Discuss about the Corporate Law and Securities Regulation.
The Corporation Act 2001 guides the working of a company and its officers and directors. Section 9 of the Act defines a director as a person who is appointed at the position of a director or alternate director. A person is also regarded as director when though not appointed as a director but carry out all the functions of a director (Deputy Commissioner of Taxation v Austin (1998)). Such person is called de facto directors and holds all the powers and responsibilities of a company director (Natcomp Technology Australia Pty Ltd v. Graiche (2001) (Australian Master Family Law Guide, 2009). However, no person can become a director if he is bankrupt as per section 206 B (3) of the Act (Re Ansett (1991). (P Latimer, 2012)
The Managing director holds a very prestigious position as it is him who control and manages a company. He has power to delegate his functions to his subordinates whether director or not (Maynegrain Pty Ltd v Compafina Bank, ). (A Krawitz, 2002)
Now, whenever a power is delegated to any person (agent) then he has the ability to bind the principal by his actions. But, an agent can bind the principal provided the acts which are carried out by him are within his delegated authorities. The authorities can be of two types:
When the principal grants power to his agent with his own words, oral or written or by his act or his conduct, then, the authority that is secured by the agent is called actual authority ((Bell v Australian Eagle Insurance Co. Ltd , (1990). The actual authority is a direct authority which is provided to an agent and an agent must act within the scope of such authority. Any act which is outside an actual authority is non-binding upon the principle.
When the principal does not have any kind of direct authority to an agent but makes a representation towards an outsider and makes him believe that the agent do have authority to bind the principal, then, the authority so attained is called ostensible authority or apparent authority (Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd, (1973). The acts which are carried on by an agent within the apparent authority are also binding upon the principal. But, if the outsider is aware that the agent who is carrying out his actions within his apparent authority does not have the power to do so and has reasons to believe so, then, an outsider cannot take good of his own wrong. (Greig, D. W., 1988)
Thus, if any act is carried out by an agent of the director, which is in his actual or apparent authority, then, the acts are binding upon the director and the company.
It is submitted that Harry was the Managing Director. He has delegated his powers to William wherein William was only authorized to negotiate the contract with the third party. Thus, the actual authority that is granted to William is only of negotiations.
But, Harry has addressed a letter to the third party wherein it was stated that William has the power to make contracts on behalf of the company. Thus, Harry has made a representation in front of the outsider wherein he establishes that William has power to make contracts. Thus, an ostensible authority is granted to William by Harry.
So, contracts that are made by William with an outsider are binding under his ostensible authority provided the outsider has no knowable that William does not possess the authority to contract.
In issue 1, the company was held liable by the acts of William as the same are within his authority. Now, if Harry was not appointed as Managing director and was merely acting in such capacity, then, still the decision that was laid in issue 1 remains unchanged.
It is submitted that by applying section 9 of the 2001, it is established that a director is not only a person who is appointed at such position, but, a person is also a director who is performing all the functions of a director. Since, Harry was performing all the acts and functions of Managing directors, thus, as per Natcomp Technology Australia Pty Ltd v. Graiche, Harry can be held to be the de facto managing director and has the power to delegate the functions to Harry.
There is few statuary provisions that are framed which aims at protecting an outsider who has no knowledge or source to gain knowledge whether the integral proceedings of the company are met before dealing with such company.
Section 128 (1) of the Act has granted power to an outsider under which he is empowered to make few assumptions as per the provisions of section 129 of the Act (Gye v McIntyre (1991)). Section 128 (3) of the Act submits that the assumptions under section 129 can also be made even when forgery is committed by an agent (South London Greyhound Racecourses Ltd v Wake ). But, the assumptions made under section 129 of the Act cannot be made if the outsider has knowledge of the default (section 128 (4) of the Act). (Chapple & Lipton, 2002)
Section 129 of the Act submits that an outsider can assume that all the constitutional and statutory provisions which a company must comply with must be met. There is no obligation to make any internal check. An outsider can assume that the company director are appointed adequately and has power to bind by their acts under section 129 (2) of the Act. In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) it was held that assumption can be made that necessary requirements are comply with if any person is held out as the company director or agent (section 129 (3) and (4) of the Act), that is the authority are granted with adequate means and powers. In Vrisakis v Australian Securities Commission (1993) the principle was reinstated. (J Power, 2015)
One of the most important assumption that can be made by an outsider is that he can assume that all the documents which are framed by the company are complete and genuine (section 125 (5) & (6) of the Act) unless he is aware of the same. But, the documents are considered to be valid only when the provisions of section 127 of the Act are complying with. (J Power, 2015)
Section 127 (1) of the act submits that any document which is executed by a company with or without common seal is valid provided the documents are signed by 2 director or secretary and director. If a company is a private company and has only director/shareholder then the signature of the director is enough to validate the document and is rightly discussed in Pyramid Building Society v Scorpion Hotels Pty Ltd (1996).
Application of law
A company is formed which comprises of two directors and shareholders, namely Maria and David.
Now, $100,000 is required by Maria. The purpose to acquire finance is to use the money for the company along with her private usage. She intends to borrow the same from bank but guarantee is required by the bank from the company prior granting the loan.
Now, as per section 128 (1), the bank is empowered to assume assumptions under section 129 of the Act. Thus, as per section 129 (3) and (4), the bank can assume that the company must have empowered Maria to take loan on behalf of the company and thus the authority that is granted to her is as per due process.
Maria in order to secure loan has forged the signature of David. The Bank is empowered to assume under section 128 (3) even when the documents are forged, provided, that the bank is not empowered to assume anything if it is aware of the true facts of the situation as is rightly established in section 128 (4) of the Act. as per section 127, the document is signed by two directors, that is, David and Maria, thus, the presumptions can be raised easily.
Thus, Bank has made genuine assumptions provided he has no knowledge of the true facts and thus the guarantee provided to Maria is valid and if Maria fails to meet payments, then, the bank is empowered to enforce the guarantee against the company.
Australian Master Family Law Guide (2009) CCH Australia Limited.
Greig, D. W. (1988), ‘Commercial law’. Butterworths.
Chapple & Lipton (2002) ‘Corporate Authority And Dealings With Officers And Agents’, The Centre for Corporate Law and Securities Regulation.
Krawitz A (2002) ‘Protecting Outsiders to Corporate Contracts in Australia’ Volume 9, Number 3, Murdoch University Electronic Journal of Law.
Latimer P (2012) Australian Business Law 2012, CCH Australia Limited
Power J, (2015)‘Courage to move beyond the past: Common law and canonical structures for the governance of Australian congregational schools in the 21st century’, University of Notre Dame Australia.
Bell v Australian Eagle Insurance Co. Ltd , (1990)
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72.
Deputy Commissioner of Taxation v Austin (1998).
Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd, (1973)
Gye v McIntyre (1991) 98 ALR 393 at 403.
Maynegrain Pty Ltd v Compafina Bank, .
Natcomp Technology Australia Pty Ltd v. Graiche (2001).
Pyramid Building Society v Scorpion Hotels Pty Ltd (1996) 14 ACLC 679.
Re Ansett (1991) 9 ACLC 277.
South London Greyhound Racecourses Ltd v Wake  1 Ch 496.
Vrisakis v Australian Securities Commission (1993) 11 ACLC 763.