Company Law

QUESTION 1 - DIRECTORS' DUTIES

(a)         Purchase of Quality's fabric importing business

Division 2 of Part 2D.1 states that where director have a personal interest in contractual transacting with their company, Director must disclose that interests to the board of directors when conflicts arise and seek approval. Bing has an undisclosed interest in his consideration of acquiring Quality because he is a director and a major shareholder in Quality's and it is his family company. Thus sections 191 (1) and (3) which deals with disclosure of material personal interest and requires ratification of actions from shareholder is applicable yet Bing breached this duty. Thus failure to disclose interests will give the right to rescind the contract and the parties can be restored back to original position - Quality remains a major supplier of SF. Further, in the instance that Bing controls a majority of the share ownership ratification is invalid

As a consequence of s 191, Bing must not be present while the matter is being considered at the meeting or cast vote on the matter: s 195(1). Bing failed to absent himself from the dm process in regard to the purchase. Thus Bing contravened s 195(1) and (2) because he participated and attended SF Board meeting where the share issue to Quality was considered without any resolution being passed. The facts indicate that member's approval were not sought let alone obtained.

The section 210 exception is not available here because the giving of the financial benefit was not reasonable if SF and related party were dealings at arms length. The terms of the transaction appeared to be more favourable to the related party than the arm's length term. Not enough info in the case but it can be assumed that it is not arms length due to the fact...