Convergence Of Corporate Social Responsibility

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Convergence Of Corporate Social Responsibility

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Convergence Of Corporate Social Responsibility

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Question:
Discuss about the Convergence of Corporate Social Responsibility.

Answer:
Introduction:

There are two issues present in the case of the Cassimatis. The issues are as follows:

whether the alleged Storm Company had breached any provisions of the Corporation Act 2001 or not.
whether the Directors of the company had complied every duty regarding the Corporation Act or not.

It is to be clarify that Corporation Act is regulated the provisions of the company related matters in Australia. Under the Act, numerous provisions are engraved that are pointing out the liabilities of the directors in a company. There are certain conditions regarding the director’s duties are mentioned under section 180 of the said Act. In the present case, these issues are raised regarding the violation of those duties and necessary consequences of it.
Topic of the case is based on certain provision of the Corporation Act 2001[1]. The subject matter of the case is based on the director’s duty towards the stakeholders. Rules regarding the same have been mentioned under the provision of section 180 of the said Act[2]. There are certain sub-sections are included. As per section 180 (1) of the Act, a director of a company must show necessary diligence while performing his duties and he owes care to the shareholders and the other stakeholders[3]. In ASIC v Adler, certain principles of the Corporation Act has been stated and a detailed version regarding the relevant sections have been mentioned[4]. In the case, there was a breach made by the Director of the company took place. The sections related to the case were section 9, section 180, section 180 (1), section 182, section 182 (2) and section 183 of the Corporation Act 2001. The meaning of the term care includes the reasonable supervision on the shareholders in case of all circumstances. The applicability of the section in this case is wide in nature. Reasonable supervision means he is not allowed to take any steps that is wrong in nature or to feather his own nest. The director of a company should not hide any facts from the shareholders or other stakeholders. Under section 184 of the Corporation Act, it has been stated that the directors should have to perform their duties in good faith. There shall be no bad intention or ulterior motive behind the acts of the directors. It is not expected from the director of the company to misuse the post to earn benefits.
In Corporation Act, there is a provision regarding section 1041H has been mentioned that states the liability of the director in the finance sector. In ASIC v FMG (2011) 190 FCR 370, it was held that the director should not deceive the shareholders to gain certain privileges in the financial service sector[5]. It is mentioned under the section that if any person violate the principle laid down under the subsection, provision of the civil liability will be applicable on him and he will be prosecuted under the provision of section 1041I of the Corporation Act 2001[6]. Certain pecuniary penalties will be imposed on the directors under section 674 (2) of the said Act.

According to the wise interpretation of section 180 of the Act states that the provision is also applicable on the sole directors of a company so that they could not use the same as an excuse[7]. The reason behind the enactment is to secure the interest of the shareholders. It is duty of the director to disclose all necessary information related to the company as well as the risks of the company to shareholders and other interested person. In ASIC v Macdonald [2009] MelbULawRw 34, it was observed by the Supreme Court if the allegation against a director regarding non-disclosure of necessary documents has been proved, he should be liable under section 180 of the Corporation Act 2001[8]. However, amount of loss is not mandatory in this case. In ASIC v Hellicar & Ors [2012] HCA 17, it was held that the liabilities of section 180 are not comprised of certain statutory duties only. Provision of section 945A of the Act is applicable in this case to certain extent. However, the section has been repealed now.
In Australia, there are number of cases pending regarding the company matters[9]. As it is a business country, company matters are placing in a most important position. There are number of cases where the various provisions of the Corporation Act prevail by the decision of the courts[10]. The present case is one the most important cases in this regard where the provision of director’s duty enlarged and the relevant sections are interpreted and applied. The brief summary of the case is that Mr. & Mrs. Cassimates were the sole director of the Storm company and published a scheme that attracts the creditors to invest in this. However, he had failed to inform them about the risks of such investment and a number of shareholders were invested their money in the fund. According to Australian Security and Investigation commission, the whole project was drowned due to certain financial crisis and a serious break down occurred in the company[11]. All the investors had faced a lot of trouble and the directors were held liable under section 180 of the Corporation Act for breach of director’s duty. Another allegation made against the directors that they had not abided by all the provisions that should be maintained by the director while performing their job.
It was stated by the ASIC that Mr. Cassimates wanted to gain certain benefits from the Storm project and that is why he had convened the investors to invest money in it. The problem arises as he had not inquire into the matter related to the background of the shareholders and did not even stated about the risks that may take place in this regard[12]. The shareholders had invested their money in it with a hope to gain some profit as the company was a reputed company in the financial sector. As per the principle laid down under the case of ASIC v FMG (2011) 190 FCR 370, a director must know about the potential risks regarding the financial investment and it is his duty to inform the shareholders regarding the same[13]. If he fails to perform the duties, he shall be held liable for the breach of Director’s duties. As per the judgment made in ASIC v Macdonald [2009] MelbULawRw 34, it can be stated that the directors of the Storm Company had failed to disclose necessary documents to the shareholders and after the break down, they had not shown possible care to them. There was no step had been taken by them to refund the invested money and the effect of the act was detrimental in nature.
On the other hand, the directors of the company had expressed their view regarding the exception of section 180 of the Corporation Act by stating the various aspects of the sections and its applicability. It has been stated by them that they will not be liable under section 180 as the section is not deal with the sole directors. It has been stated by them that risks are the inevitable part of the financial business. It is common in nature and there is no necessity to let the investors know about it. They knew the facts when they are investing their money in the project. Therefore, the allegation made against by them was vague in nature and they shall not be prosecuted under the provision of the Corporation Act 2001.
However, in this case, there were many scopes to identify the various provision of the Corporation Act 2001. The learned court had made an attempt to interpreted the relevant provisions of the Corporation Act 2001 by citing many cases regarding the matter[14]. The precedents of the cases were enlightened the provisions of the case too. It was observed by the Court that the main objective of section 180 is that the directors should have to show minimum care to the shareholders and there was no provision regarding the specific classes of directors[15]. Here the rules are applicable on every director including the sole directors. As per the allegation made by ASIC and the evidences presented before the court ion this regard, it can be stated that Mr. & Mrs. Cassimates had failed to perform their duties properly and had failed to show sufficient care to the shareholders. They had failed to make a balance between the risks and had failed to narrate the same to the investors. It is an excuse that the investors must know about the risk of the investment. It is the duty of him to state about the facts to the shareholders.
As regards the other allegation, there were sufficient prove regarding the fact that the directors of the company had failed to meet the requirements of the Corporation Act and did not tried to make an inquiry about the background of the investors. It had been stated during the cross examination that the shareholders had to face serious mishap regarding the break down and many of them became insolvent. However, there were the directors of the company regarding the beneficiary of the shareholders had taken no attempt[16].

Therefore, the case can be concluded with the facts that there were every evidences present against the directors of the company and regarding the violation of the necessary provision of the Corporation Act 2001. The violated provisions were section 180(1), section 182, and section 183 of the Corporation Act. Good faith had also not maintained by the directors of the company. The court was pleased to held the directors of the company liable for the misconduct.
The second question is based on the proprietary company. Under the Corporation Act, there are number of provisions made regarding the rules of the company. It is a common rules regarding the proprietary company is that every partners of the company can be the directors as well as the shareholders of the company and their activities will be regulated by the constitution of the company[17]. The rules laid down under the constitution will be applied on them and if there is any changes required regarding the constitution, the same can be done as per the rules mentioned under the Corporation Act. The constitution of the company can be changed by way of special resolution where there is a need of 755 of votes as against the same. The constitution works as a communication between the directors and the shareholders. Therefore, in case of the voting content, both the directors and the shareholders are taking part in it[18].
Section 201H of the Corporation act deals with the appointment process of the directors of a proprietary company. It has been stated under the section that the directors must meet the resolution process regarding the same and the other directors here can appoint any of the director[19]. The notice of the appointment should be served within two months. Once a director is appointed, there are certain rules regarding his removal from the post have been stated. The Corporation Act has stated certain strict provisions regarding the norms of a proprietary company. It has been stated under the rule that the director of a proprietary company can be removed from his post according to the provision stated in the constitution of the company. In the present case, it can be observed that the clause 9k prescribed certain procedures regarding the removal of the directors of the company. The other directors of the company had decided to remove Kanye from his post of directorship. It should be mentioned in this regard that the other directors of the company can remove him if there is any express provision mentioned under the constitution regarding the power of the directors to do so. Corporation Act deals with the removal of directors of a proprietary company under the provision of the Section 203C. However, there is a provision mentioned under the constitution of the company that if during the removal process, all the requirements are not maintained, the same can be violated the rules of the natural justice and could attract the provision of the unfair dismissal law. Under section 229H(1) of the Corporation Act has stated the voting system of the shareholders regarding the removal of the directors by way of an extraordinary general meeting. A notice should have been served under section 203D(2) of the Corporation Act. As per the contention of section 249A of the said Act, all the consenting shareholders and the directors should sign the notice. However, kanye was removed from his post without maintaining all these rules and therefore, there is a scope for him to take necessary steps regarding the same as against the directors and the consenting members as a whole. It is necessary to state that the directors of a proprietary company can be removed from his post if the ASIC form 484 has been filled up properly in this regard. However, there is no mention about the fact that the same rule has been followed in the case of Kanye.
It has been stated earlier that the every director of the proprietary company has certain shares in the company. These rights over the shares cannot be terminated for the facts that he is no longer a director of the company[20]. Therefore, if there is any attempt made regarding depriving Kanye from the rights that are accrued by him regarding the shares, the same will be treated as illegal in nature. The share interest of the directors is mentioned under section 196 of the Corporation Act 2001. If there is a violation regarding the same can be made, Kanye has all the rights to claim damage from the other directors of the company.

The second part of the question is based on the provision of the director’s duty. In Corporation Act, there are certain provision regarding the breach of director’s duties is mentioned. It is mentioned that the director of a company should show certain diligence not only towards the shareholders, but to the other directors of the company too. The word diligence means the persistent effort[21]. Every director of a company shall be under the liability of certain facts that are particularly mentioned in the several provisions of the Corporation Act. Every director should be under an obligation of section 181 of the Corporation Act. Director holds an important part in case of the internal proceeding of a company. Therefore, it is their duty to maintain a good communication link in between the shareholders and the other staff. Therefore, good faith is necessary regarding the same. In case of the Koala Pty Ltd, there is a lack regarding the requirements of these rules have been observed. As per the statements of the case, there is an applicability of the principles stated under section 182 and section 183 has been observed[22].
It has been mentioned under section 182 of the Corporation Act that should not misuse his position at any cost and should maintain the good faith criteria regarding the interest of the office. The composition of a company is inter-related to each other, and it is the duty of the members of the company to look into the matters carefully so that there shall not be any breach take place. During the office work, a director should not misbehave with the other directors and should not do anything that can affect the interest of the company. The directors are the part of the company and they should act diligently while dealing with the affairs of the company[23].
In the present case, two of the directors of the company, Keith and Kylie decided to incorporate another company and the business nature of such company will be similar in nature. It has also been decided by them that none of the other two directors of the present company be the member or director of the company. There is a scope regarding the violation of section 182 of the Corporation Act observed.

The relevant provision of the Corporation Act has stated that the director of a company needs to disclose all the relevant facts and the documents to the other co-directors. In the present case, there is a tendency regarding the hiding of the facts to incorporated similar kinds of company by Kieth and Kylie observed and it has also been stated that the duo directors were planned to avoid other two directors of the company.
According to the provision of section 183 of the Corporation Act, a director of a company should not gain unnecessary advantage during the performance of duties. It is their duties to avoid any such work, where the interest of the company is directly involved. However, in the present case, the same situation has been cropped up when both the directors of the company have decided to set up another company without informing the other directors of the company[24].
If there is an allegation brought against the director of a company regarding the violation of the norms of the Corporation Act and the same has been proved, he will be prosecuted under section 1317E of the Corporation Act. Therefore, Khaled and Kylie can bring action against the other directors under the similar provision of the Corporation Act.

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