Responsibilities of Directors

Discuss about the Law of Corporations and Business Organizations.

According to Section 198A of the Corporate Act 2001, the directors of the company are responsible for managing affairs of the company or they give direction to others to work in certain pattern. However the constitution of the company may provide separate requirements which may be discussed in the annual general meeting of the company.

There is no specific method of conducting any business given in the general meeting. The members decide which people are to be appointed as directors, how much money to be paid to them, voting criteria, approval which relate to party transactions, voting on the non binding report, amending the constitution, institute statutory derivative actions, accessing the agenda to be discussed by the shareholders in the meeting, accessing the registered number of shareholders, requesting the circulation of the statement to all members. There are provisions in constitutions of companies which allow directors to delegate their responsibilities to other people like managing directors, committees appointed by the board etc (Balotti and Finkelstein, 2008).

Directors of the company can give any powers to the managing directors and they might differ from person to person. An agreement is constituted when a director is appointed. Since they are officers of the company, they are entrusted by the common law of the land with duty which is of fiduciary nature to work according to the company’s benefit.

In the modern day internal management, provisions of the company’s composition are shown upon. Directors of non executive nature of big companies are unable to control business affairs every day with same efficacy. Similarly there is no law which forces upon them to deliver their expertise in such daily large scale business affairs.

Sections 191 to Section 195 of the Corporation Act deal with conflict of interest. Directors having a material personal interest in a matter relating to the affairs of the company disclose the interest to the directors unless a s 191(2) exception applies.

The directors should always mention their interest in the company affairs in the ‘standing notice’. The said notice should keep factual details like the level of interest and the type of interest and the date on which the interest arose which is linked to company affairs. The Corporations Act 2001 including a number of provisions which needs directors in disclosing material personal interest. Section 191 of the Corporation Act needs the director in disclosing any company affair related interest. Section 195 excluding the public company directors to vote on the matter which is related to material personal interests unless exception applies to section 195 (Davies, 2008).

Conflict of Interest

The director’s difficulty is the material personal interest is not defined in the Corporation Act and in a few cases having considered the scope of the term.

Section 191 (2)(a) (iii) has applied to interests relating to a contract where the company has proposed in entering into the subject to approval by the members and does not imposing any obligation on the firm and is held in common with other members of the company (Glazer, 2012).

The fact that the directors have interest in the company business is important to operations of sections 191 and 195 of the Corporations Act, but not mentioned in the Act. The concept also receives attention from legal fraternity. When material interest is talked about it always refers to remuneration to the directors and vote related matters pertaining to the board of directors. An interest does not become personal when the director has a different duty like related to another firm who has interest with the present company unless something proves the interest of the director.

The directors are under moral responsibility to avoid circumstances where duties clash which results into confusion. Conflicting duties are not controllable and directors should make suure that such possibilities are minimized.

Corporation Act 2001 SECT 250R pertains to the business of Annual General Meeting.

SECT 250R(2) of listed company’s annual general meeting deals with passing of the resolution adopted on remuneration by putting it to vote. However it is imperative to inform members that such a resolution on remuneration will be placed in the meeting according to paragraph 249L(2)    

According to 250 R(3), the key management are not in compulsion to vote as this voting on resolution is only advisory type.

However section 250R(4) of Corporation Act clearly indicates who should not cast a vote on such resolution as enumerated below.

Somebody who work in the top tier of the company having income data to be entered in the report pertaining to it  must not cast a vote and also somebody on behalf of Closely Related Party of the above members cannot cast a vote under any pretext. The directors of a company are members of the key management and as clearly stated in 250R(3) of the Corporation Act, they would have to abstain from participating in such voting process on the resolution in the interest of the company as well as putting forward any sort of recommendation on such resolution (Hill and McDonnell, 2009).   

Business of Annual General Meeting

A person may be chosen to vote on behalf of the original person to vote regarding resolution and mention on what basis he or she is qualified to do so. If the person is a proxy who is appointed by writing specifying how the proxy is to vote on Resolution 1 or the person is the Chairman of the Meeting and appointed as the proxy using the proxy form circulating with the Notice of Meeting(Strine,2010)..

However the proxy voter will also be able to cast his vote by specifying how he will vote on Resolution and as authorized chairman of the company including the fact that the resolution is in link with the earnings in either ways of the top tier personnel of the company.

As per subsection 6 of 250R of the Corporations Act, 2001, ASIC can declare in black and white that for this specified resolution, subsection 4 may not apply or this does not debar any person or on behalf of a key person to provide his opinion through casting his vote on the specific resolution. However, this undertaking can only be adopted if it felt that such decisions may cause injustice to any key personnel of the company. It should not be taken for granted that such a declaration is legal and legislative right and has to be decided upon in right spirit (Welch et al., 2015).   

In case a certain person cast his vote against the norms as declared in subsection 4, it is taken as contravention of the subsection and will be adequately dealt with as an offense.

Even if such a vote is cast it will not be counted as a valid vote and will be considered as if the vote has not been cast. This also means such vote will not be counted while calculating on percentage of vote even though the resolution may or may not be passed. 

Thus to sum up the Section 250 R(2) and (3) it is important to identify whose vote are counted when somebody is voting on behalf of a person. These are (i) if he is identified as a proxy voter representing the actual voter (ii) if he is voting on somebody’s behalf and (iii) if he possesses a share of the company for which he has (a) voting powers (b) he can exercise power or exercise control over his authority to vote (Wells, 2009).

Conclusion

The above three sections which have been discussed elaborately mainly caters to the functioning of companies under the proper decorum and clearly mention the dos and don’ts for the smooth operation of such corporate companies. If the Corporation Act adheres to properly, there will be no obstruction in the proper functioning without any legal hassles. The AGM of a company is very important as it is a forum to highlight the performance of the company to its shareholders and also taking important decisions and resolutions which has been taken care of by this Act. It is expected that this corporate act will provide suitable cover guarantee to the directors and the key persons to run this company in a efficient manner.

References

Balotti, R.F. and Finkelstein, J.A., (2008). Delaware Law of Corporations and Business Organizations: Statutory Deskbook 2009 (Vol. 4). Aspen Publishers Online.

Davies, P.L., (2008). Gower & Davies: the principles of modern company law. Sweet & Maxwell.

Glazer, D.W., (2012). Massachusetts Corporation Law and Practice. Aspen Publishers Online.

Hill, C. and McDonnell, B., (2009). Executive Compensation and the Optimal Penumbra of Delaware Corporation Law. Va. L. & Bus. Rev., 4, p.333.

Strine, L.E., Hamermesh, L.A., Balotti, R.F. and Gorris, J.M., (2010). Loyalty’s Core Demand: The Defining Role of Good Faith in Corporation Law. Georgetown Law Journal, 93, p.629.   

Welch, E.P., Saunders, R.S., Land, A.L., Voss, J.C. and Turezyn, A.J., (2015). Folk on the Delaware General Corporation Law: Fundamentals. Wolters Kluwer Law & Business.   

Wells, H., (2009). The Modernization of Corporation Law, 1920-1940.University of Pennsylvania Journal of Business Law, 11.