Assignment Corporation Law

Topics: Corporation, Subsidiary, Comprehensive annual financial report Pages: 5 (1564 words) Published: January 20, 2015
Assignment Corporation Law (CLW 3100)
Name: Phuong Thao, Nguyen Student ID :121946
Introduction:

This case is related to the director’s duties. According to the Corporation Act, five directors of De-Caffeine Delights have breached their duties as directors. There are 5 issues in this case:
1.Costa, De-Caffeine’s CFO reported wrong financial status and other directors, Elliot, Chloe and Raj, didn’t read financial report carefully. 2. The board decided to pursue an aggressive marketing campaign in an attempt to boost sales. 3. Elliot, Chloe and Raj, who also sit on the board of coco Delights, in an effort to bail out De-Caffeine, approved the sale of Coco’s prime office property (worth $5.5 million) to Caffeine Delights for $500,000. 4.De-Caffeine hadn’t maintained its financial records properly form Feb-Aug 2013 5. Su Lin was holidaying in the South of France when De-Caffeine’s board meeting took place. Issue 1: Costa and other directors, Elliot, Chloe and Raj, have breached section 180 (1) of Corporation Act 2001. Rule:

Section 180 (1) states:
“A director or other officer of a company must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: were a director or officer of a company in the company’s circumstances; and occupied the office held by, and had the same responsibilities within the company as, the director or officer.” (Corporations Act 2001 (Cth) s 180) Case law: ASIC v Vines1; AWA Ltd v Daniel2.

Application:
In ASIC and Vines, the defendant, Vines, was CFO’s GIO Insurance and also a director of GIO Insurance had contravened the statutory duty of care, skill and diligence under the Corporation Act because of publishing an incorrectly profit forecast. According to the case law ASIC and Vines, Costa, De-Caffeine’s CFO had breached section 180 (1) of Corporation Act 2001 about the statutory duty of care, skill and diligence. Because he reported incorrectly financial status of De-Caffeine Delights. At a recent De-Caffeine board meeting, he reported to the board that the company had made a profit of $1.5 million for the financial year ending 2014. In fact, customer numbers dwindled and within a year sales plummeted. As a result, the company was struggling to meet its loan repayments and had to sell some of its major assets to meet its debt and to report a profit. In addition, in AWA Ltd v Daniels case, the Court of Appeal held that AWA was contributory negligent because Daniels reported the defects in AWA’s system of internal controls but, although he mentioned this to CEO and to senior management, this warning was not passed on the board. In this case, when Costa circulated the financial report to the directors, nobody care about this. They merely glanced at it and put it away. So other directors, Elliot, Chloe and Raj have also breached the statutory duty of care, skill and diligence under the section 180 (1) of Corporation Act 2001. Other directors didn’t read financial report carefully and made an independent assessment of the information or advice so they can’t take benefit from section 189 (b)3 of Corporation Act 2001.

Issue 2: Directors have breached section 180 (1) about duty of care and diligence, and section 181 (1) about the good faith because they decided to pursue an aggressive marketing campaign.

Rule:
- Section 180(1): the same in issue 1
- Section 181(1): “Good Faith- directors and another officers. A director or other officer of a corporation must exercise their power and discharge their duties:
(a) in good faith in the best interests of the corporation; and
(b) for a proper purpose.” (Corporations Act 2001 (Cth) s 181) - Case law: AWA Ltd v Daniels4.
Application:
Directors have breached their duties of care, skill and diligence and also they didn’t act in good faith in the best interests of the company because the marketing campaign didn’t take benefit to the company. Finally, the...
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