Question

• Fairbridge Ltd has three directors and does not have a constitution. The three directors are Chelsea the managing director, Charlie the non-executive Chairperson and Rodney, a non-executive director. Smalls Pty Ltd is emerging to takeover Fairbridge Ltd and the directors have concerns. At the next directors’ meeting the board is considering to issue 1,000,000 ordinary shares to Jordan, Chelsea’s husband in order to ensure that the company can expand into other markets and shield itself from being potentially taken over by Smalls Pty Ltd, a current shareholder of the company. REQUIRED: With reference to the relevant provisions in the Corporations Act 2001 (Cth) and case law, discuss whether Smalls Pty Ltd would be able to challenge the directors of Fairbridge Ltd for breaching their duty by issuing 1,000,000 shares to Jordan. Note: disregard laws pertaining to takeovers when answering this question. Note: You are required to use the 4-step process in answering this question. The marks allocated for the steps are as follows: Steps 1 and 2: 6 marks Steps 3 and 4: 9 marks

Answer 1

For this assessment I am going to discuss whether the Smalls Pty Ltd. would be able to challenge the directors of Fairbridge limited for breaching they duty by issuing 1,000,000 shares to Jordan; regarding relevant provisions in corporations act 2001 (Cth):

(s 181) of the corporations operate 2001 describe one of the directors' general duties that the directors must exercise their powers to discharge their responsibilities for good faith and in the best interest of the corporation, that is also for a proper purpose.

In my view, protecting the corporation from a takeover is an appropriate purpose. The directors also take the actions in good faith for the company.

According to the general duties of directors by corporations act 2001, the directors should rationally believe before taking and judgment that it is in the company's best interest.

As per the (s 180), the directors need to exercise their powers with care and diligence.

Because the judgment is for the well being of the company, for expansion into other markets and to protect it from being taken over by any other company, as per the provisions of the corporation's act 2001, smalls Pty Ltd cannot challenge the directors for breaching their duty. They can not do it until or unless they do not have a material personal interest in the subject matter. They are not doing it for their private gain.