Conflicted by interests

Prof Michael A Adams

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Introduction – conflicts of interest • • • Overview of officers’ duties Importance of conflicts laws Practical examples and cases

Context of governance • • • Important to understand corporate governance Various definitions Board Charter

Adams’ Concepts • • • • There is a clear distinction between the concepts: Corporate governance Due diligence Compliance program

Officers and Directors • • Section 9 is the “Dictionary” Officer = director or • • secretary of the corporation De facto Shadow

“Adams officers’ overlap diagram” Harris, Hargovan & Adams,

Australian Corporate Law

LexisNexis 2010 SBSA v Clark (1996)

Corporations Act 2001 Criminal offences Insolvent trading Insider trading Reasonable care Misuse position Misuse information Act honestly Liable for all

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General Defences • • • • There are not many defences 1993 BJR defence s 180(2) USA has “safe harbour rule” Common law

Focus on conflicts • Fiduciary duty creates legal duties, which at its heart state: – “no conflict rule” – “no profit rule”

Conflicts law • • All officers and directors are fiduciaries Impact of Grand Enterprises v Aurium Resources (2009)

Conflicts law • Duty to avoid conflicts of interest – Aberdeen Railway Co v Blaikie Bros (1854) Tests for establishing conflicts – Phipps v Boardman (1967) – Bell Group Ltd (in liq) v Westpac (2008)

Rule against conflicts • Diversion of business opportunities & misappropriation of company property • Green v Bestobell Industries Pty Ltd (1982) Some potential protections: – Peso Silver Mines v Cropper (1966) – Streeter v Western Areas Exploration Ltd (2011) Regal Hastings Ltd v Gulliver (1967)

Secret profit concept • The general rule is against any “secret profits” – Regal Hastings Ltd v Gulliver (1967 HL) – Groeneveld Australia PL v Wouter Nolten (2010)

Statutory overlap • The equitable fiduciary duty overlaps with statutory provisions in sections 182 &183 – ASIC v Vizard (2005)

Disclosure • • “The best disinfectant is day-light” – full and frank disclosure is critical to avoid conflicts Both equity and section 191 provide protection

Conflict defences • • • Full and frank disclosure Apply for court relief under section 1317S Members consent or Ratification

Conclusion • • • All company officers owe legal duties Good corporate governance helps Conflicts of interest get resolved by disclosure