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8/7/2019 session13 ppt[1]
http://slidepdf.com/reader/full/session13-ppt1 1/21
Session 13Session 13Consequences of breachConsequences of breachof director¶s dutiesof director¶s duties
By:Teng Jun QiGoh Yu Lei
8/7/2019 session13 ppt[1]
http://slidepdf.com/reader/full/session13-ppt1 2/21
Case 1Case 1Fr om the facts of VH case in session 8 & 9
y (a) List the consequences for br each of
these duties
8/7/2019 session13 ppt[1]
http://slidepdf.com/reader/full/session13-ppt1 3/21
Case 1Case 1 -- ConsequencesConsequencesy Br each in statutor y duties
Cr iminal action
y
Br each in gene
r al law Civil claim
8/7/2019 session13 ppt[1]
http://slidepdf.com/reader/full/session13-ppt1 4/21
Breach of statutory duties
Breach of statutory duties
Person Duty breached Consequences
Peter
for inflating
revenue
340(1)
Duty not to engage in
fraudulent trading
340(5)
Fine not exceeding $15000 or
imprisonment for a term not
exceeding 7 years, or both
154(1)
Where a person is convicted of any
offence involving fraud or dishonesty
punishable with imprisonment for 3months or more, he shall be subject
to disqualification in subsection (3)
8/7/2019 session13 ppt[1]
http://slidepdf.com/reader/full/session13-ppt1 5/21
Breach of statutory duties
Breach of statutory dutiesPerson Duty breached Consequences
Peter
for inflating sales
revenue
John for not making
proper inquiry
regarding the
accounts, especially
he is the CFO of VH
Holdings, have a
higher standard
157(1)
Duty to act
honestly
and with
reasonable
diligence
157(3)(a)
Liable to company for any profit made
by him or for any damage suffered by
the company as a result of the breach
of any of those provisions &
157(3)(b)
Guilty of an offence and shall be
liable on conviction to a fine not
exceeding $5000 or to imprisonment
for a term not exceeding 12 months
154(1)
Disqualification as director
8/7/2019 session13 ppt[1]
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Breach of statutory duties
Breach of statutory dutiesPerson Duty breached Consequences
Peter
for inflating
revenue
199(1)
Duty to keep proper accounts
Directors should keep
accounting and other records
as will sufficiently explain the
transactions and financial
position of company and
enable true and fair profit and
loss accounts and balance-
sheets to be prepared from
time to time
199(6)
Fine not exceeding $2000 or
imprisonment for a term not
exceeding 3 months and also a
default penalty
8/7/2019 session13 ppt[1]
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Breach of general law duties
Breach of general law dutiesPerson Duty breached Consequences
Peter for
inflating sales
Duty of care
(reasonable care and
diligence)
Breach is continuing Injunction
Company suffer loss compensation
or damages
8/7/2019 session13 ppt[1]
http://slidepdf.com/reader/full/session13-ppt1 8/21
Breach of general law duties
Breach of general law dutiesPerson Duty breached Consequences
John Duty of care
(reasonable care and
diligence)
Company suffer loss compensation
or damages
8/7/2019 session13 ppt[1]
http://slidepdf.com/reader/full/session13-ppt1 9/21
Breach of general law duties
Breach of general law dutiesPerson Duty breached Consequences
Peter for
inflating
revenue
Duty to act in good
faith in best interest
Company suffer loss compensation
or damages
8/7/2019 session13 ppt[1]
http://slidepdf.com/reader/full/session13-ppt1 10/21
Case 1Case 1y (b) For duties that wer e br eached, discuss
whether the dir ector s ar e likely to succeed
in obtainingr
elief f r
om the cour
t pur
suantto section 391
8/7/2019 session13 ppt[1]
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Section 391 Court Relief Section 391 Court Relief y The liabilities that may be excused
includes claims for compensation and for
an account of pr
ofits.y The cour t does not have any power tor elief a per son f r om cr iminal liability.
8/7/2019 session13 ppt[1]
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Section 391 Court Relief Section 391 Court Relief Conditions:
y Wher e dir ector acted honestly andr easonably
y Cir cumstances ar e such that the per sonought fair ly to be excused
8/7/2019 session13 ppt[1]
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Section 391 Court Relief Section 391 Court Relief Duty Relief?
Duty not to engage in fraudulent
trading
No (criminal liability)
Duty to keep proper accounts No (criminal liability)
Duty to act honestly and with
reasonable diligence
Peter for inflating revenue No
John for not making proper inquiry
about accounts Maybe
Where director acted honestly and reasonably ?
Circumstances are such that the person ought fairly to be excused?
8/7/2019 session13 ppt[1]
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Section 391 Court Relief Section 391 Court Relief Duty Relief?
Duty to use power for proper
purpose
Peter - No
Duty to act in good faith in best
interest
Peter for inflating revenue No
Where director acted honestly and reasonably ?
Circumstances are such that the person ought fairly to be excused?
8/7/2019 session13 ppt[1]
http://slidepdf.com/reader/full/session13-ppt1 15/21
Case 2Case 2Fr om the facts of Fr esh Gr ocer ies in session 10
& 11.y Assume that after Gar y enter ed into the joint
ventur e Dair y Pr oduce, he asked for µfor giveness¶ at Fr esh Gr ocer ies gener almeeting.
y Ther e, Gar y, who own shar es in Fr eshGr ocer ies, voted in favour of an or dinar yr esolution to r atify his br each of duty.
y (a) Is the member ¶s r atification valid?Explain.
8/7/2019 session13 ppt[1]
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The member cannot ratify a breach of duty if(Withreference to CACL pg 272):
1.It is oppr essive and may be challenged under section 216.
2.It br each the equitable limitation on major ity power .
Section 216 (With reference to CACL pg 280) : Thecompany affair s ar e conducted or the dir ector s¶ power s ar eexer cised: (a) In an oppr essive manner to the member ¶sinter ests, or (b) in disr egar d of the member ¶s inter ests.
Or
an act is done or
thr eatened o
r a membe
r s¶
r esolution ispassed or pr oposed which: (a) unfair ly discr iminates against
one or mor e member s. Or (b) is other wise pr ejudicial to one or mor e member s.
8/7/2019 session13 ppt[1]
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By allowing Gar y to par ticipate in the voting, the voting isconducted in an oppr essive manner to the member ¶s
inter ests. Since the r esolution can be challenged by Section216, the r atification is invalid.
Assume that passing the r esolution is the decision of major ity.
Equitable limitation(with r efer ence to CACL pg162):³Member s must exer cise their vote bona fide for the benefitof the company (or class) as a whole.´
If Fr esh Gr ocer ies r atify Gr ay¶s br each, the company will not
be able to r ecover the pr ofit Gar y made in Cyber Gr ocer ies.In this case the major ity decision will not benefit thecompany as a whole. Since ther e is a br each of the equitablelimitation on major ity power , the r atification will be invalid.
8/7/2019 session13 ppt[1]
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Case 2Case 2y (b) Assuming Gar y is in br each of his
duties to the company, discuss the
consequences of those br
eaches
8/7/2019 session13 ppt[1]
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Section 157 (2) pr ohibit officer s(including past officer s) or
agents of the company for m mar king impr oper use of infor mation that they acquir e by vir tue of their position asofficer s or agents of the company to gain, either dir ectly or indir ectly a benefit for themselves or any other per son. Theyalso cannot make use of the infor mation to cause detr iment
to the company.
It was Gar y¶s dir ector position in Fr esh Gr ocer ies, that allowhim to have access to supplier s¶ sales pr ice list and Dair y
Pr oduce¶s joint ventur e pr oposal. Using the infor mation tohis own benefit, Gar y has br each section 157 (2).
8/7/2019 session13 ppt[1]
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Consequence:F
ine up to $5,000 or
be impr
isonment up toone year .
Gener al law: Br each of duty to avoid conflict of inter est
Consequence: Since Fr esh Gr ocer ies did not suffer a lostdue to the br each, Fr esh Gr ocer ies can make Gar y to paythe pr ofit he make in Cyber Gr ocer ies to the company.
8/7/2019 session13 ppt[1]
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Thank youThank you
Q & AQ & A