Obligations Proxies Under Corporations Law -Myassignmenthelp.Com

Question: Discuss About The Obligations Proxies Under Corporations Law? Answer: Introduction ASIC v Whitlam [2002] NSWSC 591 is a leading case which highlights the disqualification of director of company, when they breach the civil penalty provisions covered under the Corporations Act, 2001. This case had Justice Gzell of the Supreme Court of New South Wales stating that even though the general goal in disqualifying a person was to safeguard the public, there is also the significance of the deterrence from the future conduct which mandates such disqualification, when the judges decide upon such orders being made or in not doing the same. This case presents that the chair of the board are required to maintain high standards at all times (Hincy and McDermott, 2018). Though, this decision was reversed later on by Court of Appeal. Background information On July 10th, 2003, a lower court finding was reversed by the Court of Appeal where it was held that Whitlam had been in breach of the different sections of the erstwhile Corporations Law. There were a number of allegations made regarding the contraventions made by Whitlam, in his failure of properly voting against the Resolution 6, which had been instructed upon by the shareholders, who had appointed Whitlam as their proxy. This particular resolution had proposed certain amendments to the Articles of Association, which would have resulted in the fixed amount of annual remuneration being increased and the same being distributed amongst the directors, where the resolution was passed. This raise was to $665,000 from the earlier $617,000, and this resolution was supported by Whitlam (McConvill and Bagaric, 2004). There was a failure by Whitlam in signing the poll papers which covered the votes given by 3973 members, which were against this particular resolution. Based on the articles of association of NRMA, these votes were rendered invalid as a consequence of this. Even though the votes were not counted up earlier, the returning officer got legal advice on this matter where the law provided that these votes had to be counted up, even with the failure of Whitlam in signing these poll papers. This ultimately led to the votes against the resolution being counted up and this resolution was resultantly defeated. However, this was done a little too late and the publications were made in the newspaper advertisements, which showed the opposite (Neylan, Mir and Sato, 2018). This led to the ASIC initiating civil proceedings against Whitlam, who was the Chairman and President of the company, where it was stated that Whitlam had breached section 232 of the Corporations Law in his failure on voting the proxies, based on the instructions given by the members, against the resolution. Further, it was claimed that Whitlam had been in breach of sections 180, 181 and 182 of the Corporations Act, 2001 (Cth) (CA) in terms of changing the minutes of meeting of directors of the NIGL (Allens, 2002). Duties breached The director duties mentioned to have been contravened by Whitlam are the three key duties of directors, which attract civil penalties covered under 1317E of CA. Under section 180(1) of this act, the duty of care and diligence as a civil obligation has been provided (Jade, 2018). This section provides that the directors in the company have to exercise their powers and fulfil their duties with a degree of diligence and care, as would be done by a reasonable individual, where: This person was the director of company in the circumstances; and Held the office of the director and had the same responsibilities in the company (WIPO, 2015). Under section 181 of this act, the civil obligation of good faith is covered (Cassidy, 2006). This section provides that the directors in the company have to exercise their powers and fulfil their duties in best interest in good faith of company and for a proper purpose (Latimer, 2012). Section 182 of this act provides civil obligations regarding the use of position. This section provides that the directors in the company are not to make an improper use of the position which they have in the company, for gaining an advantage for themselves or for someone else; or causing detriment to the company (ICNL, 2018). Under 1317E of CA, when the court gets satisfied regarding the contraventions of the aforementioned provisions, they make a declaration of contravention, where the details of such breach are provided (Gibson and Fraser, 2014). When this declaration has been made, ASIC can seek disqualification order against the director based on section 206C of this act, or seek a pecuniary penalty order based on section 1317G of CA (Australian Government, 2018). Decision of the court Initially, the decision was given in favour of the ASIC by Justice Gzell. He stated that there had been deliberate omissions by Whitlam to sign the poll papers in context of the resolution and the intent here was to disenfranchise the voters who had actually appointed him as their proxy. In his view, Whitlam was attempting to override the intentions of the company members in a deliberate manner, where he knew that the voters were against the passing of this resolution as a special resolution. Based on this, it was held by the court that Whitlam had been in contravention of a number of provisions of Corporations Law, which included the failure of acting in an honest manner based on section 232(5), the improper use of position based on section 232(6) and breaching the duties of chairman regarding the proxies based on section 250A(c). These coincide with the present day quoted sections of the CA (Neylan, Mir and Sato, 2018). This led to Justice Gzell making an order which prohibited Whitlam from managing the company for duration of 5 years and also imposed a civil penalty of $20,000 on Whitlam (Segal, 2002). While making these orders, it was stated by Justice Gzell that not only the director in position of Whitlam, acting as proxy of voters, acted as agent with regards to the appointed shareholder as principal; but the shortfall of the director appointed as proxy for voting purposes based on the instructions of the members who appointed such person, was the contravention of the duty qua director. The failure of Whitlam, in context of signing of the poll papers, was as a result of this, seen as a violation of the duties which he owed in his capacity as the director of the company (Neylan, Mir and Sato, 2018). It was held by the court that in entertaining, revising and circulating the adoption of revised minutes of board of NIGL, Whitlam had failed in exercising the degree of diligence and care which a prudent individual holding the position of Whitlam would have exercised and would have thus breached the provisions of section 180(1) of CA. Justice Gzell though did not find Whitlam guilty for contravention of sections 181 and 182 as it was not the duty of Whitlam to determine that the minutes of board meeting had been prepared accurately. He did not get any kind of additional remuneration or even result in the recording of the same in the documents of the company which entitled him to some additional remuneration. This led to the ruling being given based on the breach of section 180(1) of CA alone (Allens, 2002). Appeal decision The decision by the Court of Appeal was made in favour of Whitlam where they reversed a range of findings given by the previous judge. Even though the court left the possibility of Whitlam having failed in signing the poll papers as deliberate one, they did find enough evidence to show that this failure in signing was not a dishonest act. The court also reversed the finding of the previous judge regarding Whitlam having contravened section 250A(c) in context of failing to vote, as a chairperson appointed proxy, as he had been instructed. This was due to the fact that Whitlam had actually voted regarding the resolution, by simply completing and filing the unsigned poll papers. The most crucial element was the overturning of statements by Court of Appeal of principle made by the earlier judge in context of the duty of director proxies to vote based on the instructions of the appointing shareholders. It was held by the Court of Appeal that Whitlam had not been voting as director and was simply acting as an agent. Thus, Whitlam was not held to have contravened the duties as a director of the company (Neylan, Mir and Sato, 2018). Here, voting based on the instructions of the shareholders was not a duty of Whitlam in the position he held in the company, and this was also not Whitlam exercising his powers as a director. Just because Whitlam had been a proxy owing to the position which he held as the director was not sufficient to make the dealings with the votes of shareholders and the poll papers, as a discharge of his duties as a director. Till the time there was an involvement of certain further element, the duty of Whitlam regarding the voting of proxy votes was just to the proxy providers, and this was in no way to the company, making it not a part of his duty as a director. Therefore, in principle, the director proxy is under the obligation of voting as per the instructions of the individual based on the fiduciary duty which was raised owing to the relationship of agency. There was no further fiduciary duty which was imposed on the director-proxies, owing to the lack of special facts. The court here left the possibility open that based on the law, a director could be appointed as the proxy under a duty in their capacity as director for voting based on the instructions of the shareholders. This was in context that such a director was not duty bound to threaten or challenge the normal procedures of AGM. Interestingly, this issue was not decided. Though, such an argument is bound to raise questions on appeal, particularly the ones which had not been raised at the very first instance (Neylan, Mir and Sato, 2018). Relevance Even if the decision of the Court of Appeal is technically sound, it does manifest out of step in context of the present expectations of the general public regarding corporate governance. This is more so in context of the reasonable expectations of the shareholders in giving the proxies to the chairperson of the company. As a result of this decision, it presents that the law provides no great protection or even recourse to the proxy giver where the proxy is given by them to the stranger who is not well versed in meeting and corporate procedures, or to the chairperson. The proxy holders are thus merely the agents, and they have no more roles to play. This is quite unsatisfactory. This is because the shareholders are used to giving their proxies to the chairpersons owing to the position held by them, which is at the very centre of all of the meeting and voting procedures, along with their assumed superior competency and knowledge. Understandably, the shareholders not only expect a high level of competence, but they also expect a high level of lawful duties owing to the office which is held by the chairperson (Neylan, Mir and Sato, 2018). Conclusion Thus, based on the discussion carried in the previous segments, it can be concluded that ASIC v Whitlam saw the ruling being initially given in favour of the ASIC and Justice Gzell holding that the director duty covered under section 180(1) of CA had been breached. However, when the matter reached the Court of Appeals, they reversed the decision and held that there had been no breach of director duties by Whitlam. This was due to the fact that while acting as the proxy of the voters, he had failed in his fiduciary duties which he owed to the voters as a proxy, but not the duties of the directors which he owed towards the company. This decision is however a bit harsh for the proxy voters, who place their trust on the chairpersons due to the position which they hold in the company while making them their proxy holder. References Allens. (2002) Cases. [Online] Allens. Available from: https://www.allens.com.au/pubs/itm/sep02/cases.htm [Accessed on: 21/01/18] Australian Government. (2018) Corporations Act 2001. [Online] Australian Government. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 21/01/18] Cassidy, J. (2006) Concise Corporations Law. 5th ed. NSW: The Federation Press. Gibson, A., and Fraser, D. (2014) Business Law 2014. 8th ed. Melbourne: Pearson Education Australia. Hincy, R., and McDermott, P. (2018) Management of Companies. [Online] Pearson Ed. Available from: wps.pearsoned.com.au/wps/media/objects/2604/2667009/summaries/Chapter5.doc [Accessed on: 21/01/18] ICNL. (2018) Corporations Act 2001. [Online] ICNL. Available from: https://www.icnl.org/research/library/files/Australia/Corps2001Vol4WD02.pdf [Accessed on: 21/01/18] Jade. (2018) Corporations Act 2001 (Cth). [Online] Jade. Available from: https://jade.io/article/216652/section/2204 [Accessed on: 21/01/18] Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCReferencesJ., and Bagaric, M. (2004) Ambiguities and Inconsistencies in Relation to the Obligations of Proxies under Corporations Law: A Model for Reform. University of New England Law Journal, 1(1). Neylan, M., Mir, S., and Sato, K. (2018) Duty-free director-proxies: Whitlam v ASIC. [Online] Find Law. Available from: https://www.findlaw.com.au/articles/486/8216duty-free8217-director-proxies-whitlam-v-asic.aspx [Accessed on: 21/01/18] Segal, J. (2002) Corporate Governance: Substance Over Form. University of New South Wales Law Journal, 25(2). WIPO. (2015) Corporations Act 2001. [Online] WIPO. Available from: https://www.wipo.int/wipolex/en/text.jsp?file_id=370817 [Accessed on: 21/01/18]