Workshop Five Questions: Directors' Duties And Banana Questi

Workshop Five Questions Directors Dutiesquestion Onebananas Pty Ltd

Explain whether Benita is entitled to retain the profits she has made from selling products to Bananas Pty Ltd, considering the company's constitution and potential conflicts of interest. Additionally, advise whether Bananas Pty Ltd could take any legal action against Ted Big for establishing TJ Pty Ltd and its dealings that may compete with or undermine Bananas Pty Ltd.

Paper For Above instruction

The first question pertains to the director's duties and conflicts of interest within the context of Bananas Pty Ltd, a company with a successful export business manufacturing sleepwear. Benita One, who is the non-executive Chairperson, also owns a material importing business from which she supplies products to Bananas Pty Ltd. She believes she is entitled to retain her profits because the prices charged are fair and the company’s constitution does not explicitly prohibit such transactions. Meanwhile, Ted Big, the Marketing Director, facilitated the creation of TJ Pty Ltd, which manufactures and sells dressing gowns, and this new company has prospered, attracting Bananas Pty Ltd’s international customers, many of whom are under contractual arrangements with TJ Pty Ltd.

Benita’s assertion that she can retain profits from her dealings with Bananas Pty Ltd assumes that her actions do not breach any fiduciary duties, conflicts of interest rules, or the company's constitution. Under Australian Corporations Law, particularly the Corporations Act 2001 (Cth), directors are bound by the duties of loyalty and to avoid conflicts of interest. Section 181 imposes a duty of good faith and best interests of the corporation, while Section 182 constrains directors from improperly using their position to gain advantage or cause detriment. Moreover, Section 182 forbids directors from improperly using their position to gain an advantage for themselves or someone else, or to cause detriment to the corporation.

Benita’s role as a director entails a fiduciary duty to declare any interest in transactions and to act in the best interests of the company. If she failed to disclose her dealings with her business or engaged in transactions without proper disclosure or approval, she could be liable for breach of her fiduciary duties. Even if the transactions are at arm's length with fair prices, the absence of proper disclosure and approval could breach directors’ duties under the law.

Furthermore, the company’s constitution plays a role in this assessment. Many constitutions contain provisions requiring directors to disclose interests in transactions or prohibiting certain dealings without shareholder approval. The fact that Bananas Pty Ltd’s constitution makes no mention of such restrictions does not automatically authorize directors to act without regard to their fiduciary duties. The law tends to impose duties that cannot be overridden by the company’s constitutional provisions alone. Therefore, even if the constitution does not explicitly restrict Benita's conduct, her actions could still breach her duties if she did not disclose her interest or if her dealings were not for the benefit of the company.

Regarding the profits, if Benita’s transactions were conducted in good faith, with fair prices, and with proper disclosure and approval, she might be entitled to retain her profits. However, absent any documentation indicating such procedures, there is a risk that her actions could be viewed as a conflict of interest, requiring her to account to the company for the profits made.

In relation to potential legal actions against Ted Big, Bananas Pty Ltd could consider two possible claims. First, the company might allege that the establishment of TJ Pty Ltd and its dealings with competitors or customers of Bananas Pty Ltd constituted a breach of director’s duties, particularly the duty to avoid conflicts of interest and fiduciary duties under Sections 181-183 of the Corporations Act. Second, if Jemima, the sole director and shareholder of TJ Pty Ltd, used her position or information obtained in her capacity as director of TJ Pty Ltd to divert business from Bananas Pty Ltd, it could amount to a breach of her fiduciary duties and potentially misappropriation.

Furthermore, the law recognizes the principle of corporate opportunity, which prohibits directors from diverting business opportunities belonging to the company for personal gain. If Ted Big’s conduct or Jemima’s roles involve taking advantage of business opportunities that should have belonged to Bananas Pty Ltd, the company could argue that there has been a breach of fiduciary duty.

In conclusion, Benita’s entitlement to retain profits hinges upon whether her dealings were disclosed, transparent, and conducted at arm’s length under fair terms. She might have breached her duties if she failed to disclose her interests or if her transactions were not in the company’s best interests. As for Bananas Pty Ltd, it could potentially pursue legal action against Ted Big for breaches of fiduciary duties, misappropriation of business opportunities, or unfair competition, depending on the facts surrounding Jemima’s conduct and the circumstances of TJ Pty Ltd’s dealings.

References

  • Australian Securities and Investments Commission. (2020). ASIC Guide to Directors’ Duties and Responsibilities. ASIC.
  • Australian Government. (2001). Corporations Act 2001 (Cth). Commonwealth of Australia.
  • Kean, K. (2019). Directors' Duties and Conflicts of Interest under Australian Law. Journal of Business Law, 28(3), 45-59.
  • Davies, P. L. (2017). Gower & Davies' Principles of Modern Company Law. Sweet & Maxwell.
  • Harris, J., & Coates, L. (2014). Company Law. Oxford University Press.
  • Gamble Pty Ltd v. Commonwealth Bank of Australia (2012). Australian Court Case Law.
  • Li, T. (2020). Fiduciary Duties of Directors and Conflict Management. Melbourne University Law Review, 44(2), 536–552.
  • Turner, A. (2016). The Law of Company Directors. Cambridge University Press.
  • ASIC. (2021). The Role of Directors’ Duties in Australian Company Law. ASIC Regulatory Guide 247.
  • Fitzgerald, P. (2018). Business Ethics and Corporate Governance. Palgrave Macmillan.

Related Assignments