Fenner Fashions Ltd designs fa

Fenner Fashions Ltd designs fashion items, including clothing,accessories and cosmetics. Fenner Fashions has three directors onits Board, and these directors are also directors of a subsidiarycompany of Fenner Fashions called Mean Beanies Pty Ltd (MeanBeanies). The three directors are majority shareholders in bothFenner Fashions and Mean Beanies.

During August of 2019, Mean Beanies contracts with another company,No Sale Pty Ltd, for the purchase of goods to the value of$250,000. In due course, No Sale Pty Ltd fails to deliver the goodsto Mean Beanies, and the company does not refund any money to MeanBeanies.The three directors of Mean Beanies decide not to commence legalaction to recover the $250,000 from No Sale Pty Ltd. They simplyadvise: “it would not be an advisable course of action”.This decision results in a major loss for Mean Beanies that alsohas a serious financial effect on Fenner Fashions.

The minority members of both Fenner Fashions and Mean Beaniesare concerned with the way the company is being run by the 3directors, and so they seek legal advice.

Question 2: Answer both A and B

A). Outline the liability of the directors in terms oftheir duties under the Corporations Act 2001 (Cth). Havethe directors breached their duties to either Fenner Fashions orMean Beanies? .

B). Identity the possible remedies that the minoritymembers could seek against Fenner Fashions and Mean Beanies.Consider whether the minority members are likely to be successful.

Answer:

A)

As a director of a company, you owe duties to thecompany under the Corporations Act 2001 and at law, such as the duty to act in the bestinterests of the company and the duty to act with care anddiligence. A breach of those duties will render you personallyliable to the company for any loss suffered by thecompany.

However,you can also be personally liable as a director under a variety ofstatutes, including if you are ‘involved’ in a contravention byyour company under those laws. This is commonly known as‘accessorial’ liability and whilst the reach of accessorialliability varies, it generally covers instances where you have been‘involved’ in a contravention by:

  • aiding, abetting, counseling or procuring thecontravention;
  • inducing the contravention, including by threats, promises orotherwise;
  • being in any way, including by act or omission, directly orindirectly, knowingly concerned in or a party to the contravention;or
  • Conspiring with others to effect the contravention.

Directors may be liableas an accessory to their company’s contravention of theCorporations Act under section 79 of the Act if they were‘involved’ in the contravention.

Anexample of this is the well-known case of Asic v Adler and 4Ors [2002] NSWSC 171, where the Supreme Court held that threedirectors of the collapsed insurance company HIH Insurance Limited(HIH), were ‘involved’ in HIH and its wholly owned subsidiary’scontraventions of section 208 (related party financial benefitswithout shareholder approval) and the subsidiary’s contravention ofs260A (financial assistance for the purchase of shares) of theCorporations Act.

As decribe in Sec. 197 also Directors are liable for debts andother obligations incurred by them as trustee, they would liable todischarge the whole or a part of a liability incurred by them toM/s Mean Beanies.

B)

Section234 of the Act sets out who may apply for an order under section232 of the Act. Those people are:

· a member ofthe company, even in circumstances where the application relates toan act or omission that is against the member, it may also relateto an act or omission that lies against another member in theircapacity as a member;

· a person whohas been removed from the register of members because of aselective reduction;

· a person whohas ceased to be a member of the company, if the applicationrelates to the circumstance in which they ceased to be amember;

· a person towhom a share in the company has been transmitted by will or byoperation of law;

· a personwhom ASIC thinks is appropriate, having regard to investigations itis conducting or has conducted into the company’s affairs ormatters connected with the company’s affairs.

Incircumstances where oppressive or unfair conduct can beestablished, then the Court, in exercising its discretion, maygrant a remedy appropriate to the circumstances pursuant to section233 of the Act.

Theobjects of section 233 of the Act are to compensate the injuredparty or parties and, of course, bring the conduct that is causingthe oppression or unfair conduct to an end.

Someexamples of the orders that may be appropriate for a court to makeare as follows:

· the companybe wound up;

· theconstitution of the company be modified orrepealed;

· regulatingthe conduct of the company’s affair in future;

· restraininga person from engaging in specified conduct or from doing aspecified act;

· the purchaseof shares of any member by other members or a person to whom ashare has been transmitted by Will or by operation of law;or

· appointing areceiver or a receiver and manager.

As per above said discussions it is evident that minoritymembers can succeed in their case against the majority members.


 
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