The issue of this case is whether the board of Katia was in breach of the director’s duties.
In determining this issue, the legal principles in Corporate Act section 181 as well as Howard Smith v Ampol Petroleum, Whitehouse v Carlton Hotel, Mills v Mills, Ngurli v McCann, Harlowe’s Nominees v Woodside Oil and Winthrop Investments v Winns should be considered.
S 181 states that directors should exercise their powers in good faith and proper purpose. Subjective tests (which concerns whether the director acted honestly) are involved in determining the breach of good faith (Harris, Hargovan and Adams 2013). However, Harris, Hargovan and Adams (2013) also stated that since objective evidences may also be needed in determining the breach of good faith, it is easier to bypass the subject test and prove that such conduct failed to act for a proper purpose. Fiduciary duty cases at general law on the proper purpose rule are considered when determining the scope of ‘proper purpose’ in CA s 181 (2). That is to say, the two-step process proposed in Howard Smith v Ampol Petroleum should be used under such circumstance to prove the improper purpose. Moreover, in the situation of mixed purposes, a ‘but for’ test proposed by Dixon J in Mills v Mills is involved to determine the motivation of an action. When it is proved that an action was performed in breach of s 181, as stated in Note 2 of s 181, a civil penalty should be imposed. Moreover, it should be mentioned that if directors exercised their power recklessly or dishonestly while breaching s 181, criminal penalties could be imposed under s 184.
In this case, in order to prove whether the breach of the director’s duties exists, it is necessary to identify the director of Katia first. According to the definition of directors in CA s 9, the only director that can be identified is Natalie. It is worth mentioning that Jimpster, as a company, cannot be a director of Katia.
According to the decision of Greenhalgh v...
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