Business Association For Corporations Law: Duties And Obligations Of Directors Essay.

Discussion

Discuss about the Business Association for Corporations Law.

Interaction between the companies and stakeholders is regulated and formulated under the corporation law applicable to all the companies whether private or public listed or unlisted. Corporations Law regulates and formulates the provisions, principles and standards that are required to be followed by the directors and management of the companies for operating the business activities. Since directors and management are the personnel to manage the company’s business functions, they are responsible to act in the benefit of the investors, consumers and company as a whole including g other stakeholders. The acts and duties of the directors of the companies are defined under the several provision of the Corporations Act[1]. The following assignment highlights the requisite rights and duties of the directors towards the company as well as investors and other stakeholders to maximize the profitability and maintain the sustainability. The assignment covers the discussion on the duties of the directors based on the case of “Barbarians at the gate, Activist investors and section 249N of the Corporation Act 2001”. The act also presents the corporate constitutionalist with respect to the values and ideas considering the political aspects and legal provisional framework while performing the business activities.

According to the “Australian Institute of Company Directors”, the company is required to be managed and governed by its directors by following the legal rights and duties as defined in the Corporations Act 2001. However, in order to act as a company’s director, the individuals are required to abide by the provisions of section 9, Corporation Act 2001 to qualify for the directorship. As per the provision of section 9, the individuals are required to be appointed as director in the company possessing the required knowledge and skill to act in the company’s business functions. According to the Australian Corporation Law, the directors are required to follow the basic duties that are due care and diligence, good faith, proper use of position and proper use of information. As per the requirements of section 180, directors of the company are required to perform the business activities with due diligence and care to avoid any misconduct with respect to fraud or error[2]. Further, the common law of Australia also requires the directors to follow the duties as “safe harbor” for the best interest of the investors as well as for the entire company. Duties of directors are not merely for the interest of the investors but it extends to the entire company, which includes avoiding the conflicts of interests, improper use of position and company’s information and such other derogatory activities. According to the provisions of the Corporation Act, a public company is required to have minimum three directors and two must be ordinary resident of Australia.

Legal Theory and Common Law

Considering the provided case of “Barbarians at the gate CTH (2016) 34 C&SLJ 151”, duties of the directors for the company and investors including other stakeholders are required to be analyzed. The case covers the activist investors as well as the provisions of section 249 N of the Corporations Act 2001. Activist investors mean a group of investors or individual investors who acquires large number of company’s securities with the objective to acquire the company’s management or board. The investors undertake such target if they come across any mismanagement in the company’s business functions with respect to high costs, low profitability, non- compliance of legal principles and conflicts of interest to the investors[3]. Additionally, section 249 N of Corporation Act 2001 states the provisions for members’ resolution for the purpose of conducting a general meeting by placing a notice. Such notice for the general meeting is valid if it is provided by the members with minimum of 5% votes casted on the resolution or the number of members eligible to caste vote in general meeting should be 100. However, the notice should be in writing by mentioning the proper resolution and must be authenticated with the members’ signature.

Based on the case of “James Hardie and Centro” with respect to the duties and obligations of the directors in the region of Australia. The case covers the responsibility of the directors to understand the documents and recordings of the financial information of the company for the benefit of the stakeholders. The directors of the company are responsible to manage the business activities with respect to the operational procedures, cost of business functions, proper presentation and preparation of the financial information[4]. The decision of the case provided a significant impact on the rights, duties and liabilities of the directors towards the investors and the entire company. The directors are responsible to follow the legal policies on maintain the corporate social responsibilities, business sustainability, maximization of profits and responsibilities for the benefit of stakeholders. For the purpose of the company’s business decisions the general meeting is required to be conducted where the approval of shareholders is required to authenticate the respective business decisions. For instance, appointment of directors for continuing the office and place of profit is required to be approved by the shareholders in general meeting. Hence, the directors are required to comply all the duties and obligations with due diligence and corporate provisions so that they can continue the performance and employment with the company.

Corporate Constitutionalist model

“Legal Theory and Common Law” represents the gap between legal provisions and specific field of such provisions with respect to the compliance of law and order. The theory covers the requirements of corporation law compliance with respect to political factors, social factors and economical factors. Business activities or functions in the companies should follow the requirements of the political, legal and social factors which the directors’ responsibility[5]. In case, the company is a manufacturing concern then the directors should manage the manufacturing process so that it does not harm the society and people around the manufacturing plant with the view Murphy v Electoral Commissioner HCA 36. Further, directors are required to ensure that the financial information or business transactions are properly recognized to determine the company’s performance and its financial position with true and fair view. As per the provision of the Companies Act, directors are responsible to comply the requirements for providing returns on investment to the investors as per the contracted time and manner. Duty of the directors include the duty to avoid the trading while the company is insolvent which occurs when the company is not able to pay off the debt obligations in the decided case law of Sio v The Queen HCA 32. It states that the directors are responsible to manage the cost of production and other business activities as well as generating the sales revenue to maximize the profitability of the company[6]. On the other hand, company’s better performance influences the prospect investors to invest in the company that creates the value and growth in the market economy. The directors are required to maintain the company’s accounting records that explains the performance of the company in the correct manner (Vines v ASIC 55 ACSR 617). If the books and other documents for the company’s information should be prepared by following the provisions of Corporations Act along with the proper disclosures for the use of the company’s stakeholders.

Corporate Constitutionalist model as described as per the corporate law theory defines and states the relationship between corporate and consumers including the stakeholders. The theory covers the contents of the economic analysis that affects the company’s performance and sustainability by providing the principles and standards under the corporate law[7]. Corporate constitutionalism provides the ideas, values and elements by considering the political factors for the purpose of maintaining the corporate governance and taking business decisions. Companies are required to incorporate the necessary values and ideas as per the stated formulations and applications in the context of political factors as per the decided case law Jubliee Mines NL v Riley 253 ALR 673. The companies are responsible to conduct the business activities considering the social and political factors for the benefits of the consumers, investors and society along with the other stakeholders. The theory on corporate constitutionalism focuses on the policies of corporate governance that directs the companies to conduct business in true and fair view[8]. Along with that, companies are required to follow the policies on sustainability and social responsibility by presenting the accountability of the financial information in transparent manner. The theory of corporate constitutionalism highlights the enterprise accountability, which not only states the importance of duties and responsibilities of the company towards the investors but also towards the entire community. Such duties and responsibilities are defined under the provisions of the corporation act and according to the theory; the duties are required to be divided as per the management skills and powers[9].

Theoretical Framework

The theoretical framework provides the requirements of the corporate structure to delegate the requisite duties to the management and directors of the companies. It provides several models to define the duties and responsibilities of the directors to serve the company for the advantages of the shareholders and the entire company[10]. The board of directors is responsible to act not only in favor of the shareholders but also for the company’s benefits with respect to the critical business decisions (ASIC v Fortescue Metals Group Ltd). Corporate stakeholders include the consumers, employees, creditors, debtors, investors, government and other executive employees for whom the enterprise is required to follow the business activities as per the required legislations and principles. In many situations companies come across the stage where business decision is required to be taken by the board of the directors in consultation of the shareholders. In such situations, directors are required to follow the standards of the corporate law as well as the requirement of the shareholders[11]. In some situations, shareholders of the company have the right to vote against the directors for the appointment in the general meeting considering the case of Gambbotto v WCP 182 CLR 432. Therefore, directors of the company are responsible to comply the provisions of the corporation act for conducting the business activities and recognizing the financial information. Directors of the company are responsible to conduct their duties for managing the business decisions to maximize the benefits of the company along with the consumers and investors. The theory on corporate constitutionalism presents the framework that directors are required to follow for managing the business process, business decisions for further investment, dividend distribution, diversification of product and services or any other critical activities[12]. According to the requirements of accounting principles and corporation law, directors are required to present the disclosures of the valuation of the sources, their interest in the company and accounting policies Jubliee Mines NL v Riley 253 ALR 673. It is the responsibility of the management and directors to present all the relevant facts and disclosures in the financial statement so that the shareholders and other stakeholders are able to gather the information about the company.

Conclusion

It can be concluded that the business activities of the organizations depends on the proper duties performed by the management and directors. The directors of the company are responsible to address the concerns of the investors as well as the entire company to maximize the profitability and maintain the sustainability. Further, section 249N of the Corporation Act specifies the members requisition for presenting the notice to call a general meeting for certain business resolutions. On the other hand, directors are required to conduct their duties to manage the organizations so that the activist investors cannot acquire the company. Considering the objectives of activist investors, they acquire the organizational securities in large amount for acquiring the business management in case of material misstatement or any fraud or error. However, directors are responsible to perform the duties with respect to managing the business records properly, managing the production of goods and services with respect to the cost, demand, supply and sales revenue. In case, the directors fail to perform or manage the business activities following the accountability and transparency of the financial and other business information, it can be said the contravention of the corporation law. Apart from the requirements of the corporation law, theory on corporate constitutionalism presents the framework for the benefit of the entire company. It specifies the directors’ duties to manage the business functions for the company as a whole instead of performing only for the benefits of the shareholders. The directors are further required to manage the company’s business in a way that maximizes its profitability and maintaining the sustainable growth with the compliance of corporate principles and standards.      

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