 |
| |
|
 Director's control |
|
 |
|
 |
|
Author: Christopher BevanThis is an extract from Lawbook Company's Nutshell: Corporations Law by Christopher Bevan (Sydney: LBC, 1999, 4th ed). LBC Nutshells are the essential revision tool: they provide a concise outline of the principles for each of the major subject areas within undergraduate law. Written in clear, straightforward language, the authors clearly explain the principles, and highlight key cases and legislative provisions for each subject.
Section 221 provides that a public company must have at least three directors (of whom at least two must be ordinarily resident in Australia), and that a proprietary company must have at least one director (who must be ordinarily resident in Australia). A person is incapable of being appointed a director of a company unless he or she is a natural person: s 221(3).
A director of a public company shall retire at the age of 72 years. However, on attaining the age of 72 years, a director may be reappointed for one year by a special resolution carried by at least three-quarters of those entitled to vote: s 228(7).
A director must have attained the age of 18 years: s 228(13).
Control of company's affairs
Subject to the Act and to any other provision of the regulations, the business of the company shall be managed by the directors, who may pay all expenses incurred in promoting and forming the company, and may exercise all such powers of the company as are not, by the Act or by the regulations, required to be exercised by the company in general meeting: s 226A which is a replaceable rule and which provides that the business of a company is to be managed by or under the direction of the directors. It provides that the directors may exercise all the powers of the company except any powers that the Corporations Law or the company's constitution, if it has one, requires the company to exercise in general meeting.
In regard the discussion of the functions of the board of directors, in 1909, the House of Lords in Quin & Axtens v Salmon (1909) UK held that the directors have control of the day-to-day management of the company with which the general meeting cannot interfere.
In John Shaw & Sons (Salford) Ltd v Shaw (1935) UK, it was held, inter alia, that the general body of shareholders cannot usurp the powers granted by the articles of association to the directors any more than the directors can usurp the powers vested by the articles in the general body of shareholders.
It is clear that the directors and no one else are responsible for the management of the company, except in matters specifically allotted to the company in general meeting: Alexander Ward & Co v Samyang Navigation Co (1975) UK.
In Winthrop Investments Ltd v Winns Ltd (1975) NSW, in a case dealing with the power of the general meeting to validate breaches of duty committed by directors in preventing a takeover, the Court of Appeal dealt, inter alia, with the relationship between the company in general meeting and the powers vested by the articles of association in the directors. Samuels JA said that the shareholders may have ultimate control, because they can alter the articles or remove the directors; but they cannot interfere in the conduct of the company's business where the management, as in that case, is vested in the board. The company in general meeting has no general power to transact the company's business or to give effective directions about its management.
If the board of directors has acted beyond the powers given to it or the directors have acted in breach of their fiduciary duties, the directors can refer the matter to the general meeting. The general meeting can ratify the particular actions if they are within the power of the company, but must act with full knowledge of the relevant facts and without oppression of the minority: Bamford v Bamford (1970), UK approved in Winthrop Investments Ltd v Winns Ltd (1975) NSW.
A public company may by ordinary resolution remove a director before the expiration of her or his period of office, notwithstanding anything in its articles or in any agreement between the company and the director, but where any director removed was appointed to represent the interests of a particular class of shareholders or debenture-holders, the resolution to remove that director does not take effect until her or his successor has been appointed: s 227.
The director concerned may make written representations to the company (not exceeding a reasonable length) and request notification of particulars of those representations to members of the company. The company shall state the fact that representations have been made and send a copy of the representations to every member of the company to whom notice of the meeting is sent, and if a copy of the representations is not so sent because they have been received too late or because of a company's default, the director may, without prejudice to the director's right to be heard orally, require that the representations be read out at the meeting: s 227(5).
In Bushell v Faith (1970) UK, the relevant article provided that, in the event of a resolution being proposed at a general meeting of the company for the removal of a director, any shares held by that director should carry three votes per share. It was held that the article was valid and applicable despite the wording of the English equivalent to s 227. It was held that Parliament had not sought to fetter a company's right to issue a share with such rights or restrictions as it thought fit and these need not be of general application but could be attached to special circumstances and particular types of resolutions. The decision has been criticised but still remains the law.
Division of powers between the board and a managing director
The directors may from time to time appoint one or more of their number to the office of managing director for such period and on such terms as they think fit, and, subject to the terms of any agreement entered into in a particular case, may revoke any such appointment: s 226C(4).
In Harold Holdsworth & Co (Wakefield) Ltd v Caddies (1955) UK, a managing director of a holding company was appointed to perform the duties and exercise the powers of the business of the holding company and its subsidiaries as were assigned to him by the board of the holding company. It was held by the House of Lords that, after being confined to the business of one of the subsidiaries, this was not a breach of his service agreement.
The secretary
Until recently, the secretary was regarded as an administrative official of the company. However, in Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd (1971) UK, the defendant company was held liable to a car hire company for self-drive cars hired by the secretary for his own use but purportedly for business purposes of his employer company. Lord Denning said that a company secretary regularly makes representations on behalf of the company and enters into contracts on its behalf which come within the day-to-day running of the company's business. He said that a company secretary is certainly entitled to sign contracts connected with the administrative side of a company's affairs, such as employing staff, and ordering cars and so forth. All such matters came within the ostensible authority of a company's secretary: s 240(4A), which is a replaceable rule which provides that the company secretary will hold office on such terms and conditions as the directors determine.
Directors' meetings
The main change made to the Corporations Law relating to the management of companies by their directors relates to meetings of directors. Part 2G.1 of the Corporations Law now contains a statutory regime for the calling and conduct of directors' meetings.
Section 248A contains a regime for circulating resolutions in relation to companies that have more than one director. The director of a company may pass a resolution without a director's meeting being held if all of the directors entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document. The resolution is taken to have been passed when the last director signs it. Passage of a resolution under s 248A must be recorded in the company's minute book under s 251A.
In the case of a one director proprietary company, the director of a proprietary company can pass a resolution by recording and signing the record noting the terms of the resolution. The director of a proprietary company with only one director may also make a declaration by recording it and signing the record. Passage of a resolution or the making of a declaration under s 248B must also be recorded in the company's minute books under s 251A.
Sections 248C-248G provide the core rules necessary to hold a director's meeting (which naturally will only apply to a company with more than one director). Section 248C, which is a replaceable rule, enables a director's meeting to be called by any one director giving reasonable notice individually to every other director. A director who has appointed an alternate director may ask for the notice to be sent to the alternate director under s 225A. A director's meeting may be called or held using technology consented to by all of the directors and any such consent can be a standing consent to act until such time as it is withdrawn under s 248D. The directors may elect a director to chair their meetings and once elected that person will become the chairman: s 248E.
Section 248F provides that unless the directors determine otherwise, the quorum for a director's meeting is two directors and the quorum must be present at all times during the meeting. Section 248G provides that a resolution of the directors must be passed by a majority of the votes cast by directors entitled to vote on the resolution and the chairman to have a casting vote if necessary in addition to any vote they have in their capacity as director.
The directors of a company are for all intents and purposes in law, both by statute and case law, the controllers of a company. However, the law has cast certain fiduciary duties upon directors. These duties are owed by each director individually and, from at least 1902, these duties have been held to be owed to the company alone and not to the individual or collective shareholders of a company: Percival v Wright (1902) UK. As the constitutional documents of a company empower the directors to delegate their authority to employed officers of the company, these fiduciary duties are owed by any person to whom the duties have been so delegated. This of course is subject to any exceptions provided for by the Act that, individually or collectively, the directors must perform certain functions themselves.
The overriding general principle is that as fiduciaries, the directors must act with the utmost good faith towards the company in any dealings which they have with the company and in any transactions in which the company is involved.
There are cast upon the directors subjective duties of honesty and good faith and objective duties to so conduct themselves that the directors' individual interests do not conflict with those of the company. In practice, the directors must act in good faith and not for any improper purpose; they must not fetter their discretion and there must be no conflict between their personal interests and their duties to the company as directors.
The directors are required to act "bona fide in what they consider - not what a court may consider - is in the interests of the company and not for any collateral purpose": Re Smith & Fawcett Ltd (1942) UK. An illustration of this principle is in Re W & M Roith Ltd (1967) UK, where it was provided in a service agreement with the company that, on the director's death, his wife would receive a pension for life. As there was no benefit for the company, the court held that the transaction was not binding on it.
Christopher Bevan
BEc LLM (Hons)(Syd)
Barrister
Wentworth Chambers
1999
March, 2001
|
|
 |
|
