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Law of Business Associations

Question:

Discuss about the Law of Business Associations.

Answer:

Introduction 

This article will cover different aspects of section 183 of Australian Corporation Act[1], 2001. The section covers the areas of information and civil obligations of the personnel of a corporate body including director, employees and other officers with delegated authority. The section is divided into two parts:-

General content of the act ( subsection 1)- Any individual, being a capacity of getting information with the delegation of authority in the segment of director, officers or employees of any organization must not use the information of the organization in improper way with the objective of gaining a personal advantages or causing the loss to the organization and the extend of this section applies even after the service period of the individual with the capacity of authority enjoyed during the period of service.

Sub section 2- The provision of penalty imposition under civil domain is there with the contravention of this section specified under sub section 1. 

The application of this section is prudently applied to safeguard the trade secret and the protection of intellectual property of the corporation. The violation of this section puts the individual behind the bar under the jurisdiction of civil law.

Preliminary Issues 

The preliminary issues related to the case study of GML with its four employees and directors, the status of whose is given below and the related preliminary issues related to violation of Section 138 of Australian Corporate Act 2001[2]. GML had planned to acquire the shares of MMM in the higher price as per their consultant Mr. Boon and the secret decision had been divulged by Dr. Dawes, Mr. Foster, Mr. Huckenfusser and Mrs. Duck who are with the status of directors and employees of the corporation. 

Dr. Dawes- The erstwhile director and the appointed consultant director of the corporation who passed on the information of the share price fluctuation of MMM to his wife, MS. Dawes out of which she had gained substantial amount by selling the shares. 

Mr. Foster- He had resigned from the directorship of GML and joined QECG, a financial company involved in share trading as CFO to be the part of the board.  As per his suggestion, which had been gathered from the confidential intelligence, and subsequent action of QECG had made no substantial gain to them through the prescribed action as the company had retained the shares of MMM and not sold it by the nick of the time. 

Mr. Huckenfusser- he is one of the employees of GML and was aware of the secret decision of the company to acquire the shares of MMM Ltd. He had divulged this information to Mrs. Duck, a relative of him to get rid of the personal loan of him to Ms. Duck. Mrs. Duck had utilized the information and gained good amount from the trading of the shares of MMM. 

Mrs. Duck- She is not with the status of any relation with GML but she is the relative of Mr. Huckenfusser. Through the information passed on to her by him made her rick by proper disposal of shares in profit. 

As per section 138, the preliminary issues were raised about the information divulged from the erstwhile or the present directors or employee or officer of the company related to the business strategy of acquiring the shares of MMM. As per the status of the persons involved here, the information passed on by Dr. Dawes to his wife enabled her make some good money through the trading of the MMM shares. Hence Dr Dawes is liable to divulge the information which was secret and not to be publicized. Mr. Foster had also divulged the information to his present employer, while Mr. Huckenfusser had did the same. 

Hence the preliminary issues regarding the breach of act as per section 138 is applicable to Dr. Dawes, Mr. Foster and Mr. Huckenfusser as they are or were in the capacity of director or employee or officer of the company as per the definition provided in the same section which states the director, officer or employee of any organization should be treated with that status when they are appointed as director or alternate director by appointment of the corporation in which form it is named. 

Possible Breaches of the Corporation Law 

The possible breaches of the Corporation Law as per the case study of Commissioner of Corporate Affairs Vs Green (1978), VicRp 48, (1978), VR 505, 16th February, 1978 the preconditions of proving the activities as breach of section 138 are:-

That the person was at the relevant time an officer of the corporation- this condition is applicable for the case of Dr. Dawes, Mr. Foster, and Mr. Huckenfusser who were working in the capacity of consultant director, director and officer of the corporation during the relevant time when GML had decided to acquire MMM by purchasing their shares.

That the person acquired relevant information- Dr. Dawes, Mr. Foster and Mr. Huckenfusser had acquired the relevant information by attending the board meeting in which Mr. Boon had suggested the acquiring of MMM through the presentation. They were present in the meeting with the capacity of consultant director, director and employee during that time.

That he acquired the information by virtue of his position as officer of the corporation- Being the consultant director, director and employee of the organization, Dr. Dawes, Mr. Foster and Mr. Huckefusser had acquired the information by virtue of their responsible position which enabled them to be present in the board meeting in -which the decision had been taken.

That he made improper use of that information- all of the three persons in question had made improper use of this information with individual or collective effect. When they had passed on the information to the recipient, wife of Dr. Dawes and sister in law of Mr. Huckenfusser were benefited through trading of the shares of MMM. In case -of Mr. Foster his present employee was passed on with the information which they had grabbed.

Definition of Improper Mean.

That he made the improper use in order to gain directly or indirectly an advantage- Gain was different on individual part. For Dr. Dawes, his wife had taken the advantage of the information by making good profit out of the trading of MMM shares. For Mr. Huckenfusser, his sister in law Ms. Duck had taken the advantage by trading with the exchange of writing off the old debt of Mr. Huckenfusser by Ms. Duck. In case Mr. Foster, the information he passed to his present employer to gain a good platform there.

That such advantage was either for him or for some other person- Incase of Dr. Dawes, the beneficiary is his wife who is next kin to him and the gain is flowing to him naturally. For Mr. Huckefusser, the beneficiary is Ms. Duck who is his sister in law and he had taken loan from her. The decision enabled Mr. Huckerfusser to get rid of the burden of loan as liability, hence he is benefited and his relative was also benefited through trading based on the information. In case of Mr. Foster, he wants to make his new employee obligated by the information he passed on them and got himself benefited by that information.

Alternatively to point no. (f) that he made the improper use to cause to detriment to the corporation- the case of detrimental aspect to GML is evident there too, as the decision, being leaked in the market raised the share price of MMM and when they had decided to close the deal, the price had been slashed down to make the corporation in loosing end out of the deal.

Defense

As per section 1317S, there are provision of defense of accused from civil penalty provision which confers that:

  1. If the accused can prove his action had been initiated with honesty regarding the circumstances of the case which includes of those connected with the appointment of that person, 
  1. The accused should be excused fairly.

The related excuses from eligible proceeding resulting civil penalty provision are covered through section 588K, 588M, 588W, 961M. 1317GA, 1317H, 1317HA, 1317HB but the same cant be covered u/S 1318.

Remedies 

The remedies of civil penalty provision from eligible proceeding can be granted by court if the judge is convinced about the honesty of the accused director. The remedies can be given from liabilities of the director due to the breach U/s 138.

Conclusion 

Considering section 138 of Australian Corporation Act, the definition of breach is well defined with subsequent relief exercised by court, if the judge is convinced about the unintentional approach of the director or employee of the corporation. The section can imply good force upon the director and the employees of any corporation which binds them with the strict compliance of maintain the intellectual property and the decision of the board meeting featured with confidential intelligence and the divulgence of the information can make the person liable for any sort of loss to the corporation.

 

 

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