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COMPANY AND SECURITY LAW

Responsibilities and Liabilities of the Directors:

Requirement

Research Assignment: 10% Length: 2300-2500words Due Date: Week 10 – Submission: Electronic submission – Word .doc or .docx to be uploaded to Turnitin plus hard

copy submission to Lecturer with Turnitin Originality Report attached. The board of directors of LP Pty Ltd (LP) is made up of six individuals (Andy, Brian, Chris, David,

Evan and Faith) all with differing degrees of education and experience. Andy manages the company's day-to-day operations. LP is a company that makes children’s costumes. Given the downturn in the economy and entry of new companies into the market, competition is becoming increasingly difficult. The directors feel that it would be prudent to restructure its operations to reduce costs so as to become more competitive. Andy also thinks that LP should move to larger premises in a different area. Without consulting the other directors, he starts looking for new premises and he decides the first place he inspects is perfect, although the price is more than LP can comfortably afford. Andy does not think this will be a problem, because there is no competition nearby and he expects that profits will recover immediately. Andy calls a board meeting and tells the other directors that moving will solve all the company's problems and that this property he has seen is absolutely perfect for LP. He says they will have to act quickly as there is another interested purchaser. Andy does not tell the other directors that he only looked at this one property. He is so enthusiastic that the other directors agree to the proposal even though the other directors are doubtful, feeling that they are being rushed into making a decision without being given time to consider other alternatives. For more information :https://

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Requirement

The other directors agree to Andy's proposal without really understanding the financial implications. LP purchases the new premises. During this time, the board of directors also appoint a business operations consultant to suggest the best way to organise the different departments and operations in the company. After a few weeks, the operations consultant prepares the report and submits it to the board of directors of LP for review. Three of the directors (Andy, Brian and Chris) read the consultant’s report and support it completely. These three directors have a business background and business degrees from Sydney University. The two other directors (David and Evan) do not read the report but adopt it on the advice of the first three directors. These two directors have no formal education past High School and have no business background. The last director (Faith) reads the report and realises that it is poorly prepared, full of spelling mistakes and makes ridiculous recommendations like: ‘LP should consider organising its operations in alphabetical order because it’s more pretty that way’. This director does not support the adoption of the consultant’s report. After the move to the larger premises and the changes are adopted, LP unsurprisingly becomes more dysfunctional, loses lots of money and eventually has to be wound up. Advise on the liability of the directors in relation to the reorganisation and purchase decisions taken.

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The Question:

The main aim of this report is to find out whether all the directors of the company “LP Pty Ltd” has provided their consent regarding a particular decision willingly or was there any sort of influence provided by Andy.

The second question is to find out that in a case like this are all the

directors equally responsible for the decision they took? or is there

someone more responsible than the others?






The Solution:

Identification of the main problem.

Restoring the status of the company as it was previously before the incident took place.

All losses and damages must be restored and all the directors

must take the initiation to do so.






Company background:

NAME

• LP Pty Ltd

BOARD OF DIRECTORS

• Brian• David• Andy• Faith• Chris• Evan

NATURE OF THE COMPANY

• Production of costumes for children






The initial problem faced by the company and Andy’s Ideas:

Problem

• Due to high competition in market the company was facing loss

Chief Operating Officer

• Andy was the COO of the company and he had the authority to look over the daily affairs of the company.






“Idea”

• Andy had two ideas which he wanted to implement in the company.

• First was to relocate the company so that it can be away from the high competition which might help the company to sustain longer

• The second idea was to restructure the company which might lead to a fruitful solution and give back the status the company had previously






Opinion of the Others and Andy’s decision:

• Andy bought the premises which he initially thought to shift the company without the knowledge of other board of directors.

• Andy had to buy it in a hurry as there was someone else who was competing for the same plot.

Andy’s decision:

• The other directors were not at all happy with the decision of Andy as they were not informed about it previously.

Reaction of the Board

members:

• Though they were unhappy still they gave their decision in favor of Andy.

Decision of the Board of Directors:






Consequence of Andy’s decision in the company:

Financial Loss

Damage to their

Good-Will

Degradation in their

Status






Relevant Laws:Every director has the responsibility to restore all losses as well as all damages suffered by the company. The directors are believed to be the brains of all organization, despite, there are unrelated legal elements in the company as per law a company cannot run on its own.

The organization is run by its directors by applying their efforts and the decisions they take in favor of the company. If a company suffers a loss due to any wrong decision of the directors then the directors will be responsible for it.

The director who opposed and did not gave his consent for a decision and informed the board in writing about his decision or moved to the court stating that he does not support the decision would make him not liable for any loss or damage resulting from the related decision.






Ruling of Court of Law in case of similar Lawsuits:Amalgamated Society of Engineers

vs. Adelaide Steamship Co. Ltd

• If any decision had been incorporated without the consent of all the directors then the director who has not provided their consent might go to the court before the implementation of such decision or they can also state their objection to the other directors by giving a written letter.

• If no such initiations are taken by the director then it will be considered that the director has given his consent in an implied manner.

Clyde Engineering Co. Ltd vs. Cowburn

• A director is eligible to express his consent towards a certain decision in an implied manner. Once the consent is given by any director in any manner then the personal view of the director will not matter anymore and he shall be equally liable for all the actions as the other directors who gave their consent, despite the fact that according to the provisions stated in the Corporation act 2001, that the consent that a director provides regarding a decision must be a free consent.

• The act actually states that the decision taken by any director must not be under any kind of pressure, it should not be misinterpreted or there should not be any undue advantage. If the base and other consequences of the decision have not been examined properly then there would be no ground for exemption or liability of the directors.

Murphy Ores Inc Pty Ltd vs. Commonwealth

• All the directors are responsible equally for every bad decision implemented in favor of the company.

• If any director expresses his objection with relation to the said decision then that director may be free from any liability which is subjected to the circumspection of the court.

• The company can take strict actions against the position of those directors whose decision caused the company to suffer a loss.

For more information :

Application of the Law:

By the law all the directors of LP Pty Ltd Company are liable equally for the loss suffered by the company though the decision of relocating the company and changing its infrastructure was Andy’s idea.

The application of the Corporation Act 2001, is mandatory for all companies in all its affairs.

In the case of LP Pty Ltd the directors had a chance to appear before the court and apply to stop the decision before the decision was implied, but none of the directors did this instead they gave their consent to Andy.

Faith is the only person who will be held less liable in relation to restructure of the company because he was the only person who refused to accept the reports given by the experts, but cannot be free from his liability as he was one of the directors who provided their consent to Andy’s idea.






Conclusion:

All the directors of LP Pty Ltd are responsible for the loss suffered by the company.

The only director who is less responsible and less liable than the others is

Faith because of his expression of rejecting the

report produced by the experts in relation to

restructure of the company.

Andy was the actual culprit who should be responsible for this but as all the

directors gave their consent to Andy

hence he cannot be held as the solely

responsible.






Thank You

Education

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