Deck 7: Corporate Governance and Company Management

Question 1

All companies are required to have a company secretary.

Answer 1

False

Question 2

Hiroko was on vacation in Cairo. Egypt has a law that says it is illegal to purchase antiquities with the intent to remove them from the country. The penalty is punishable by imprisonment for a period up to 50 years. Hiroko purchased a small statue from a street vendor. Unknown to Hiroko, the statue was actually 2000 years old and was stolen from an archaeological site. The local authorities discovered that Hirko purchased the statute and arrested her. After a trial, Hiroko was convicted but was given a lenient sentence in the form of a $1000 fine due to the mitigating circumstances. Immediately after she paid the fine, she returned to Australia. On her return, her friend offered her a director position with his company. Even though she has not been convicted of any offence in Australia, she is nonetheless disqualified form managing a corporation in Australia.

Answer 2

True

Question 3

The replaceable rules in the Corporations Act provide that directors can be appointed by shareholders or other directors, but if appointed by directors the appointment must be approved by shareholders in accordance with the replaceable rules.

Answer 3

True

Question 4

June's husband is a director of Nasty Food Ltd. June regularly gets involved in the business of Nasty Food Ltd. Indeed, she regularly provides suggestions to the board and the board are accustomed to act in accordance with the June's instructions and wishes. Even though June has not been validly appointed as a director, she may still be deemed to be a director thereby incurring all the duties and responsibilities like the other directors of Nasty Food Ltd.

Question 5

The constitution of Maverick Enterprises Ltd provides, inter alia:
"The board of directors can remove any director from office by passing a directors' resolution."
Barry is a director of Maverick Enterprises Ltd. If the other directors pass a resolution removing Barry from office, he will be removed from the board.

Question 6

In accordance with the replaceable rules under the Corporations Act, at least two directors must be present at the directors' meeting before business can be validly conducted provided the company is not a single director company.

Question 7

Franz is a director of Blue Sky Ltd. The constitution of Blue Sky Ltd provides that Franz will act as a director for 5 years from the date of his appointment. 3 months after being appointed, Franz has decided he no longer wants to be a director of Blue Sky Ltd. Franz can resign by giving the company written notice of his resignation notwithstanding the 5-year period required by the constitution.

Question 8

Since de facto directors are not formally appointed, they do not owe any duties to the company.

Question 9

Profit-based bonuses are a way that managers can align members' interests to their own.

Question 10

When members disagree with the action of the board of directors, they can:

A) Alter the constitution with an ordinary resolution;
B) Vote the directors out of office;
C) Pass a resolution overriding what the directors have done;
D) Call a director's meeting to vote the directors out of office;
E) Sue the directors for breaching the fiduciary duties which the directors owe to the shareholders.

Question 11

Muhjid, Salomon and Fang are the only directors of SleepWell Pty Ltd, a company that sells mattresses. Sleepwell does not have a constitution. Muhjid wants to remove Fang from the board as he believes Fang has stolen money from the company's bank account. Which of the following is correct:

A) Fang could only be removed by a members' special resolution;
B) Fang would be automatically disqualified as he has committed a serious criminal act;
C) The company needs to give Fang two months' notice before removing him;
D) Fang can be removed by the company passing an ordinary resolution;
E) As a director, Fang would be able to enforce the constitution and thereby maintain his place on the board.

Question 12

The constitution of New Wave Tunes Pty Ltd provides the following article:
"A director's term of appointment expires after 3 years from the date the director is appointed. At the end of the 3 years, the director is deemed to be terminated and must be re-appointed by the shareholders passing an ordinary resolution."
Mary was first appointed as a director of New Wave Tunes Pty Ltd on January 1, 2015. She has never been reappointed by the shareholders but has continued to act as a director. Which of the following is correct?

A) Mary is not a director as she was not validly appointed after her initial term expired.
B) Since Mary has been acting as a director while not been validly appointed, she will be deemed to be automatically disqualified from managing a corporation.
C) Mary will be deemed to be a de facto director because she has not been validly appointed as a director but continues to act as a director.
D) Any act done by Mary after her initial term expired is invalid and ineffective because she was not validly re-appointed as a director.
E) The abovementioned article in the constitution is invalid because the Corporations Act says the maximum term for a director's appointment is one year and thereafter the director must be re-appointed by the shareholders.

Question 13

Harambe is a director of Gorilla Ltd and is the chair of the board. Gorilla Ltd does not have a constitution and relies on the replaceable rules in the Corporations Act. Which of the following is correct:?

A) If Harambe wants to call a directors' meeting, he must obtain the consent of all the other directors before doing so;
B) If Harambe is a major shareholder of Gorilla Ltd, he cannot be a director as that would be a conflict of interest;
C) Directors' resolutions of Gorilla Ltd require the support of at least 50% of the vote;
D) Gorilla Ltd's board of directors could pass a circulating resolution if it is supported and signed by 50% of the directors;
E) Harambe has a casting vote on resolutions in the event that the vote of the directors is tied;
F) Both (c) and (e) are correct.

Question 14

How would you explain the role of the Australian Securities Exchange (ASX) principles of good corporate governance?

Question 15

What is meant by the "organs" of the company?

Question 16

What action would you recommend to members who disagree with decisions made by directors?

Question 17

Imposing duties upon directors solves what problem?

Question 18

Who calls a directors' meeting, and how do they do it?

Question 19

How are decisions made at a directors' meeting?

Question 20

Define and distinguish (a) an executive director and a non-executive director; and (b) the chair of directors and the managing director.

Question 21

What is meant by the term "de facto" director?

Question 22

Are there limits on how long a person can be a director?

Question 23

When is a director disqualified from office?