Introduction:

This essay is consisted of Part A and Part B, includes three tasks in total. In Part A it will discuss the feature of a fiduciary relationship and disclosure some duties owned by company directors, such as the duty to act in good faith in the best interests of the company, the duty to avoid conflicts of the interest, the consequences of breaching a duty by directors and some defences for the company’s director. After that, in Part B the article will talk about some issues arise from the duties owned by partners in a partnership. In the following parts this essay will discuss and analyse all the issues above in details.

Part A: task 1:

According to the fact situation, Simone is a managing director of the Youth Unlimited Pty. Ltd which is a profitable company carry on selling anti-aging products for business. The company is a proprietary company limited by shares and the managing director is also known as a chief executive officer (CEO) of the company. Also, it can be seen in this way, Youth Unlimited gives Simone a particular opportunity to in charge of the day-to-day management of the company, to exercise the power or discretion to the damage of that person, who is accordingly vulnerable to abuse by Simone of her position — the fiduciary relationship. However, CEO of the company will also be in a fiduciary relationship. As a result, Simone can be regarded as fiduciary. The critical feature of a fiduciary relationship is that the fiduciary on behalf of another person in the exercise of a power which will influence the interest of that other person in a legal sense. Meanwhile, fiduciaries cannot use their knowledge or position to benefit themselves rather than the person on whose behalf the fiduciary is required to act. (Butt, 2004, p173).See also case: Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; 55 ALR 417.
Moreover, because of the personally interested in marketing of ‘Be Blonde’ , a product which is supposed to stop hair from going grey, Simone and Tania set up a company together to be called Bright Spark Pty. Ltd, they are the only shareholders and directors of the company. Bright Spark becomes an overnight success fortunately. As can be seen from the situation, Simone have sited up a new company with Tania without telling any other directors or shareholders or the board of director of Youth Unlimited, at the same time the new company Bright Spark helps Simone earned a lot of material personal interest without disclosing to the other directors in Youth Unlimited neither.
Then according to the following fact situation, after several mouths operating the new company, Simone found it is difficult to market its product and there have received some customer complaints. So she suggested to the Board of Youth Unlimited that they should diversify their products and stock Bright Spark products. The Board of Youth Unlimited and the other directors accepted the suggestion and also agree that Simon should receive a commission on each sale of a Bright Spark product by Youth Unlimited stores. However, Simone thought that as she and Tania had been featured in the media, most of the Board of Youth Unlimited would know of her connection with Bright Spark, so she did not disclose this connection to the Board of Youth Unlimited.
Since there exist a fiduciary relationship between Simone and Youth Unlimited, Simone the CEO owe her duties to the company logically. It is the same as in Bright Spark. According to section 180, it is requires that directors or other officers to act a reasonable degree of care and diligence.; section 181(1) of the Corporations Act states, directors or other officers of a company must exercise their powers and discharge their duties in good faith in the best interests of the company; section 191 directors’ duty to disclose material personal interest, this section mentions that a director of a company who has a material personal interest in a matter that related to the affairs of the company must give the other directors notice of the interest. (Hanrahan, Ramsay & Stapledon, 2010).
Section 180(1) also states that, a director or other officer of a company must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a company in the company’s circumstances. So that, as a CEO to Youth Unlimited, Simone has the duty to provide appropriate care, skill, diligence and delegation and reliance to guide and monitor the management of the company. But, in this case, not only Simone did not carry out her obligation and cares to the company, but also make the personal interests for her. Case proved: Dniels v AWA Ltd, (1995) 13 ACLC 614; 16 ACSR 607.
Duty to avoid conflicts of interest at common law states that if there is a potential conflict of interest, directors must disclose their interest in the proposed transaction and they must have their proposed action approved by the company in general meetings. Or a director must not take personal advantage of an opportunity which is available to the company, because it is the company’s opportunity, not the director’s opportunity to take up. Also the contents of the “Conflicting duties”, which state that a person cannot be a director of two companies, the conflict rule will only apply where there is an actual or substantial possibility of a conflict between the two duties. According to the State of South Australia v Marcus Clark 2001 illustration, Simone is the director of the two companies, Youth Unlimited and Bright Spark respectively. Not only that, Simone did not disclose the connection with Bright Spark to Youth Unlimited, but also did not disclose the commissions which she received from Youth Unlimited for sale of Bright Spark’s products, to Tania. Duty to act in good faith and interests of the company, at common law mentions that as fiduciary, a director owes a duty of economic loyalty to the company. Directors must not exercise their powers for any private advantage or for any private purpose. They must act honestly in what they believe to be the best interests of the company. (Latimer, 2008).
Following the fact situation described above, Simone also have a fiduciary relationship with Bright Spark. On the basis of s 588G of the Corporation Act, there excited extra duties between them — the duty to prevent insolvent trading and the duty to retain discretions. Section 588G(1) states that, if a person is a director of a company at the time when the company incurs a debt, this section will be applied.
So this can be concluded that Simon owed the duty of care and diligence, duty to act in good faith in the best interests of the company and the duty to avoid conflicts of the interest, to both Youth Unlimited and Bright Spark. It is similar with cases: CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 and State of South Australia v Marcus Clark (1996) 14 ACLC 1, 019; 19 ACSR 606.
Additionally, what are the consequences of such breaches for Simone? The consequences of directors or other officers breach a duty depend on different situations. In civil penalties, a special type of penalty imposed by the court. There are civil penalty provisions which include both s 180 and s 181 in. A contravention of civil penalty provisions by directors may give court powers to make the following orders: paying a pecuniary of up to $200,000, or being disqualified from managing companies for a specified period. In the other hand, a contravention of a statutory duty may be so serious that ASIC believes a more substantial penalty than a civil penalty should be imposed to the directors. There will be criminal proceeding and criminal penalties. The circumstances in which a director may contravene a statutory and have criminal penalties upon him or her vary according to the particular duty. In this case, Simone is reckless or intentionally dishonest and fails to act in good faith in the best interests of the company; she can be subject to criminal penalties.
And are there any defences available for Simone? Section 588H(5) states that, it is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt. As the fact situation described above, when the new business faced adverse conditions Simone ask Youth Unlimited for helping Bright Spark selling and stocking their products. But in fact, Simone did not take a reasonable step to prevent the Bright Spark suffering the difficulty. To sum up, the defence for Simone is false.

Task 2:

In this task all the issues are talking about whether Board of Youth Unlimited has acted appropriately. According to the analyses above, both the shareholders and Simone are suffered the potential loss because of Simone had breached the duty as a director for both Bright Spark and Youth Unlimited. In addition, the board of the Youth Unlimited company includes all directors, therefore, they also have a series of the directors’ duty to determine and monitor the organization's products, services and programs, to review and evaluate present and future opportunities, threats and risks in the external environment and current and future weaknesses and risks relating to the company, and supporting the executive directors, reviewing his or her performance, all of these are what the Board of the company should do for their day-to-day management. Simone suggested the Youth Unlimited sell and stock Bright Spark company products and the Board approved the Simone’ suggestion, the Board of the Youth Unlimited did not make any review about details of the production in the Bright Spark company, and examine and verify their products’ quality. However, the also did not disclose the relationship between Simone and Bright Spark, even themselves (Youth Unlimited) to the other shareholders in the company. In one word, what the Board of the Youth Unlimited did in the entire incident cannot be recognized as appropriate.

Part B: task 3:

According to the additional facts, Simone wonders that if she had been a partner in Youth Unlimited whether her rights and obligations would have been different. First of all, the answer to this supposition is YES, there must be have some differences. Moreover, what is a partnership? It is a relationship among people which are with a view to make profit in common purpose. Case here: French v Styring (1857) 2 CB (NS) 357; 140 ER 455. A partnership is not a separate legal entity. This means that, if partners in a business want to sign a loan contract in order to expand their business, they should each have to sign the document and each should be personally liable for the full amount of the borrowed money. Meanwhile, in this situation, when the Youth Unlimited becomes a partnership, it should not be a limited partnership. So the partners do not have limited liability. At the same time partners are agents for each other with respect to the conduct of the business. This is to say that one of the partners can incur an obligation for which all the other partners are also responsible. In addition to this, partners have their rights to participate in the management of the company and share the earnings equally. (Hanrahan, Ramsay & Stapledon, 2010). Put this into the case here, Simone as one of the partners in Youth Unlimited, she can be recognized as an agent for the other partners, vice versa. The agency relationship also is a fiduciary relationship as the company. As a result, Simone owes some duties to the partnership, such as the duty to use reasonable diligence, care and skill; the duty to act in the partnership’s interests and so on. However, in fact Simone did not do what she should do to the partnership; in the meantime she was cooperated with Tania to set up another business together. So she breached the duties.
Also to quote Hanrahan, Ramsay and Stapledon: “if the identity of the partners changes, for example because a partner resigns or a new partner joins, the original partnership is dissolved and a new one is formed. This may require the transfer of assets and obligations from the retiring partner or to the new partner. Any single partner can cause the partnership to be dissolved.” (2010, p48).
Then, let’s keep on track; go back to the case here. When Simone as a partner involved in Youth Unlimited, she was with Tania together to manage anther business at the same time. This kind of behaviour is not appropriate. According to Hanrahan, Ramsay and Stapledon, the original partnership should be dissolved and a new one should be formed. That is to say, Simone and Tania is formed a new partnership together and she is no longer belong to the old one anymore. As a result, Simone and Tania are involved in agency relationship for each other; they should take any responsibility for the other and make any decisions after the other party’s permit.

Conclusion:

In this essay, all the issues are according to the events happened among Simone, Youth Unlimited and Bright Spark. The questions are all about company. Such as, the duties for directors of a company — duty to act in good faith in the best interests of the company, duty to avoid conflicts of interest and so on. To be accompanied by the consequences of breach of such a duty and some defences with the Corporation Act 2001. In the last task, all the issues are around partnerships, also included some duties, whether such a duty is been breached or not.

Reference list:

Editor, G. (2004). Concise Australian Legal Dictionary 3ed Edition. Australia, NSW, Ligare Pty Ltd

Gamble, R. Plessis, J. D. & Neal, L. (2008). Principles of Business Law. Sydney, NSW

Hanrahan, P., Ramsay, I. & Stapledon, G. (2011). Commercial applications of company law. (11th ed.). Sydney, NSW: CCH

Latimer, P. (2008). Australian Business Law 27th Edition. Sydney, NSW: CCH

Overview of Roles and Responsibilities of Corporate Board of Directors. (2011). Retrieved May 12th, 2011, from: http://managementhelp.org/boards/brdrspon.htm