How Did Paul Breach His Duty To The Corporations Act

518 Words2 Pages
ISSUE: Did Paul breached his duty to the Company pursuant to section 181 of the Corporations Act by issuing the special category of shares? RULE: Section 181(1) of the Corporations Act 2001 [cth], the directors and the other officers of a corporation must exercise their powers and discharge their duties ‘in good faith in the best interest of the company‘ and ‘for a proper purpose’. The case of Hogg v Cramphorn Ltd(1967) states that the directors of Cramphorn Ltd issued shares for the only motive of spinning an intimidating majority into a minority to avoid takeover. The new shares that were issued by the directors were held to be invalid. The directors had violated their duties as directors by issuing shares for the purpose of preventing…show more content…
Paul on the other hand, all the power of the company. When Mavis died, she left her three “B” shares for her sons which gave them the voting rights in the company. Soon, Paul developed friendship with Cleo. He issued a special category of shares for Cleo that allowed her to have complete control over the company upon Paul’s death. His determination unquestionably neglects the voting rights of his sons in the company as they would attenuate upon his death and all the decision making power will go to Cleo who neither has the experience nor the qualifications in the manufacturing industry. With such a decision Paul is breaching the fiduciary and statutory duties under section 181(1) of the Corporations Act as he is not exercising his duties in good faith and for a proper purpose. This act of giving Cleo all the power without her having apt knowledge for the business may end up jeopardising the company and will definitely remove Paul’s sons from having any power which is not right as the directors are required to act in a good way for the company and the shareholders are a part of the company. Thus, Paul is breaching his duty to the company under section 181(1) of the corporations

More about How Did Paul Breach His Duty To The Corporations Act

Open Document