Breach of Common Law and Statutory Duties Under the Corporations Act 2001
On 17 February 2012 Builders Hardware Ltd., made public a new share issue proposal. The Company also made it clear that this would only apply to those who registered their shares before 31 December 2003. This was done in a bid to lock out the Victoria-based Powertools Ltd. from acquiring Builders H. Ltd. The takeover issue resulted in the revelation that all was not well within Builders H. Ltd.; there is possibility that the directors might have breached common law and statutory duties as stipulated under the Corporations Act 2001. According to the Corporations Act 2001, company directors are subjected to a broad range of duties. Keenly examining these duties reveals many violations of the Act by Helen as an executive director, the entire management under the board of directors of Builders H. Ltd.
Board of Directors
The Corporations Act calls on directors to conduct their duties in good faith, avoid conflicts of interest between the company and the directors, act in the best interest of the organization, honest and exercise care and diligence. According to Welch et al., the board of directors has the responsibility of establishing corporate responsibility in the firm as well as making decisions that are in line with share holders goals. They must avoid "neglegence resulting in reasonably foreseeable harm."[footnoteRef:1]The directors of Builders were concern by the proposed acquisition because they had fears of losing their positions in the firm. This was the motivating factor of the announcement on 17 February 2012. The move to issue bonus shares at discounted rates to shareholders who had registered before 31 December 2003 aimed at deterring Powertools Ltd. from taking over Builders H. Ltd. It is critical to ask whether the move was in the best interest of Builders H. Ltd. Or the interest of the board of directors. Powertools Ltd. saw lapses in Builders H. Ltd.'s management. In addition, Powertools Ltd. was of the view that a full takeover of the Company and restructuring of the management would be more benefit the shareholders, as the current management under the board of directors was not providing value for shareholders. [1: Donoghue v Stevenson [1932] AC 562]
Other than policy implementation, the main responsibility of the board of directors is to monitor the corporate and executive performance of the Company (Sternberg, 1998)[footnoteRef:2]. It is clear that the directors were more concern about their interests and not the Company's. This being the case, then, the directors of Builders H. Ltd. violated section 180 of the Corporation Act 2001, Care and diligence, subsection 2, business judgment rule (Office of Legislative Drafting and Publishing, 2012).[footnoteRef:3] The directors are required to pursue and serve the interest of all the Company's shareholders and not just a section of the directors or the stakeholders or even one of the director's personal or commercial interests. In circumstances of acquisition or proposed acquisition, the duty of the directors is to act in the best interest of all the shareholders of the Company. The courts emphasise the importance of company interest over any other interest, (Ramsay & Stapledon, 2001).[footnoteRef:4] The establishment of Company's corporate responsibility requires the directors to put in place an internal mechanism to regulate the actions taken by the people within the company to maintain their consistency with corporate objectives (Lipton & Herzberg, 1998).[footnoteRef:5] Further violation of the Corporation Act by the directors is evident in the way they handled Helen's negotiation with Powertools Ltd. Helen, in accordance with the Corporation Act 2001, disclosed of her interest in H. Tools to the Company. Despite this fact, the board of directors still entrusted her to negotiate on behalf of Builders H. Ltd. with Powertools Ltd. The directors failed to meet the required threshold of care and diligence by delegating to Helen sensitive company duties without paying any further attention. They should have taken active interest in the affairs of Powertools Ltd. To know whom they were dealing with. [2: Sternberg, E., 1998. Corporate Governance: Accountability in the Marketplace. London: Institute of Economic Affairs.] [3: Office of Legislative Drafting and Publishing, 2001. Corporations Act 2001. Canberra: Office of Legislative Drafting and Publishing.] [4: Ramsay, I. & Stapledon, G., 2001. Corporate Groups in Australia. Australian Business Law Review, 29, p.7.] [5: Lipton, P. & Herzberg, A., 1998. Understanding Company Law. Sydney.: LBC Information Services.]
Adherence to the Corporations Act 2001 provides a structural mechanism that can influence a company's operations positively by enhancing governance. This is one way of minimizing on such malpractices as witnessed in Builders H. Ltd.'s management.
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