Application of the Relevant Legal Principles in the Instant Case

Notwithstanding that Sarah Buchanan owns only a minor share in the company, she is, by common law principles and statutes, entitled to seek judicial remedy against the actions of the board she perceives as illegal and detrimental to the best interest of the company. Approval of the board of the proposal of Henry Dunn, the major shareholder and managing director of HD Industrial Castings Ltd, providing for specific financial provision, constitutes an expansion of the remuneration of the directors that require disclosure to the members in a general meeting.

Moreover, the approved $400,000 item payable to the already existing liability of Mr Dunn (debts owed on his house and boat) partakes of an illegal act where the company’s funds are made answerable to a purely personal liability of its managing director. It does not even appear that the said debts were accrued with the prior approval of the board nor the same were incurred purposely for good purpose and benefit of the company. The company cannot be made to pay for loans contracted for items or properties with purely personal character, such as house and boat.

By asking the board for approving his request and being present during the board deliberation, Mr Dunn can be held civilly liable, in addition to specific violations of procedural rules stipulated in Corporation Act 2001. By benefiting the same for entirely personal benefit without any substantial benefit to the company, Mr Dunn is committing both civil and criminal offence. By approving the said request, the board violates the “best interest” and “good purpose” rules.

They could not even seek shelter under the “best management decision” rule, allowing them autonomous powers to decide on matters they perceive as for the best interest of the company. The Corporation Act 2001 is clear and precise as to the lifting of the corporate veil. For centuries, the concept was used to shield company officers and directors from any suits instituted by any member of the company, regardless of the extent of its ownership, or even by a third party.

The law constitutes part of economic reform packages providing for enhanced check and balances, defining clearly the limits of prerogatives earlier enjoyed by company officers and managing directors, as in the instant case. Conclusion At the onset, Mr Dunn is liable civilly and criminally by proposing and enjoying the approved benefit. By ratifying the proposal, the board commits violation of its fiduciary relationship with the shareholders and the company as a whole.

Said action could be invalidated.


Texts Adams, M. 2005. Australian Essential Corporate Law. Coogee, NSW: Cavendish Publishing Pty Ltd. Cassidy, J. 2006. Concise Corporations Law (5th edition revised). Annandale, NSW: Federation Press. Corporation Act 2001. Maltas, J. D. 2009. Student Notes on Business Organisations Law. School of Business Law: Curtin University of Technology. Tomasic, R. , S. Bottomley, and R. McQueen. 2002. Corporations Law in Australia. Annandale, NSW: Federation Press.