Question

Frank is the managing director of Super Athlete Pty Ltd (SA), a profitable company specialising in general and specialist sporting equipment for men. The markets for SA’s products are men between the ages of 15 and 40 years. While at the Ice Hockey rink watching a game between the Adelaide Avalanche and the Sydney Bears, Frank chats to the coach of Adelaide Avalanche, Bob. Bob asks Frank whether his company would be interested in helping him to market a new pair of women’s ice skates called "Cheetah". Bob claims that the new ice skates are more protective of women’s ankles than the old designs based on men’s feet, and this will enhance their athletic performance on the ice. Frank tells Bob that his company SA would not be interested because it sells men’s products only. However, Frank offers to help Bob himself. Bob agrees. Frank and Bob set up a company called Cheetah Plus Pty Ltd (CP) and become its directors and members. Frank is the majority member. The business of CP is an overnight success. At a board meeting of SA six months later, Frank proposes that SA enter into a long-term contract with CP to purchase Cheetah ice skates for re-sale. The board agrees and as part of the contract Frank negotiates with the board that he will be paid a small commission on each sale because he drew the board’s attention to this new product opportunity. SA makes huge profits from selling the Cheetah skates overseas. SA later learns that Frank is the majority member in CP. The other board members of SA are unsure as to whether Frank is in breach of common law or statutory provisions.

With reference to the Corporations Act 2001 (Cth) and case law, discuss whether Frank has breached any duties owed to SA? If yes, what remedies can SA seek?

Answer 1

The Corporation Act 2001 requires that the director to discharge their duties according to specified law in good faith of company. These duties are subject to his judgement. The following are the general and specific duties of directors are:

1. Duty to act in good faith,
2. Duty not to use power for an improper purpose
3. Duty to avoid conflict of Interest
4. Duty to retain discretion

In given case, the director is involved with other business of same nature. This violates the duty of director i.e Duty to avoid conflict of interest. Here Frank the director involved in business with 3^rd person and opened a new business and he is majority member. This conflicts the interest of business hence the director breached the duties and is guilty.