BAA215 Business And Corporate Law

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BAA215 Business And Corporate Law

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BAA215 Business And Corporate Law

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Course Code: BAA215
University: University Of Tasmania

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Country: Australia

Discuss about the Corporate Law for Darwin Property Developments.

The discussion of the case study is with respect to Darwin Property Developments Pty Limited Company. The individuals involved in this case are three directors namely Feng, Qiyuan and Linda. Feng and Qiyuan were brothers who had started the business. Linda was part of the accounting firm run by her and Qiyuan. The original company was company who developed property (Knepper et al., 2016). They also operated a successful waterfront restaurant that served seafood. The shares of the company were equally divided among the three share holders. The total number of shares that were issued in the company was 6000 ordinary shares. The three shareholders held 2000 shares each. The shares were fully paid.
As per the Corporations Act 2001 (Cth), there are rules of the company which the directors of a company have to adhere to. The shareholders of the company are enshrined with the right to claim for the financial records of the company and information pertaining to individual shares the shareholder has in the company. As per the case study it can be inferred that Feng is both the shareholder as well as director of the case organisation. Thus prior to resigning from the position of director, he has the right to do whatever he wishes with respect to the shares that he holds in the company (Laster and Zeberkiewicz, 2015). In this case Linda and Qiyuan cannot deprive Feng from exercising his rights of a director and a shareholder. Hence there are certain combined rights of the directors as per the provisions of the Corporations Act 2001. As per section 249 U of the Corporations Act 2001, the directors have the right to elect an individual to be chairperson for holding meetings of the company. As per section 1072F of the Corporations Act 2001, the directors are given the right to refuse registration of transfer of company’s shares (Hiller, 2013). This can be possible if the shares of the company are not fully paid and in case the company holds lien over the shares. The directors also hold right to make decisions regarding the dividend paid to the shareholders of the company. They have the right to lower the rate of dividend if situation permits. The directors are also given the right to elect or appoint the managing director of the company.
In the present case Feng has the right to take derivative actions against the other directors of the company. This is because he is both a shareholder as well as director of the company. In the capacity of a director of the company, Feng has the right to sue both the directors of the company for fraud and misrepresentation caused to him under the Misrepresentation Act, 1972. Feng had immediate need of financial help due to his wife’s death. As a director he had the right to sell his part of the shares to recover the proceeds (Clark Jr and Babson, 2011). However the directors of the company had wrongly contravened the provisions of the Corporations Act 2001 by refusing to allow him to sell his shares. Moreover it is known from the scenario that a large amount of money was taken from the case organisation by the other two directors to finance their private accounting firm. This is a fraudulent activity and they are liable to be sued by Feng. There are certain rights which Feng holds within the company in the capacity of a member and shareholder of the company (Lan and Heracleous, 2010). Thus as per the Corporations Act 2001, Feng is entitled to certain individual rights of a member. As per these rights, when there fraudulent and poor management occurring within a company, then the members have the right to stop or prevent the mismanagement and fraudulence by filing case against the directors of the company. This right is also applicable in the case of Feng.
The section 232 (2) and (3) of the Corporations Act 2001 and the section 229 of the Companies Act 1981 is applicable for discussing the duties and liabilities of the directors of a company. These duties are fiduciary in nature or are based on elements of good faith, trust and confidence (Lacovara, 2011). Thus as per these duties, the directors are supposed to carry out their duties in an honest manner without any element of fraudulent and dishonest intention. From the aspects of the case scenario it is clear that Linda and Qiyuan have contravened the above provisions of corporation law. According to subsection 2 of section 232 of the Corporations Act 2001 the other directors of DBD can be penalised to the tune of $ 20,000 for causing fraud and deception to Feng and they can also face a term of imprisonment for five years. Linda and Qiyuan had failed to exercise their duty to take care and being diligent towards the members and shareholders of the company. Thus Feng is entitled to certain remedies so that he is able to derive finance to solve his financial problems. The derivative actions are legitimate for Feng to exercise since there has been no protection of company interests. The directors were acting in a fraudulent manner. They were mismanaging the company and were causing oppression to Feng by refusing to allow him to sell his shares (Becker and Strömberg, 2012). However this is illegal. As per section 1072F of the Corporations Act 2001, the shares of the company have been fully paid up. The other directors of the company, Linda and Qiyuan do not have the right to refuse Feng to transfer his shares (Aier et al., 2014). Moreover as per director’s rights, they can reduce the rate of dividend when circumstances call for. However they have clearly refused to provide the dividends to the shareholders of the company by citing the requirement of the fund for the future development of the company.
As per the fourth schedule of regulation of the Australian Securities and Investments Commission, the company’s members are entitled to derive 5% or 1/20th of the shares in the company. Thus as per the provisions of the Corporations Act, Feng is a shareholder of DBD and he is entiltled to claim certain rights. He has the right to ask for records of his shares from the other directors of the company. In the present case, Feng has been deprived from exercising his right of directorship and shareholder of DBD. Thus he has every right to file a suit against the defaulting directors of the company (Fairfax, 2013). The directors have clearly contravened section 180(1) of the Corporations Act 2001. They have failed to exercise to a reasonable level the duties of care and diligence.
The fourth schedule of the regulations of the ASIC under the Corporations Act 2001 can be invoked by Feng if he seeks to exercise his rights of a shareholder and director of the company. As per section 180(1) of the Act, he can claim that the directors had failed to exercise their duty to reasonably act in a careful and diligent manner. He can sue the other directors i.e. Linda and Qiyuan for misrepresenting facts and cheating him with respect to his right to shares (Callison, 2012). He can also file case against the directors for mismanaging and oppressing Feng. He has been grossly deprived from his rights. Thus he is entitled take certain actions which he can initiate as per the provisions of the company laws of Australia. He has clear chance of getting success as there are various grounds available to him to claim remedies (Richardson, 2011). He can claim that various requirements of ASIC have been flouted by the directors of the company which is in contravention to the provisions of the Corporations Act 2001. The directors of the company are having the statutory duty to look after the rights and interests of the shareholders and members of the company. Consequences of breach of director’s duties can be seen within the provisions of Corporations Act 2001.
There are certain statutory provisions to be adhered to for removing a director of a company as per the company law provisions of Australia. There should be a special resolution to remove directors of the company. The company in this case had clearly failed to adhere to this provision (Velasco, 2012). The company had clearly failed to follow the structural requirements of the company laws. It is important that the directors of the company pay off the dividends out of the profits to the shareholders. If they continue to retain the dividend money with themselves, the shareholders have the right to claim charges of fraud against the company. 
Aier, J. K., Chen, L., & Pevzner, M. (2014). Debtholders’ demand for conservatism: Evidence from changes in directors’ fiduciary duties. Journal of Accounting Research, 52(5), 993-1027.
Becker, B., & Strömberg, P. (2012). Fiduciary duties and equity-debtholder conflicts. Review of Financial Studies, 25(6), 1931-1969.
Callison, J. W. (2012). Putting New Sheets on a Procrustean Bed: How Benefit Corporations Address Fiduciary Duties, the Dangers Created, and Suggestions for Change. Am. U. Bus. L. Rev., 2, 85.
Clark Jr, W. H., & Babson, E. K. (2011). How benefit corporations are redefining the purpose of business corporations. Wm. Mitchell L. Rev., 38, 817.
Fairfax, L. M. (2013). Sue on Pay: Say on Pay’s Impact on Directors’ Fiduciary Duties. Ariz. L. Rev., 55, 1.
Hiller, J. S. (2013). The benefit corporation and corporate social responsibility. Journal of Business Ethics, 118(2), 287-301.
Knepper, W. E., Bailey, D. A., Bowman, K. B., Eblin, R. L., & Lane, R. S. (2016). Duty of Loyalty (Vol. 1). Liability of Corporate Officers and Directors.
Lacovara, C. (2011). Strange creatures: A hybrid approach to fiduciary duty in benefit corporations. Colum. Bus. L. Rev., 815.
Lan, L. L., & Heracleous, L. (2010). Rethinking agency theory: The view from law. Academy of Management Review, 35(2), 294-314.
Laster, J. T., & Zeberkiewicz, J. M. (2015). The rights and duties of blockholder directors. Bus. Law., 70, 33-54.
Richardson, B. J. (2011). From fiduciary duties to fiduciary relationships for socially responsible investing: responding to the will of beneficiaries. Journal of Sustainable Finance and Investment, 1(1), 5-19.
Velasco, J. (2012). The Role of Aspiration in Corporate Fiduciary Duties. Wm. & Mary L. Rev., 54, 519.

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