[mangaroo121]

scenario - a rival company called ' All mortgages' made a takeover bid for the company 'Money Trackers'. in order to defeat the take over bid the board of directors of 'Money trackers' allotted new shares to shareholders who would vote against the takeover bid.

'All mortgages' want to challenge the validity of the new shares.

so the question is have the directors of 'Money trackers' breached their duty when they issued the new shares?

can you please tell me all the relevant laws such as companies act sections and relevent cases. thanks

[Coursework.info]

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[ktwolves]

the relevant laws such as companies act sections and relevent cases

This concerns CA 2006 section 171(b), a director must only exercise powers for the purpose for which they are conferred. You are to discuss the tension between the duty to act in good faith doctrine and the proper purpose doctrine.

Directors are conferred with powers to issues shares to raise capital. A share issued for any other purpose other than to raise working capital although done in good faith (now under section 172) may run afoul of proper purpose doctrin(now section 171(B)) see Hogg v Cramphorn 1967.

Hogg v Cramphorn has been criticized in Teck Corp v Millar 1972. Whether or not, directors have breach this duty will depend NOT whether the purpose was proper or improper but rather the court will determine the substantial purpose for which the judgement of the directors’ decision was taken. Howard Smith v Ampol Petroleum 1974 .

There is therefore no absolute prohibition against the directors issuing shares to change the balance of power provided the substantial purpose is for the benefit of the Company as a whole and not for a particular class of person. The test (judgement of the directors) is an objective one Extrasure Travel v Scattergood 2002