session13 ppt[1]

8/7/2019 session13 ppt[1]

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Session 13Session 13Consequences of breachConsequences of breachof director¶s dutiesof director¶s duties

By:Teng Jun QiGoh Yu Lei



Case 1Case 1Fr om the facts of VH case in session 8 & 9

y (a) List the consequences for br each of

these duties



Case 1Case 1 -- ConsequencesConsequencesy Br each in statutor y duties

Cr iminal action

y

Br each in gene

r al law Civil claim



Breach of statutory duties


Person Duty breached Consequences

Peter

for inflating

revenue

340(1)

Duty not to engage in

fraudulent trading

340(5)

Fine not exceeding $15000 or

imprisonment for a term not

exceeding 7 years, or both

154(1)

Where a person is convicted of any

offence involving fraud or dishonesty

punishable with imprisonment for 3months or more, he shall be subject

to disqualification in subsection (3)




Breach of statutory dutiesPerson Duty breached Consequences

Peter

for inflating sales

revenue

John for not making

proper inquiry

regarding the

accounts, especially

he is the CFO of VH

Holdings, have a

higher standard

157(1)

Duty to act

honestly

and with

reasonable

diligence

157(3)(a)

Liable to company for any profit made

by him or for any damage suffered by

the company as a result of the breach

of any of those provisions &

157(3)(b)

Guilty of an offence and shall be

liable on conviction to a fine not

exceeding $5000 or to imprisonment

for a term not exceeding 12 months

154(1)

Disqualification as director




Breach of statutory dutiesPerson Duty breached Consequences

Peter

for inflating

revenue

199(1)

Duty to keep proper accounts

Directors should keep

accounting and other records

as will sufficiently explain the

transactions and financial

position of company and

enable true and fair profit and

loss accounts and balance-

sheets to be prepared from

time to time

199(6)

Fine not exceeding $2000 or

imprisonment for a term not

exceeding 3 months and also a

default penalty



Breach of general law duties

Breach of general law dutiesPerson Duty breached Consequences

Peter for

inflating sales

Duty of care

(reasonable care and

diligence)

Breach is continuing Injunction

Company suffer loss compensation

or damages





John Duty of care

(reasonable care and

diligence)


or damages





Peter for

inflating

revenue

Duty to act in good

faith in best interest


or damages



Case 1Case 1y (b) For duties that wer e br eached, discuss

whether the dir ector s ar e likely to succeed

in obtainingr

elief f r

om the cour

t pur

suantto section 391



Section 391 Court Relief Section 391 Court Relief y The liabilities that may be excused

includes claims for compensation and for

an account of pr

ofits.y The cour t does not have any power tor elief a per son f r om cr iminal liability.



Section 391 Court Relief Section 391 Court Relief Conditions:

y Wher e dir ector acted honestly andr easonably

y Cir cumstances ar e such that the per sonought fair ly to be excused



Section 391 Court Relief Section 391 Court Relief Duty Relief?

Duty not to engage in fraudulent

trading

No (criminal liability)

Duty to keep proper accounts No (criminal liability)

Duty to act honestly and with

reasonable diligence

Peter for inflating revenue No

John for not making proper inquiry

about accounts Maybe

Where director acted honestly and reasonably ?

Circumstances are such that the person ought fairly to be excused?



Section 391 Court Relief Section 391 Court Relief Duty Relief?

Duty to use power for proper

purpose

Peter - No

Duty to act in good faith in best

interest

Peter for inflating revenue No

Where director acted honestly and reasonably ?

Circumstances are such that the person ought fairly to be excused?



Case 2Case 2Fr om the facts of Fr esh Gr ocer ies in session 10

& 11.y Assume that after Gar y enter ed into the joint

ventur e Dair y Pr oduce, he asked for µfor giveness¶ at Fr esh Gr ocer ies gener almeeting.

y Ther e, Gar y, who own shar es in Fr eshGr ocer ies, voted in favour of an or dinar yr esolution to r atify his br each of duty.

y (a) Is the member ¶s r atification valid?Explain.



The member cannot ratify a breach of duty if(Withreference to CACL pg 272):

1.It is oppr essive and may be challenged under section 216.

2.It br each the equitable limitation on major ity power .

Section 216 (With reference to CACL pg 280) : Thecompany affair s ar e conducted or the dir ector s¶ power s ar eexer cised: (a) In an oppr essive manner to the member ¶sinter ests, or (b) in disr egar d of the member ¶s inter ests.

Or

an act is done or

thr eatened o

r a membe

r s¶

r esolution ispassed or pr oposed which: (a) unfair ly discr iminates against

one or mor e member s. Or (b) is other wise pr ejudicial to one or mor e member s.



By allowing Gar y to par ticipate in the voting, the voting isconducted in an oppr essive manner to the member ¶s

inter ests. Since the r esolution can be challenged by Section216, the r atification is invalid.

Assume that passing the r esolution is the decision of major ity.

Equitable limitation(with r efer ence to CACL pg162):³Member s must exer cise their vote bona fide for the benefitof the company (or class) as a whole.´

If Fr esh Gr ocer ies r atify Gr ay¶s br each, the company will not

be able to r ecover the pr ofit Gar y made in Cyber Gr ocer ies.In this case the major ity decision will not benefit thecompany as a whole. Since ther e is a br each of the equitablelimitation on major ity power , the r atification will be invalid.



Case 2Case 2y (b) Assuming Gar y is in br each of his

duties to the company, discuss the

consequences of those br

eaches



Section 157 (2) pr ohibit officer s(including past officer s) or

agents of the company for m mar king impr oper use of infor mation that they acquir e by vir tue of their position asofficer s or agents of the company to gain, either dir ectly or indir ectly a benefit for themselves or any other per son. Theyalso cannot make use of the infor mation to cause detr iment

to the company.

It was Gar y¶s dir ector position in Fr esh Gr ocer ies, that allowhim to have access to supplier s¶ sales pr ice list and Dair y

Pr oduce¶s joint ventur e pr oposal. Using the infor mation tohis own benefit, Gar y has br each section 157 (2).



Consequence:F

ine up to $5,000 or

be impr

isonment up toone year .

Gener al law: Br each of duty to avoid conflict of inter est

Consequence: Since Fr esh Gr ocer ies did not suffer a lostdue to the br each, Fr esh Gr ocer ies can make Gar y to paythe pr ofit he make in Cyber Gr ocer ies to the company.



Thank youThank you

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