropolitan Life Assurance Company Ltd v Ure (1923) 33 CLR 199
9. Duty to Exercise Powers for Proper Purpose (2) Consequences of breach
General: voidable at co’s option
Share issue: the share issue disallowed
When registration of share transfer improperly refused, the transferee is entitled to apply to the court for an order: s 1071F
Statutory duty
Directors must exercise powers for a proper purpose: s 181(1)(b)
Directors fail to exercise powers for a proper purpose commits an offence: s 184(1)(c)
10. Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
11. Australian Metropolitan Life Assurance Company Ltd v Ure (1923) 33 CLR 199