Professional Documents
Culture Documents
Case 1
In this case, there have some issues as below:
1. What does the company want to do?
It wants to set aside _____________ or claim compensation or damanges equal to the amount of ___________
2. What is the best course of legal action that would benefit the company?
Breach of a common law duty would enable a claim for ___________________________
Breach of statutory directors' duties will enable for ________________________
3. Can claims for breach of common law duty and statutory duty be brought against ___________?
4. What is identification of ________________ in the company?
Is he a director or officer? What kind of director he is?
5. Facts - Are directors acting bona fide in the best intersts of the company as a whole and for a propose purpose?
6. Facts - Did any director improperly use their position to disadvantage the company?
7. Facts - Did any director improperly use information belonging to the company?
8. Facts - Did any director breach the duty to avoid conflict of interest?
9. Facts - Did the company trade while insolvent?
10. Facts - Did the directors allow the company to trade while insolvent?
11. Have the directors breached their duty to retain their discretion?
12. ____________ is a nominee director, any obligation he owe to the company? Or any exception?
This case relates to the Common Law and Statutory Law as below:
1. If common law remedies are to be sought against _______________, he must be able to be classified as a
director at common law.
- Director is defined in s.9
a. a person who is appointed - 'de jure'
i to the position of a director
ii to the position of an alternate director and is acting in that capacity
b. a person who is not validly appointed but
i they act in the position of a director - 'de facto'
R v.Drysdale
- non re-elected director continued to act in that role
Mistmorn Pty Ltd (in liquidation) v. Yasseen (1996) 14 ACLC 1387
- Not appointed person acted with business card described as managing director, negotiated
transactions on compnay's behalf - fund only to have attempted to avoid legal
consequences but nevertheless a de facto director
Deputy Commissioner of Taxation (DCT) V Austin (1998) 1034 FCA
resigned director continued to help out friends as director. Court looked behind the
-
formalities
ii the directors of the company or body are accustomed to act in accordance with the person's
instructions or wishes, regardless of the name: except those in a professional capacity / relationship -
'shadow'
Standard Chartered Bank of Australia Ltd v. Antico (1995) 12 ACLC 1381 (Antico's case)
Nominee directors are at risk of breach of duty at common law if they act other than in the best interests of the
company of which they are director. They could be in breach if their orders from their appointor are in conflict
with the company's interests. s.187 - Nominee director of a wholly owned subsidiaries may also act in the best
interests of subsidiaries if :
a consitution of the subsidiary expressly authorises the director to act in the best interests of the holding
company, and
b director acts in good faith in the best interests of the holding company, and
c the subsidiary is not insolvent at the time the director acts and does not become insolvent because of the
director's act
2. If ____________ is a director, is he guilty of any breaches of common law duties and statutory duties?2/196
Breach of Company Law duties
- to act bona fide in the best interests of the company
- In the action of __________________. Subjective test required - was the action down in good faith
in the best interest of the company as a whole?
Elements : honestly, integrity, best interests of company
- to exercise powers for a proper purpose
- (1) for what purpose was the power granted to the directors?
(2) for what purpose was the power actually exercised
- but for test'
Where directors are motivated by a number of motives when exercising a power. If it can be shown
that the directors would not have acted on the substantial proper purpose but for the presence of the
improper minor motive, the impropriety of the minor motive contaminates the dominant motive and
renders it also improper.
Elements: exercise of power, proper purpose is defined as being in the best interest of the company
- to retain discretion
- a director cannot delegate the discretionary powers that they hav in their capacity as directors, unless
they have the authority of the company to do so, and the power is one which is capable of
delegation. Some powers cannot be delegated
- to avoid conflicts of interest
- prohibits a directors who stands to gain, or does gain, an advantage in a commercial or other
relationship with the company, from exploiting their relationship with the company, whether there is
a detriment to the company or not.
- duty of care and diligence
- the directors must not be negligent when making business decisions and must keep themselves
informed, committed and to perform to a reasonable standard
Statutory Law
s.180(1) requires a director or an officer to exercise the care and diligence of a reasonable person
i the corporation's circumstances
ii. the officer's position and responsibilities within that corporation
s.180(2) gives protection to a director who makes a business decision in accordance with the business
judgement rule
i acted in good faith for a proper purpose
ii. did not have a material personal interest in the subject matter
iii acted on what they consider to be an informed() basis
iv rationally believed it to be in the best interst of the company
s.181 requires a director or an officer to exercise their power and discharge their duties in good faith in the
best interest of the company and for a proper purpose
s.182 prohibits directors, officers and employees from making improper use of position for personal gain
s.183 prohibits directors, officers and employees from making use of insider information for personal gain
s.180-s.183
are civil peralty provision
s.184 breach s.181, 182, 183 can also be criminal offence if the directors have intentionally or recklessly
failed their duties and they have been dishonest
s.189 protects a director if, after acting in good faith and making proper inquiries, they have reasonably
relied on information and expert advice provided by others
3. If ___________ breached these common law duties, ______________ remedies will be available. 3/196
* Account for profits
* Damages and compensation
* Injunction
* Declaration
* Restoration(還原) of property
* Rescission(撤銷)
The remedies for breach of statutory duties also allow for damages and compensation under s.1317H
# Civil penalty provision
# - s.206A - Disqualification order
# - s.1317G - Pecuniary penality of up to $200,000
# - s.1317H - damages and compensation
# Criminal penalty provisions
# - s.184 - the conduct was either dishonest or reckless
Conclusion
The director - appear to be in breach of the duty to act bona fide in the best interests of the
company and for a proper purpose. They are also in breach of their duty to avoid a conflict of interest with the
company. They have acted improperly by using their position for their own advantage and to the company's
detriment
The breach of the common law duties would allow the company to set aside the transaction, if that is still an
option, or if it is not, allow the company to seek compensation and damages. Any breaches of statutory provision
would enable action for compensation. All actions could be taken at the same time, in proceedings brought by the
company before an appropriate court.
Case 2 4/196
In this case, there have some issues as below:
1 Facts - Did the company trade while insolvent?
2 Facts - Did the directors allow the company to trade while insolvent?
3 What cause of action would give rise to these remedies?
- Compensation-s.588J, s.588K and s.588M and criminal offence for dishonest-under s.588G(3)
Conclusion
The director - appear to be in breach of the duty to act bona fide in the best interests of the
company and for a proper purpose. They are also in breach of their duty to avoid a conflict of interest with the
company. They have acted improperly by using their position for their own advantage and to the company's
detriment
The breach of the common law duties would allow the company to set aside the transaction, if that is still an
option, or if it is not, allow the company to seek compensation and damages. Any breaches of statutory provision
would enable action for compensation. All actions could be taken at the same time, in proceedings brought by the
company before an appropriate court.
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Company Types
Name to Member 1.04
Directors Disclosure Others
Include s
(s.112)
Limited
Liability Co "Ltd" or
<liability "Limited" 1. Raise funds from public
limited by 2. Own constitution -
shares> optional but mandatory for
"No Liability Co"
3. Replaceable Rules -
(s.9) Optional. Some rules are
Public (s.112)
mandatory s249X
Company Co Limited
4. Restriction on shae
<with veil of by tansfers - Optional but not
incorporation> Guarantee 1. Issue common (prohibited for
<liability
"Ltd" or disclosure listed co on the ASX by the
limited by Min -
"Limited" document to ASX Listing Rules)
agreed to <s201A(2)> - 3
public 5. Removal of directors by
pay the Max - Infinite
2. Financial members - A statutory right
guarantee,
Reporting - of members - s203D
no share Resident in
Minimum Mandatory s292 6. Transactions in which
capital> Australia-
(s114) - 1 3. Annual directors have an interest -
<s201A(2)> - 2
Maximum General Meeting Greater control s195, relted
- Infinite - Manadatory party transaction CH2E
Age - Min 18,
s250N(2) 7. Single member co
re-election
4. Circulating resolution - s249B
No liability controls when
Resolution of 8. Single director resolutions
(s.9) (mining & a "NL" or aged 72 or more
members - - Not possible, must have a
Public speculative "No (s102C)
Actural meeting least 3 directors
Company character) Liability"
must be held 9. Appointment of Auditor -
Manadatory s327
10. Auditor Independence -
Manadatory s324
Registered Office - must be
Unlimited open to the public during
(s.9) liability specified hours s145
Public company 11. Registered office Signage
No name
Company (liability - Required s144
requirem
<without veil without
ent
of limitation)
incorporation> not essential
of share cap
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(s.113)
Proprietary Co
<1. cannot openly 1. Issue
solicit investment (s.112) "Pty" or disclosure
1. Own constitution -
from public liability "Propriet document to
optional.
2. (s113(1)) limited ary" + members or
2. Replaceable Rules -
no more than 50 by "Ltd" or employees only
Optional s249X
non-employee shares "Limited" 2. Financial
Min - 3. Restriction on share
shareholdes> Reporting - Small
<s201A(1)> - 1 transfers - Optional, though
- optional unless a
Max - Infinite common
satisfy 2 or 3 of 3 - Min- 1 disclosing entity
4. Removal of directors by
Small s45A(2), <s113(1)> or foreign
Resident in memebers - s203C - depends
otherwise - Large Max - 50 controlled; Large
australia - upon constitution or RR
s45A(3) non- - manadatory
<s201A(1)> - 1 5. Transactions in which
1. Consolidated employees s292
directors have an interest -
gross revenue less 3. Annual
Age - Min 18 , Generally allowed if full
than $10M per General Meeting
no max disclosure under Ss191, 194
year - Optional
6. Single member co
2. Consolidated 4. Circulating
Pty resolution - s249B
gross assets less s148 Resolution of
unlimite 7. Single director resolutions
than $5M at year "Pty" or Members -
d with - s248B
end "Propriet Permitted s249A
3. less than 50 share
ary"
employees at year capital
end
Types of orgainisations
Organisation Purpose Objective Ownership Governance 1.06
Sole trader Business Profit Owner-managerSelf
Limited
Usually profit but could May be subject to
Private company Usually business number of
be not for profit a board
shareholders
Large number
Board of
Public company Business Profit of
Directors
shareholders
Hobby, sport, Committee of
Unicorporated association Usually not for profit Members
recreation office bearers
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- Asia Pacific Economic Cooperation (APEC) - Mexico, Australia, Korea, Philippines 1.13
- 1998 symposium(專題論文集) for sound corporated governance in APEC is the assurance that assets
are managed in the best interests of owners and stakholders'
- Principles : 1.14
- timely and accurate disclosure of financial, and in some instances non-financial,
performance records
- equitable treatment of all shareholders
- establishment of clear rights and responsibilities of shareholders, directors and managers
- establishment of effective and enforceabel accountability standards to help uphold sound
management and decision-making processes
- outcome of the symposium(討論會) revolved around the key statements that the Government has a 1.14
role to
- have role to play in achieving corporate governance reforms particularly in fostering
leadership in business and professional communities with respect to this objective.
- have high priority to the estblishment of laws governing the sale of property, the design of
contrcts and bankruptcies procedures
legislate for good accounting, auditing and reporting standards. Once no local accounting
standards, international accounting standards should be adopted
- create the public infrastructure(基礎 ) to assist in the effective application of corporate and
commercial laws.
- improve the competitiveness of goods and capital markets
- Cadbury Committee - UK
basic for corporate governance standards concerning financial reporting issue 1.09
UK standard-setting body, representative of the accounting profession and the Financial Reporting Council 1.11
- boards should have checks and balances to ensure 'that no one individual has unfettered(自由的)
powers of decision
- a board should have at least three non-executives, of whom at least two should be fully independent
- a board should have an audit committee composed exclusively of non-executive members.
- a board should explain its corporate governance procedures
- enhanced transparency in relation to directors' remuneration disclosure in the annual financial report
- Combined Code and the Turnbull Report (1998 and 2000) 1.12
- Combine with Hample Committee and Cadbury Report to form Combined Code of 18 principles and
48 code provisions.
- main change - no. of non-executive directors - at least 1/3 of the members of the board were to be non-
executive directors, with a minimum of three
- The turnbull report broadened the Combined Code with interanl control and risk management
compliance.
- Higgs (2003) and Smith (2003) reports with Financial Reporting Council (FRC) endorsement - UK 1.12
- Higgs - Role and Effectiveness of Non-executive directors
Smith - Audit Committee
Combined Code to supersede(取代) the 1998 Hampel Combined Code
- the chairman of the board can chair the nomination committee but should not be involved when the
chairman's remuneration is to be discussed
- at least two independent non-executive directors if half of the board(excluding chairman) is impossible
to comprise independent non-executive direcotrs.
- annual meetings of non-executive directors to be chaired by the senior independent director, and
without the presence of the chairman of the board to appraise the chairman's performance.
- International Accounting Standards Board (IASB) - Australia, Canada, Gemany, France, USA 1.15
- International standard setting body
- International stock exchanges will allow multinational companies and foreign organisations to report
in accordance with the international standards and disclosure
- IASC Foundation is an independent organisation having two main bodies, the Trustees and the IASB,
as well as a Standards Advisory Council and the International Financial Reporting Interpretations
Committee.
IASC Foundation Trustees appoint the IASB Members, exercise oversight and raise the funds needed
IASB has sole responsibility for setting accounting standards.
- IFAC - research report on Rebuilding Public Confidence in Financial Reporting - An International 1.09
Perspective
- need for greater emphasis on the responsibilities of management and the board for the information and
the financial management and internal controls necessary to produce trustworthy information.
set out their ethical policies in a code that is widely distributed within the company and to
-
shareholders.
- recommendations on financial reporting, audit systems and monitoring mechanisms for corporate
governance.
- the role is to administer the Trade Practices Act 1974 (Cwlth) , advancing economic policy
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Reforms( 修正 ) / initiatives( 首
倡)
Legislation Recommendations ( 勸告 )
Reading
1.1 The role of ASIC
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1.4
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1.1
1.1
1.1
1.3
1.6
1.7
1.2
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1.3
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Module 2 (15%)
- NYSE - enchane the accountability, integrity and transparency of listed company 2.12
1 Increase board independence (majority independent, certify accounts, 5-yr colling period for
former employee, regular meeting, more effective checks)
2 Establish audit, compensation and nominating / corporate governance committees. Audit
committee at least have 3 independent directors
3 Empower audit committees to hire and fire auditors, approval non-audit services, chair with
financial management expertise. Audit committee member can only allow directors'
compensation.
4 Require Listed companies to adopt and disclose a code of conduct for directors, employees, with
guidelines on conflict of interest, opportunities, confidentiality, fair dealings and courage to
report irregularities. The code must have an enforcement mechanism
5 Approval of shareholders required for all equity-compensation plans include stock options
6 Corporate Governance guidelines must be adopted and disclosed
7 CEO certifies accuracy and completeness of information to investors, reviewed procedures of
compliance and awareness of violation
- Sarbanes - Oxley Act 2002 USA 2.14
- Concerns on senior management compensation; earnings management and audit independence
- Both CEO and CFO to certify fairly presented financial reports and other information in all
material aspects of operations and financial conditions by
- indicate personally reviewed quarterly and annual reports
- stating report does not contain untrue statements to their knowledge
- stating financial report fairly present in all materials aspects the financial condition and
results of the company
- stating that they are responsible for internal controls; have designed such controls to ensure
all material information were made known to them; have evaluated the internal controls and
have presneted their conclusions of the effectiveness of the internal controls in their report.
- Dealing with a range of matters 2.14
- accounting standards more widely
- prohibit provisions of non-audit service to a company to be audited
- personal responsibility of senior officers for a company's financial reports
- forefeiture of the bonuses and profits where material non-compliance with regulations
- freeze payment of extraordinary payment during the course of an investigation
Committee Differ
Hampel /OECD Hampel does not endorse a particular code of shareholders' right Q2.2
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Business The treatment of stakholders - directors' primary duty enhance shareholder's 2.08
Roundtable/OECD wealth, others are subservient(次要)
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Accountability 2.14
- Bosch
- accountability and transaprency require companies to function with certain rules and regualtions
- Board no longer just accountable to shareholders but to wider community
- Formation of board committees is a means of strengthening the independence and accountability
of the board
- Board committees are subsets of the overall board 2.15
- The audit committee
- required by Listing Rules to disclose IF there is audit committee, and the reasons for not
having one.
- oversight financial reporting and auditing process.
- select and appoint the external auditors, performance of external auditor re independence
- latest development on audit committee
AICD Australian Institute of Company Directors 2.16
- the audit committee can play a key role in assisting the board of directors to fulfil its
corporate governance and overseeing responsibilities in relation to an entity's financial
reporting, internal control structure, risk management systems and the internal and
external audit audit functions
ASX Corporate Governnace Council 2.16
- published 10 Corporate Governance Principles and Recommended Best Practice.
Principle 4 : Safeguard integrity in financial reporting.
- Recommendations include CEO and CFO to certify accounts, requires the establishment
of an audit committee the structure of which consists of only non-executive directors, a
majority of independent directors, and independent chair (not the chair of the board) and
at least 3 members.
- Audit committee should include memebers who are financially literate, with at least one
member who has financial expertise. Formal charter is also required.
- The role of the audit committee should include: assessing external reporting and its
process, selection and appointment of external auditors, performance of external auditor,
re-independence assessment of the performance and objectivity of interanl auditors
CLERP 2.16
- audit committee mandatory for Austraila's top 500 listed companies
NSYE 2.16
- requires that listed companies must have a qualified and independent audit committee
- its chair must have account expertise.
- the member of committee can only allow director's compensation
- independent directors meeting with management
- The remuneration / compensation committee
- Review and recommendation of remuneration for the CEO and senior management
- Indepencent advice sought on current trends
- Consideration of employee benefits, succession planning of senior management
- Principally comprised of non-executive directors
- The nomination committed 2.17
- Consider the processes of the board
- Consider and recommend potential board appointments
- Consider removal and retirement of board members, succession planning
- May extend to consider the performance and processes of the board and remuneration of non-
executive directors and management
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- Commonwealth Bank
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R2.10
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R2.10
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Enforcement 3.32
- Common law remedies
- Account for profits
- profit made by reason of breach can be claimed from the director and repaid to the company
- Paul A.Davies (Australia ) Pty Ltd v Davies 1983 3.32
- Damages and compensation
- company may claim loss from the fiduciary or third party if participated knowingly
- Injunction
- an order to restrain from acting or forces a party to act, only company has the power to
obtain an injunction
- Declaration
- declaratory order to do something to remedy the breach
eg. Director to do an act or restore or become custodian
- Restoration(還原) of property
- company to take back the property, recovery may be from the hands of a third party
- Rescission(撤銷)
- a contract is to be rescinded
- Statutory derivative(引申出的 ) actions Q3.7
Common law derivative action is difficult for the smaller shareholders or minority directors. The
statutory derivative action gives them the right to bring action
- s.236
- enables a member to take action in the name of the company, to redress(平反) against
delinquent(違法的) directors or others. Must be sued where are grounds for an action and
where the company chooses not to sue
- s.237(1)
- Leave(准許 ) (Permission) of court to bring proceedings in the name of the company is
required
- s.237(2)
- lists matters: company itself will not act, applicant in good faith, in the best interests of the
company, and there is a serious question to be tried (prevent abuse); and company has had
14 days notice of application or if no notice, that it is appropriate no notice is given
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Statutory Law
s.180(1) requires a director or an officer to exercise the care and diligence of a reasonable person
s.180(2) gives protection to a director who makes a business decision in accordance with the
business judgement rule
s.181 requires a director or an officer to exercise their power and discharge their duties in
good faith and for a proper purpose
prohibits officers and employees form making improper use of position for personal
s.182
gain
s.183 prohibits current and former officers and employees from making use of insider
information for person gain
s.180-s.183 are civil peralty provision
s.184 breach s.181, 182, 183 can also be criminal offence if the directors have intentionally or
recklessly failed their duties and they have been dishonest
s.189 protects a director if, after acting in good faith and making proper inquiries, they have
reasonably relied on information and expert advice provided by others
Company Law
- to act bona fide in the best interests of the company
Elements : honestly, integrity, best iterests of company
- to exercise powers for a proper purpose
Elements: exercise of power, proper purpose is defined as being in the best interest of the
company
- to retain discretion
- to avoid conflicts of interest
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A3.03
A3.06
A3.08
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A3.06
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Module 4 - 16%
- best option is for co-operation between the board and stakeholders to achieve common ground
Reporting issues 4.13
- Annual report - Corporate goverance statements and policies R4.5
- Corporate governance statements became part of ASX rules form 1 July 1995
- ASX require the publicy listed company to show corporate governance statement, disclosure,
board composition, remuneration, appointments and ethics in annual report
- ASX require top 500 listed companies have a board audit committee
- proprietary companies, unlisted public companies are required to prepare annual reports (no
need for corporate governance statements)
- little available data indicating voluntary provisions of corporate governance matters to
shareholders or stakeholders
- ASX Listing Rule require a company specify whether it has audit committee, if not, to explain
why.
- Listed Public companies are required to set out: - in a statement disclosing the extent to which 4.15
the entity has followed the best practice recommendations during the reporting period. If the
entity has not followed any of the recommendations that have not been followed, and give
reasons. ASX Guildance Note Rule 4.10.3
- ASX require the corporate governance statement may address
1 independent directors
2 nomination and remuneration procedures for dirctors and auditors
3 independent advice
4 risk management
5 policy on ethical standard
- Listing Rule 4.3D requires a listed company to notify the market immediately it becomes aware
of information that is likely to have a material effect on its share price - continuous and periodic
disclosure requirements
- No plan to impose statutory obligations on unlisted or proprietary companies to have a
corporate governance statement or to adopt a specific policy on corporate governance
- ASX suggest 10 principles for a bench mark for corporate governance 4.14
1 Lay(給予) solid foundations for management and oversight
2 Structure of the board to add value
3 Promote ethical and responsible decision-making
4 Safeguard intergrity in financial reporting
5 Make timely and balanced disclosure
6 Respect the rights of shareholders
7 Recognise and manage risk
8 Encourage enthanced performance
9 Remunerate fairly and responsibly
10 Recognise the legitimate interests of stakeholders
- ASX Listing Rules to safeguad the efficiency and integrity of financial market and focus on 4.16
disclosure
The ASX operates on regime of continuous and periodic disclosure embodied in Listing Rule
- 4.16
3.1
- Proposal to amend Listing Rules in 3 ways: 4.16
- companies to provide information necessary to avoid a false market in securities
- ASX must be satisfied that confidentiality is maintained
- improve periodic disclosure by eliminating Appendix 4B
Examine the corporate governance statements of Santos Ltd and Coles Myer Ltd to OECD
- Q4.7
Principles
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- Corporate governance statement of Santos Ltd R4.6
- Corporate governance statement of Coles Myer R4.7
- Legislative obligations come from CA and ASX Listing Rules to address the issues in CGS Q4.8
- CA - oblighations of continuous disclosure of financial matters and appointment of
directors, shareholders' rights and rights of action, directors duties
- ASX listing Rules deal with the independence of directors, appoinment , remuneration,
audit, ethical standards, auditors and board composition
- Remuneration committees
- attract and retain good directors
- upward trend of disclosure
- stock options in remuneration packages improve
- Nomination committees
- Bosch 1995 4.27
- recommended remuneration and nomination committees be set up with majority of non-
executive directors to enable them to act independently
- Hampel 1998 4.27
- recommned all independent directors
- nominating candidates and assessing performance
- clear terms of reference
- maintain independence for independent directors
- Evaluating board performance
- peer review
- profitability
- return on inested funds
- Training - not required by law to provide training for directors, but recommendy by AICD and Bosch
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R4.13
Managing the corporation Engineering Co. Ltd v T.J. Graham & Sons (1957) The state of mind of these managers is the state of mind of the company 3.05
s180(1) Breach the duty of care, skill and deiligence
The court held that the auditors were negligent by not following their concersn up, but the AWA and
the manging director had contributed to the neglignece.
- Directors must familiarise with the co's business and satisfy the standard
- business judgement rule will not be a defence against negligent behaviour
- Director's duty of care not subject to and limited by lack of knowledge, experience, ignorance or
inaction
-Non-executive and executive director has the same standard of care
- Sleeping, passive director can not avoid responsibility 3.06/
AWA v Daniels /
Carem skill and deiligence * Employee caused foreign exchange transaction losses by unsuccessful trading and borrowing 3.27/
Daniels v Anderson ( appeal from auditor)
* Auditors were sued for negligence in failing to detect the illegal activities and auditors claimed 6-11
company to be blamed for inadequate internal controls
* CJ Rogers found:
1. CEO failed to respond - personally liable
2. Board had little knowledge of the operations
3. Board failed to ensure policies observed
4. Internal auditors/mangers failed to adequately inform board
5. Standards to be imposed on directors, whether executive or non-executive
6. Directors can be sued for negligence
Director - s9(b)(i) de facto. 3.08/
R. v Drysdale (1978) 131 CLR 236
de facto s9(b)(i) The court held thatDrysdale was a director ash he had continued to act in the role of director. A3.03
s9(b)(i) de facto.
Director - Mistmorn Pty Ltd (in liquidation) v. Yasseen (1996) 3.09/
The court held that the Yasseen's activities were indicative of the type of conduct of a person acting as a
de facto s9(b)(i) 14 ACLC 1387 A3.06
director in the same circumstance.
s232
Mistmorn Pty Ltd (in liquidation) v. Yasseen (1996) 3.09/
Related to alleged breaches of statutory duties to act honestly, to not gain an advantage by improper use
14 ACLC 1387 A3.06
of position and also to exercise reasonable care and skill as an officer of the company
s589
Mistmorn Pty Ltd (in liquidation) v. Yasseen (1996) 3.09/
Yasseen was guilty of 'fraud, negligence, default, brach of trust or beach of duty in relation to a
14 ACLC 1387 A3.06
corporation'
Director - Deputy Commissioner of Taxation (DCT) v Austin The court held that Austin acts in the postion of a director because of the single-handedly on behalf of 3.09/
de facto s9(b)(i) (1998) 1034 FCA the company to negotiate the settlement with DCT A3.08
Directors - Standard Chartered Bank of Australia Ltd v. Antico Parent company liabale as a director (shadow director) which exercised considerable control through
3.09
shadow s9(b)(ii) (1995) 12 ACLC 1381 (Antico's case) the directors it appointed to the board
Directors - Standard Chartered Bank of Australia Ltd v. Antico Only an individual who is at least 18 may be appointed as director.
3.09
who is a director s201B (1995) 12 ACLC 1381 (Antico's case) In Antico's case - this led(首位) to the situation that the corporation is a director
Directors - Alternate Stratj,pre Grpi[ v. Fraser (1991) 9 ACLC 3140 Alternate director 3.10
Directors - who had never been call upon to act and had never atteded a board meeting or management meeting 3.10/
Playcorp Pty Ltd v Shaw (1993) 11 ACLC 641
Alternate was held to be not liable as a director under insolvent trading legislation A3.06
Directors - An alternate director cannot act under a power of attorney as as director since a directorship is a
Mancini v. Mancici (1999) NSWSC 799 3.10
Alternate personal obligation
Alternate director
Directors - Anaray Pty Ltd v Sydney Futures Exchange Ltd
In the event of a director being disqualified on the basis of conflict of interest, the alternate director is 3.10
Alternate (1988) 6 ACLC271
not affected by the conflict
Directors - Scottish Co-operative Wholesale Society Ltd v Nominee directors
3.12
Nominee Meyer (1959) AC324 He should be act in the best interests of the company as a whole.
Bona fide
The directors execise the power to refuse any registeration for shareholder which was gave by
Bona fide Smith & Fawcett Ltd (1942) Ch 304 constitution of the company. 3.15
The court held that the refusal to register was bona fide and could only be attacked where it was shown
to be in bad faith
Director do not owe a fiduciary duty to act in the interest of the employee
The court uphold the validity of such gratuitous (無必要的)payments only where it was seen to be 3.15/
Fiduciary duties Parke v Daily News Ltd (1962) Ch 927 reasonably incidental to the carrying on of business, that it was a bona fide transaction and was done for A3.02/
the benefit and to promote the prosperity of the company. This case was not so the director had not 5-8
done so.
Company as a whole 3.15/
Greenhalgh v. Arderne Cimemas Ltd (1946) 1 All
The court held that a special resolution can be invalidated if its effect is to discriminate between the A3.02/
ER 512
majority shareholders and the minority shareholders. 5-6
Director's fiduciary duties are owed to the company and not to the shareholders
But in this case, there has 2 shareholders only. One shareholder would like to sell his shares less 3.16/
Fiduciary duties Brunninghausen v. Glavanics (1999) NSWCA 199 involved the business. At the same time, third party would like to buy the company shares. The A3.9/
majority shareholders has to disclose the negoitation with third party and information to the minority 5-7
shareholder before he sold.
Director's fiduciary duties are owed to the company
Darvall v North Sydney Brick and Tile Co Ltd There is a greater obligation to take into account the interests of the creditors where the company is
Fiduciary duties 3.16
(1989) NSWLR 260 either insolvent or close to insolvency. The short-term interests of shareholders may be less importance
than the company as a commercial concern
Director's fiduciary duties
Failure to disclose information within the knowledge of one director may amount to 'special
Fiduciary duties Coleman v meyers (1977) 2 NZLR 225 3.16
circumstances' which can give rise to a duty of fiduciary nature to individual shareholders and not just
the company as a whole
Directors - Nominee directors
Nominee Walker v Wimborne (1976) 137 CLR 1 The directors should be concerned first for their shareholders and creditors before the other companies 3.16
in the group.
Impropose purpose - Impropose purpose - creating or destroying majority voting power 3.18/
Whitehouse v. Carlton Hotel Pty Ltd (1987) 5
manipulate control The directors would like to dilute his wife's voting right. So the court held the new allotment for his son A3.15
ACLC 421
was invalid 5-12
Impropose purpose Mills v Mills (1938) Substantial purpose 3.18
Impropose purpose - Impropose purpose - Takeover
Advance Bank Australia Ltd v FAI Insurances Ltd 3.19/
Takeover The court decided that although the directors acted honestly and in good faith they exceeded their
(1987) 5 ACLC 725 A3.4
power and used their power for an improper purpose
Impropose purpose - Impropose purpose
Howard Smith v Ampol Petroleum Ltd (1974) AC
The court decided that although the directors acted honestly and in good faith but they had also acted 3.19
821
with improper purpose
Impropose purpose - Impropose purpose
Hogg v Cramphorn (1967) Ch 254 The court decided that although the directors acted honestly and in good faith but they had also acted 3.19
with improper purpose
Duty to retain discretion
Gould v Mt Oxide Mines Ltd (in liq) (1916) 22
Retain discretion The High Court held the director to be liable to the company for the amount of the loss as a result of the 3.20
CLR 490
unauthorised payments
Thorby v Goldberg (1964) 112 CLR 597 s.187 Nominee Directors 3.20
Conflict of interest Aberdeen Ry v. Blaikie (1854) 2 Eq Rep Conflict of interest 3.21
The court held that the interest was indirect but still caused a braceh of duty by the director as he would
Conflict of interest Victors Ltd v Linguard (1927) 1 Ch 323 3.22
benefit from the company securing the loan.
Conflict of interest - Regal (Hastings) Ltd v Gulliver (1942) 1 All ER Personal or secret profits
3.23
secret profit 378 The duty is not only to act in good faith but to be seem to be acting in good faith
Undisclosed benefits
The High Court held that the managing director of the company who set up a subsidiary to run a part of
Furs Ltd v Tomkies (1936) 54 CLR 583 3.23
the business and then left the company to work for the subsidiary had to repay any profit he had made
when he left the company
Paul A. Davies (Australia) Pty Ltd (in Liq) v.
Misuse of company funds 3.23
Davies (1983) ACLC 1091
Paul A. Davies (Australia) Pty Ltd (in Liq) v. Account for profit
3.32
Davies (1983) ACLC 1091 The breach of duty can be claimed form the director and repaid to the company
Conflict of interest - taking up corporate opportunities
Conflict of interest Cooke v Deeks (1916) AC554 The court held that the erring(犯錯) directors could not retain the benefit of the contract and Toronot 3.24
was to take back the contract
Conflict of interest - with full disclosure to the board and members
Queensland Mines Ltd v Hudson (1978) 52 ALJR
Conflict of interest The court held that he had obtained the opportunity as a result of his position as the managing director 3.24
399
but he had done what was necessary to disclose his intention to the board.
Improper use of informationMcNamara v Flavel (1988) 6 ACLC 802 s.183 Improper use of the information 3.25
Improper use of position Jeffree v. NCSC (1989( 7 aclc 556 s.183 Improper use of his position 3.25
Competing with the company - non-executive directors
Conflict of interest -
Bell v Lever Bros (1932) AC 161 Whether they are in executive or non-executive directors that cannot use any information belonging to 3.25
competing with company
the company to their own advantage.
Conflict of interest - Competing with the company
Green v Bestobell Industries Pty Ltd (1982) WAR 1 3.25
competing with company He was found to have breached his fiduciary duty and had to account for the profit he had obtained
Duty of care, skill and
City Equitable Fire Insurance Ltd (1925) Ch 407 Duty of care, skill and diligence 3.27
diligence
Duty of care, skill and
Overend & Gurney Co. v. Gobb Duty of care, skill and diligence 3.27
diligence
Duty of care, skill and Statewide Tobacco Services Ltd v. Morley (1990)
Duty of care, skill and diligence 3.28
diligence 2ASCR 405
s.588G Insolvent trading - Defences s.588H(4)
Tourprint International Pty Ltd v. Bott (1999) 17 The court found that he was liable for the monies as claimed, his defence under s.588H(4) was rejected
Insolvent trading 3.30
ACLC 1543 on the grounds that he had not made adequate inquires and had showed insufficient concern about the
company's finances
Insolvent trading 3.30
ACLC 1543 on the grounds that he had not made adequate inquires and had showed insufficient concern about the
company's finances
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- How does the law approach the desirability of ethical conduct? 5.07
- Rationale(根本原因)
- agency theory
- code of conduct are proactive in seeking to foster high standards of behaviour
- Law is reactive(反應的) to conduct perceived as prohibitions against that conduct
- Ethical values - self-regulatory mechanisms, voluntary basis
- Law may be less effective than voluntary codes of conduct at regulating undesirable behaiourQ5.4
- CLERP 9, the Financial Services Reform Act 2001, and the ASX Corporte Governance
principles and best practice guides, reform on financial planing and investment companies, are
indicative of the law's reform agenda
- Financial Services Reform Act 2001 5.08
- aims to introduce one comprehensive licensing regime that applies to all participants in the
financial services industry, including securities dealers, investment advisers, life and other
insurance companies and superannuation funds
- Corporate securities now come under s.764 - financial products
- Revised disclosure obligations and minimum standards of conduct will apply to the
expanded definition of financial service industry
ASIC v Adler (2002) NSWSC 171
Misleading or deceptive conduct in relation to corporate securities 5.08
- Directors are obliged to ensure the company not engage in misleading or deceptive conduct, and
become liable as result of such conduct.
- S.764A - definition : financial products
- s.52 of the Trade Practices Act - applies to misleading and deceptive conduct by corporations
- Corporations Act
- 1041H - prohibits misleading or deceptive conduct in dealing with financial products, which
includes securities and financial services.
(1) a person must not engage in conduct, in relation to a financial product or a financial service,
that is misleading or deciptive or is likely to mislead or deceive
(2) Conduct includes, but not limited to, any of the following:
(a) dealing in a financial product
(b) without limiting prargraph (a)
(i) issuing a financial product
(ii)publishing a notice in relation to financial product
(iii)or making, or making an evaluation of, an offer under a takeover bid or a
recommendation relating to such an offer
(x) carrying on negotiations, or making arrangements, or doing any other act,
preparatory to, or in any way related to, an activity covered by any of the above
items
- Yates v. Whitlam (2000) 18 ACLC 55 5.09
- breach s.1041H - civilly liable Q5.5
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- directors and other shareholders have reasonable and equal opportunity to participate in any
benefits of a takeover proposal
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the insider must not, directly or indirectly, communicate the information, or cause the
information to be communicated, to another person if the insider knows, or ought
reasonably to know, that the other person would or would be likely to
(d) apply for , acquire, or dispose of relevant Division 3 financial products
(e) enter into an agreement to apply for, acquire, or dispose of, relevant Division 3
financial products
(f) procure another person to apply for, acquire, or dispose of relevant Division 3 financial
products, or enter into an agreement to apply for, acquire, or dispose of, relevant
Division 3 financial products
- example 5.4 5.17
- the reason why insider-trading legislation extends beyond the officers to any third party Q5.13
using the information
- Information 5.18
- not only includes facts(事實 ), but also
- a matters of supposition(假設) and other matter that are insufficiently definite to warrant
being made known to the public
- matters relating to the intentions, or likely intentions, of a person (s.1042A)
- not generally available which has a material effect on the price
- information consider to be generally available
a it consists of readily observable matter
b that it has been known in a manner likely to bring the attention of investors or reasonable
time has elapsed since it was known
- reasonable time has not elapsed - example 5.6 (breach insider trading) 5.19
c it consists of deduction, conclusion of inference(推論出的結果) made or drawn from
readily observable matter
- announcement to the ASX
- not sufficient for available - inform a small group of institutional investors
- the information is material 5.19
- material is decided based on that the information would, or would be likely to, influence
persons who commonly acquire securities, whether or not to acquire or dispose of the
securities
- not material information - example 5.7 5.19
- material information
- R v. Evans and Doyle 5.19
- s.1042G - Company deems(判斷) to possess(持有) information where an officer knows the
inforamtion as part of duties
- s.1043F - Corporations Act 2001 allows Chinese walls within companies, and permits the
company to enter into transactions in the absence of information communicated by the officer
behind the Chiness wall.
- Because of Chinese Wall - not breach s.1043A - example 5.8 5.20
- The practical problems related to Chinese Walls Q5.15
- Underwriters and dealers with information acting for clients can deal in securities w/o breaching
the law
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Mainpulation of the market by conduct and statements - Part 7.10 ss.1041A, B, C, E and F 5.20
- protect both the community and the integrity of the market that the price of securities is
artificaially affected by transactions of otherwise to the benefit of the person or entity
maninpulating the price on the market
- directors may create a false impression(影響) of trading to enhance the perceived(抓住) value of
the shares
- a common characteristic of the laws is its abhorrence(憎惡;) of conduct in disguise(掩蓋) of the
true position in relation to the securities
- breach - criminal liablility as well as civil
- North v Marra Developments Ltd (1981) 148 CLR 42) 5.20
- Fenwick v. Jeffries Industries Ltd 5.20
- s.1041A 5.21
- prohibits 'market manipulation' -that is, conduct which results in, or is likely to result in,
creating an artificial trading price for securities or maintenance of an artificial trading price. To
fall within this prohibition, such conduct may one or more transactions which give a false
impress of the value of shares by artificially affecting the price
- s.997 - intention to manipulator
s.1041A - the effect of the conduct rather than the intention
- North v Marra Developments Ltd (1981) 148 CLR 42 5.21
- Endresz v. Whitehouse (1998) 3 VR 461 - inflate the share price 5.21
- The court held that intention of clearing the market of shares under 14 cents
- The Court of Appeal held that the transaction had the effect of putting a value on the shares
which was artificially high
- The defendant was charged and convicted under ss.997 and 998
- Buyback
- Part 2J.1 - regulation for buybacks of shares
- s.257A - permit to buyback does not materially prejudice the company's ability to pay its
creditors and procedures laid down in the legislation including lodgment of documents with
ASIC and obtaining approval from the shareholder
- s.1041B, s.1041C, s.1041E and s.1041F
- create a false impression of the true position in relation to securities in a company
- s.1041B
- breach - criminal liablility as well as civil
- deals with conduct which is, or is likely to, have the effect of creating a false or misleading
appearance of active trading in any securitites on a financial market or a false or misleading
apperarance with respect to the market for, or price of, securities
eg.churning(一次攪製成) - placing of buying and selling for shares with object of artificially
increasing the market turnover and price
- Australian Securities Commission v. Nomura International PLC (1999) 17 ACLC 55 5.22
- distinguishing between legitimate(合法的) commercial conduct and breach s.1041B Q5.18
- North v. Marra Developments Ltd 1981 5.23
- s.998 - intention to maninupulator
s.1041B - the effect of the conduct rather than the intention
- Fenwick v. Jeffries Industies Limited 5.23
- breach s.998
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- s.1041C 5.22
- breach - criminal liablility as well as civil
- deals with conduct whereby fictitious(虛偽的) or artificial transactions are entered into which
results in the price of securities being maintained, inflated or depressed or which causes
fluctuations in the price of securities
- s.1041E
- prohibits a person making a statement or disseminating(散佈) information if
(a) false material information or statement , materially misleading
(b) the statement or information is likely
(i) to induce persons to apply for financial products
(ii) to induce persons to dispose of or acquire financial products
(iii) to have the effect of increasing, reducing, maintaining or stabilising the price for trading
in financial products on a financial market
(c) when the person makes the statement, or disseminates the information
(i) the person does not care whether the statement or informations is true or false
(ii) the person knows, or ought reasonabley to have known, that the statement or
information is false in a mataerial particular or is materially misleading
- Three essentially elements
(i) the fact that the statement or information is materially false or misleading
(ii)the likely effect of the statement or information
- Australian Securities Commission v McLeod (2000) 34 ACSR 135) 5.25
- breach s999
(iii)the state of mind of the person making the statement or disseminating the information
- strikes(打擊) at negligent conduct - careless to make a false statement - which will not apparent
in s.1041A, B, C
- breach - criminal liablility as well as civil
- s.1041F
- breach - criminal liablility as well as civil
- fraudulently inducing persons to deal in securities
(a) by making or publishing a statement, promise or forecast if the person knows, or is reckless(
魯莽)as to whether, the statement is misleading, false, or deceptive
- R v. Mackinnon (1959) 1 QB 150 5.25
- Ex.5.9 5.26
- Reckless can connote(包涵 ) dishonest where a person makes statemetns with careless Q5.21
disregard(輕視) for the truth of the statement
(b) by a dishonest concealment(隱瞞) of material factor
(c) by recording or storing information that the person knows to be false or misleading in a
material particular or materially misleading if
(i) the information is recorded or stored in, or by means of, a mechanical, electronic or
other device
(ii) when the information was so recorded or stored, the person had reasonable grounds for
expecting that it would be available to the other person, or a class or persons that
includes the other person
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- One option is to disqualify directors who repeatedly uses phoenix company to manage a corporate
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- Review 5.45
- Nicholas Way 5.45
- Richard Warburton (1999) 5.45
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Q5.11
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Q5.13
Q5.15
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Q5.18
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Q5.21
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Q5.23
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Module 6 (16%)
PART IV
s.45 collusion controls
-contract with effect to lessen substantially competition
- be party to a collective boycott
- fix maintain or control price
s.45A(2) Except price fixing - joint venture agreements
s.45A(4) Except price fixing - joint buying and advertising agreements
s.48 resale price maintencance - unlawful for a supplier of goods or services to induce
or to insist(堅持) on the minimum prices at which a reseller should sell or advertise
s.4F those goodsreason
substantial or service
for withholding
s.97 Inducement - exception - if price worded receommended price, statement in invoice
to the effect of its recommendation nautre only
s.98(2) withholding supply not illegal when reseller discounts below costs, supplier is
allowed to withhold supplies to protect reh reputation of the product
s.75 an accessory(同謀) is one who has aided, induced, directrly or indirectly, knowingly
concerned in or party of, or has conspired(密謀) with others to effect the
s.76 penalty - pecuniary(金錢) penalties
s.80 penalty - injuctions
s.81 penalty - in the case of mergers, divestiture(解除權利) of the shares or asses illegally acquired
s.82 penalty - damages
s.86 non-punitive order
s.87 penalty - various ancillary(輔助的) order
s.84 any conduct engaged in by an employee acting within the scope of actural or
apparent authority is deemed to be the conduct of the corporation
s.88 authorisations are issued by ACCC are on a case-by-case basis. The authorisation is
to allow business to reach collective agreements
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PART V
s.51AA Unconscionable conduct - prevents corportions in trde from engaging in
unconscionable conduct in connection with commercial transactions
s.51AB Unconscionable conduct - prohibit unconscionable conduct by corporations which
are party to consumer-type transactions (in connection with the supply of goods to a
person), but excludes goods supplied for the purpose of resupply or using them up,
transforming them in trade
s.51AC Unconscionable conduct - prevents unconscionable conduct in business contracts
for supply of goods or services not exceeding $3 million
s.52 misleading and deceptive conduct on 1.) advertising; 2.) role of auditors; 3.)
intellectual(知識產權) property
s.53 false or misleading - quality, value, standard, style, history, sponsorship, approval,
performance, characteristics, accessories, uses, benefits, repair services, place of
s.56 origin,
Bait(誘惑)rightsadvertising
of consumer etc.
s.55 provides that a person shall not, in trade or commerce, engage in conduct that is
liable to mislead the public as to the nautre, the manaufacturing process, the
characteristics, the suitability for their purpose or the quantity of any goods.
- Benefits
- generate a corporate culture of compliance and improvement
- a sound complaints handling system foster goodwill
- can identify problem units, processes of products
- knowledge may help identify breaches by third parties
- avoid penalties and costs
- good evidence considered by court
- the self-analysis result in efficiency
- benefit to stakeholders
- customers (protection)
- competitors (compliance)
- employees (compliance with occupational matters)
- shareholders (compliance with securities law)
- environment (compliance with community norms)
- Recently a number of amendemtns have been made to the Act to improve protection to
business and consumers by
- improving the enforcement powers of the ACCC
- lengthening the period of limitation of actions
- increasing penalties for breaches of the consumer protection provisions
- ACCC may now make application on behalf of persons who suffered loss from a
contravention
of Part IV
- Court has the discretionary power to allow the ACCC to intervene(介入) in private
proceedings brought under the Act, provided it is in the public interest
- These amendments were made to engender(引起) compliance
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Module 6 (16%)
Competition in the marketplace 6.07
- Hilmer Report
- points to the role of competition as a respond to change with lower prices and improved
choice for consumers and greater efficiency, higher economic growth and increased
employment opportunities for the economy as a whole.
- Sir Daryl Dawson
- On 15 October, 2001, the Prime Minister of Australia announced that there would be an
independent review of the competition provisions of the Trade Practices Act and their
administration. The formal terms of the review was announced in May, 2002 and the
committee is led by Sir Daryl Dawson
- Competition policy
- Corones (1999)
- Competition in a free-market economy can efficient to produce the lowest average cost and
the most value of service and goods
- Objective of competition policies is to protect and preserve competition and limiting anti-
competitive conduct by firms, restringing monopoly pricing behaviour and providing third-
party access to certain facilities
- Monopolistic structure leads to misallocation of resources, lower output and higher prices
- Not all competition promote economic efficiency. Sometimes large scale production may be
encouraged to promote economies of scale and low prices
- Hilmer Report 6.08
- Competition policy is not about pursuit(從事) of competition for its own sake(利益).
Rather, is seeks to facilitate effective competition in the interests of economic efficiency
while accommodating(樂於助人) situations where competition does not achieve economic
efficiency or conflicts with other social objectives
- Competition policies includes objectives of policies which
- restrict anti-competitive practices
- restructure public monopolies
- provide fair access
- influencing prices
- fostering competitive neutrality(中立)
- Collective boycotts(抵制 )
- s.45 of Trade Practices Act 6.18
- Three steps in determining whether boycotts in breach of s.45
- Is there a contract, arrangement or understanding?
- Is the a contract, arrangement or understanding between competitors
- Does the contract, arrangement or understanding have a boycott purpose?
- The purpose of collective boycott agreement are preventing, restricting or limiting
- the supply of goods or services to particular persons or classes of persons
- the supply of goods or services to particular persons or classes of persons unless particular
circumstance exist or certain conditions are met or agreed to
- the acquisition of goods or services from particular persons or classes of persons
- the acquisition of goods or services from particular persons or classes of persons unless
particular circumstance exist or certain conditions are met or agreed to
Case Study 6.2
Collective boycotts are prohibited irrespective of effect upon competition. Eg, Market sharing
-
arrangements
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- Other anti-competitive agreements 6.19
- All other contracts, arrangements or understanding are only illegal if they have the purpose of
effect of substantially lessening competition in the market
- Agreements 'lessening competition'
- When will an agreement 'lessen competition?
- Only when competition in the market place is or is likely to be adversely affected that
s.45(2) of the Trade Practices Act may be invoked
- Is the lessening of competition ' substantial'?
- Only if the lessening of competition in a market is substantial. If there is a considerable
or real difference in the level of competition between the two, then breach s.45(2)
- combined and individual strength of the parties 6.20
- porportion of trade or commerce affected
- duration of restiction
- barriers to entry in the relevant market if heightened by it.
Ah Toy J Pty Ltd v Thiess Toyota Pty Ltd (1980)
- Hardly be said to be substantially lessening competition
- Approach with care the following for potential breaches:
- strategic alliance(聯盟) (not public benefits for authorisation)
- information exchange agreemetns
- trade assoications
Retail Tobacco Sellers Association of Victoria (1982) 6.21
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Controls over pricing in the marketplace 6.21
- Resale price maintenance
- s.48 of the Trade Practices Act - unlawful for a supplier of goods or services to induce or to
insist(堅持) on the minimum prices at which a reseller should sell or advertise those goods or
service
- Three steps in determining whether the practice of resale price maintenance
- Has the supplier specified a price?
- Is the price specified or used by the supplier a minimum price?
- Has the supplier taken action to ensure that the stipulated(規定) resale price is maintained?
- Inducement
- s.97 of the Trade Practices Act - will not consider a supplier to have attempted to induce if
- If a supplier applies a recommended price to a product, the price must be proceeded by the
words "recommended price"
- "The price set out or referred to herein is a recommended price only and there is no
obligation to comply with the recommendation" show on invoice or other correspondence
if there has a recommend price.
- Failure to follow - not automatically breach of s.48. If the supplier not take advantage of
the defence and all documents are not an attempt to induce the buyer not to sell below the
specified price.
- Trade Practices Commission v Madad Pty Ltd (1979) 49 FLR 453 6.23
- Withholding supplies 6.24
- breach s.48 - withholding supply if the purpose is maintenance resales price
- ACCC v. Australian Safeway Stores Pty Ltd & George Weston Foods Ltd (1997) ATPR 41-562 6.24
- What is meant by 'withholding supply'?
- refuses to supply
- supplies on disadvantageous term
- treats the buyer less favourably that others in respect of time, method or place of delivery,
or otherwise procures another person to withhold supply.
- Case 6.3 6.22
- Trade Practices Commission v. Bata Shoe Co. of Australia Pty Ltd (1980) 44 FLR 45 6.25
- the resale price maintenance has to be one substantial reason for a refusal
- When is withholding supply not illegal?
- withholding supply by reason of reseller ' discounting' (貼現) may be permissilbe
- s.98(2) - if reseller discounts below cost, the supplier is allowed to withhold supplies to
protect the reputation of the product
- selling below cost may be interpreted to mean below net invoice price.
- s.98(3)- the only exception to this rule are when the reseller can establish that it was selling
below cost with the permission of the supplier, or that it was done during a genuine
clearance sale to reduce excess stock.
- therefore: if resale below cost, legal to withhold in order to protect reputation, but if the
resale is in a genuine, wihtholding supplies is illegal
- withhold supplies for legitimate commercial reasons
- Peter Williamson Pty Ltd v. Capitol Motors Ltd (1982) 61 FLR 257 6.26
- s.4F - substantial reason for withholding 6.25
- resale price maintencanc only has to be one of the reasons for a refusal to deal although
it still must be a substantial reason, the action will be unlawful
- Penalties - Fined up to $10 million
- ACCC v. Ampol Petroleum (Victoria) Pty Ltd (1996) ATPR 41-469 6.26
- Remedies - suppliers are liable for damages at the suit of a trade injured by such behaviour
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the trader can also seek an injunction restraining the supplier from engaging in resale price
- maintenance
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Controls over distribution in the marketplace 6.27
- Exclusive dealing
- Case Study 6.4 6.28
- s.47 The Trade Practices Act prohibits conduct - exclusive dealing is deemed anti-competitive
i.e. a vetical restraint by a trader at one level on traders at other levels
- vertical restraint - 5 categories
1 Conditions imposed by suppliers limiting their customers' freedom to obtain supplies
from competitors of the suppliers
2 Conditions imposed by suppliers limiting their customers' freedom to resupply the
suppliers' goods or services to particular persons or particular place
3 Conditions imposed by customers limiting the suppliers' freedom to supply others
4 Third-line forcing - Condition imposed by suppliers requiring customers to acquire
additional goods or services from others
- is a type of exclusive dealing prohibited outright without the need to prove a
substantial lessening of competition
- 3 parties (customer, supplier, and a third party beneficiary)
- 2 products
- requirement that a second product be taken from a third party as a condition to
supply the first product
- Re Ku-ring-gai Co-operative Building Society Ltd (1978) ATPR 40-094 6.30
- breach s.47(6) - third line forcing - nominating the insurance company
5 Restrictions like those above imposed or enforced in connection with leases of licences
involving land and buildings
- Outboard Marine Australia Pty Ltd v. Hecar Investments (1982) ATPR 40-327 6.28
- without breach s.47 - since OMA refused to supply Hecar, at the same time appointed a
new distributor in the area
- O'Brien Glass Industries Pty Ltd v. Cool & Sons Pty Ltd (1983) 48 ALR 625 6.28
breach s.47 - the effect of 10% wholesale price differential as result that it lost sales that
-
was to put some retailers our of business, thus having the effect of substantially
lessening competition
- exclusive dealing must be widespread and engaged by market leader and excludes conduct
which merely changes the balance between competing entities
- franchising must comply with a mandatory code and parties must also comply with s.47
(exclusive dealing), s.45 (collusion and price fixing) and s.48 (resale price maintenance) of
TPA
- Mergers 5.37
- s.50 of the Trade Practices Act
preventing accumulations of power by acquisition, which have the effect of substantially
lessening competition
- Two steps in determining whether a merger is unlawful
- Has there been a direct or indirect acquisition of shares or assets?
- Will the merger have the effect of substantially lessening competition?
- compare the state of competition without and likely state after the merger. If there is a
substantial difference between the two, merger will be in breach of s.50
- height of barriers to entry
- level of concertation
- degree of counterveiling(抵銷) power
- likelihood of significantly and substainably increase prices
- dynamic nature of market
- likelihood of removing an effective competitor
- nature and extent of vertical integration
- breach - injunctions and if necessary , divestiture (剝奪權利)
- Authorisation 6.38
- Authorisation is available, that based on public benefit in significant increase in real value
of exports and significant substitution of domestic products for imported good
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Trade Practices Act - Part V 6.39
- Bosch (1995)
- Statements of Business Principles that the board holds a position of trust, the directors owe a
fundamental duty not only to the organisation, its shareholders, but also the stakholders with
whom the company has relationships
- dealing with various stakeholders, there will have conflicts between various interest groups
when choices. It should be reliable and fair but practical will benefits to one group rather than
another. So legislation will control the management to lay down minimum standards in some
area. Beyond law, competitive pressures and social conventions exerts strong influences
- the directors or employees may be liable under TPA 1974 if they engage in misleading and
deceptive conduct.
- USA 7.07
- board of directors is entrusted(交託) with an important responsibility
- Lorsch and Maclver 1989
- achieve greater accountability by introducing majority of non-executive directors but they
have limited time, knowledge and expertise in the companies and lack any group
cohesion(凝聚) of their own
- Lipton and Lorsch 1991
- a series of proposal to enhance the oversight functions of boards and limit the powers of
CEO, committees for critical tasks
a board maximum of 10 directors, with 2 independent directors for every inside
-
director
- an outside director to be nominated as the lead director where the CEO is also the
chairman
- boards to meet several times a year with the major shareholders
- independent directors to describe remedial(矯正) action in the annual report if the
company underperforms for 3 out of 5 years
massive increase in the assets of insurance companies, pension funds and investment
- 7.08
companies
- UK 7.09
- 1st country to fully develop the Anglo-Saxon model of corporate governance
- has largest investment institutions which are more dependent upon the equity market
- more general concerns
- Cadbury 1992 - standards of audit and accountancy professions
- Monks & Minow 1991 - lack of accountability, disclosure and transparency of boards to
shareholders
- Lorsch & Maclver 1989 - converns over the adequacy of board structures and processes
- the quality of directoral competencies
- apparenet lack of corporate social responsibility
- Pound 1992 - destabilising impact of the growth of merger and acquisition activities
- Gregg et al. 1993 - short term basis of corporate performance
- the spate(大量 ) of business fraud
- the evident weakness of corporate self-regulation
- Hopt 1984 7.10
- these problems were exacerbated(惡化) by the development of more complex corporate
structures, so modern company law was unable to keep pace with modern corporate reality
- Cadbury Code of Best Practice
- Greenbury Report - guidelines for director remuneration
- Hamper Report - focusing on disclosure and best practice
- Comined Code - mandatory disclosure framework
- Turnbull Report - on compliance with mandatory disclosure
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- the strengths and weaknesses of market-based outsider system of corporate governance as Q7.5
practiced in USA, UK and Australia
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- Germany 7.25
- German business sector
- a relatively strong concentration of ownership of individual enterprises
- the importance of small and medium-sized unincorporated companies
- a close correspondence between owners and managers
- a limited role played by the stock market
- central characteristics is the insider nature in which all interested stakeholders are able to
monitor corporate performance
- >500 employees are required by law to have a dual board structure
- two tier board structure
- prohibite - overlap membership between 2 boards within the same firm
- prohibite - symmetric(整齊的 ) cross-overlaps between 2 firms
a tax reform abolishing(廢止) the 50% capital gains tax on corporate sales of shares in
-
other companies, paving(鋪設) the way to unwinding(展開) the vast blocks of cross-
shareholdings
- France 7.26
- with the smallest ownership of company shares by financial institutions
- majority shares owned by non-financial enterprises
- elaborate(精巧) structure of cross and circular ownership
- half the firms are controlled by one single investor who owns the absolute majority of
capital.
- combines the functions of the chairman and chief executive
- FEE Federation des Experts Compatables Europeens report on European corporate governance 7.27
- a representative body for the accountancy professions in Europe
- financial report and auditing aspects of corporate governance
- Advantage and disadvantages of the European relationship-based insider system of corporate Q7.6
governance
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- Japan 7.31
- financial institutions have remained weak and unreformed
- Corporate law in Japan was modelled on the German system
- a significant number private-limited corporation
- Yasui 1999
- board members are insiders leading management
- lifetime employment pattern
- vertical reporting lines between the president and senior and junior members of the board
- role of Japanese boards is superficial(表面) both in terms of supervising the executive
management and in terms of responsibility for the company
- banks - cross-shareholding pattern of Japanese corporations that preventing hostile takeover 7.33
- the concentrated pattern of shareholding has created considerable stability 7.33
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- the concentrated ownership structure gives key shareholders considerable influence over
management, but these shareholders are usually affiliated(相關) companies in the same
corporate group or keiretsu
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- the position of main banks is central to the Japanese corporate governance structure and
functioning
- Ex ante
- Interim
- Ex post
- Aoki & Okuno
- deregulation - strengthened the bargaining power of firms and weakened the main bank
- overseas investor look for economic return and press for greater accountability to
shareholders from Japanese corporations.
- based on management hierarchy for remuneration, less incentive and stock option - now
introduce incentive and stock option
- Learmont 2002 7.34