Duty to Avoid Conflicts of Interests

Topics: Board of directors, Duty, Telstra Pages: 4 (1559 words) Published: September 14, 2013
When analysing the breach of duty, should give examples (“the facts of this case are similar to ‘…’”) to strengthen the arguments. Outline for “Duty to avoid conflicts of interest”: (Practice question about Agrico) Consider the company Agrico Limited, discussed last week. Jenny Smith is the managing director of Agrico, and she is also a director and shareholder of 50% of the shares in Telegenics Pty Ltd – a small IT company founded by her husband (he is the other director and 50% shareholder of the company). The other directors of Agrico are not aware of Jenny’s interest in Telegenics. Telegenics is tendering for a contract with Agrico and Telegenics’ quoted price of $10,000 is the same as that given by Telstra Corporation Limited. Jenny encourages the board to “give the smaller company a go” and to choose the Telegenics quote over Telstra’s. The board votes 4/3 in favour of the Telegenics quote (Arthur Fielding, the Chair of the board, was not in favour, as he considered Telegenics lacking in experience in major IT contracting). Are there any breaches of directors’ duties by Jenny Smith? * General Law fiduciary obligation to avoid/ properly manage COI: if the COI arise, is that permitted by the constitution? Full disclosure and get shareholder approval? Does she have conflict? Yes, her personal interest in other company conflicts with the obligation she owes to Agrico -> indirect contracting conflict in Transvaal’s case. Full disclosure and approval occur here? No (other directors do not know her interest) Assume there is nothing in the constitution authorising COI, she is in breach of general law duty. * Statutory duty

* She improperly uses her position as a MD to influence the other directors to vote in favour of entering into the contract with Telegenics that she got interest in. If she was not on the Board, she would not have the opportunity to try to exert the influence or encourage the others to do that -> Breach of s182. * She...
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