Corportation Law Shareholders Rights, Breach Of Directors Duties, Liabilities

2130 words - 9 pages

1

Thomas Ltd is an investment company, its primary activity being investment in real estate on the outskirts of Sydney. Last year Stumborg and Anderson, directors of Thomas Ltd, on behalf of the company approached Farmers Ltd, a large national company interested in land development, with a view to the two companies entering into a joint venture to acquire and develop land in the vicinity of Sydney. After preliminary negotiations Farmers Ltd indicated that it was unwilling to deal with Thomas Ltd and that it would deal only with Stumborg and Anderson personally. Stumborg, Anderson and Farmers Ltd incorporated a company, Newmont Ltd which acquired land in the vicinity of Sydney for development purposes. It was this transaction that formed the principal ground of Thomas Ltd's allegations that both Strumborg and Anderson have breached their fiduciary duties.

Thomas Ltd is taken over by Judson Ltd after the impugned transaction.

1. Discuss the liability of Stumborg and Anderson.

2. Assuming Stumborg and Anderson are liable, discuss whether the court should order them to relinquish their profits in the light of the fact that there has been a complete change in the composition of the shareholders of Thomas Ltd between the time of the (assumed) breach of duty and the time of action.

Refer to relevant legal authority in support of your discussion.

Discuss the liability of Stumborg and Anderson.

Director's duties arise under the common law and under the corporations Act. In general for a shareholder, employee or a creditor to have any legal rights of action would depend on the conduct of the directors. They may be negligent or may act for some improper purpose.

Common Directors - Stumborg and Anderson are directors of Thomas Ltd and Newmont Ltd. Directors do not breach their duties merely by being a director of another company. There is no common law and statutory probation. The law however requires that the directors should act in the best interest of each particular company Ford [9.410]. Relationship - There is no relationship between Thomas Ltd and Newmont Ltd, even if there was, it would not mean that the directors of Thomas Ltd, disregard the interest of Newmont Ltd. Each company is a separate legal entity and the directors must act in the interest of each company ANZ Executors v Ointex.

Breach of directors duties.

Each director owes fiduciary duty to the company both under the Common Law and statute. In this case Stumborg and Anderson are potentially liable for breach of these duties.

Duty to exercise care diligence and skill

This duty can arise out of Common Law fiduciary principles and s180 of Corporations Act. Daniels v Anderson provides a fiduciary duty of care which is complemented in statute, s180 (1). This duty requires directors to exercise reasonable care in the performance of their office. Wheeler's Case adds to this requirement establishing an obligation to remain...

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