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Business And Corporation Law: Robert And EY Pty Ltd

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Question:

Discuss about the Business and Corporation Law for Robert and EY Pty Ltd.

 

Answer:

The Case Between Robert and EY Pty Ltd

In situations where a person's private interests conflict with his or her professional interests and duties, such an individual will get charged with Conflict of Interest according to the business law. Therefore, with regard to the case between Robert and EY Pty Ltd, it can be said that Robert breached her director’s duty by failing to perform her duty of loyalty to EY Ltd. She will be liable for Conflict of Interest because of using her position to influence the EY board of director’s decision for her own personal gain instead of the general benefit of the company. Robert knew that once the company agrees to have a long-term contract with WHS where she enjoys the majority shares, she will benefit a great deal. It is against Directors’ Statutory Duties under sections 181, 182, and 183 of the Corporations Act to practice conflict of interest.

Even though Robert had a conflict of interest on the negation of the contract between EY and WHS companies, she was still to be included on the board meeting. It is because she could not recuse herself. Recusal means that when an individual has a conflict of interest she can withdraw from her duties and avoid participating in the decision-making process. She could remain on the board but only participates on the agendas that have conflict. On the other hand, she must disclose her self-interest before any further conflicts arise. Doing so will help other directors understand her overall background as provided under section 182 of the 2006 Act.

Moreover, the remedies that EY should seek against Robert may include breach of duty, skill, and diligence. EY may also decide to put an injunction, set aside the business and restitution, make account for the profits, and to restore damages from Sam. Moreover, the company can decide to terminate Robert's service contract or disqualify him as a director as stated under Company Directors Disqualification Act 1986.

In addition to remedies, the penalties that Robert might face if found to have breached his duties could be the civil or criminal punishments. His breach could be criminal if he had acted with intentional dishonesty or recklessly as provided under section 184 of the Corporate Act. On the other hand, the EY Company might take civil action and claim for the damages under common law, in order to avoid high threshold of the criminal standard of proof.

 

Duty of Care and Diligence

Rose as non-executive director can be allowed to sit on the board but plays no active role in the day to day management of the business. However, Rose still has some vital responsibilities as well as penalties that she might face if she fails to carry out her duties. The responsibilities of Rose as a non-executive are: (1) to provide input to the introduction program (2) to provide independent oversight and provide a constructive challenge to the board, and (3) to insist on receiving correct information in advance of meetings or between the meetings. She was not allowed to perform the above duties, which means that her rights to the statutory duty of care and diligence got breached. Sam did everything without consulting any of the board members; thus, leaving Rose in a situation where she was not able to discharged her duties like any other reasonable person would have exercised. 

Consequently, Rose’s agreement to the purchase of the new premise would not be protected by s.180 (2) of the Corporation law. It is because Rose made her judgment not in good faith for the proper purpose. On the other hand, she did not inform herself of the matter, considering the limited time Sam gave them. Sam did not give her enough time to obtain enough information about the new premise. Other than that, she had no confidence in considering the matter. Lastly, she did not rationally believe that the judgment was in the interest of the company because they were forced into it without being given enough time to consider other alternatives.

 

Judgment Rule

The rationale of the Business Judgment Rule is to protect directors who work for the best interest of the company in honest and good faith. Directors act as the trustees of the company; hence, it is their liability to work for corporation's best interest. The significance of Judgment rule is that it protects directors against the derivative actions from the shareholders if particular conditions are not met. However, this rule does not give directors many opportunities to avoid the consequences of poor company decision making. For example, a director who has not participated in the management of the company will also be involved in the breach of that duty, whether the director is aware of the breach or not.  

OR

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