I. CHAPTER 5 – THE ATTENUATION OF DIRECTORS’ STATUTORY DUTIES BY

RATIFICATION OR AUTHORISATION

Temporary table of contents

Contents

I. Chapter 5 – The attenuation of directors’ statutory duties by ratification or authorisation........................................................................................................................1II. Introduction..................................................................................................................2I. How does prospective authorisation of a breach of statutory duty differ from retrospective ratification?....................................................................................................2II. Attenuation of directors’ statutory duties by authorisation.........................................3

A. Nature of director’s duties.......................................................................................4B. Codification of directors’ duties..............................................................................5C. Effect of codification of directors’ duties................................................................6

III. Can ratification attenuate statutory duties?..............................................................6IV. Can prospective authorisation attenuate statutory duties?.......................................7

D. What considerations may be relevant to attenuation of statutory duties arising from prospective authorisation?......................................................................................9

1 Whether the resolution could be effective to prospectively authorise the conduct of the directors.............................................................................................102 The statutory duties and their interpretation......................................................113 Solvency of the company...................................................................................134 Public enforcement of breaches of statutory duty.............................................135 Whether the attenuation of a statutory duty would amount to oppressive conduct pursuant to section 232 of the Corporations Act?........................................14

V. Doctrinal issues concerning attenuation of duties.....................................................17VI. Policy arguments in favour and against an attenuated duty approach...................22VII. Prejudice to stakeholders.......................................................................................25VIII. Conclusion.............................................................................................................28

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II. INTRODUCTION

In this Chapter, the question whether statutory duties may be attenuated by retrospective

ratification or prospective authorisation is addressed. This question is systematically

addressed as a means to consider the prejudice to stakeholders arising from the

attenuation of directors’ duties which would otherwise give rise to a breach of those

duties.

In this Chapter, firstly, the continuing relevance of the doctrine of ratification to

companies incorporated under the Corporations Act is considered as a preliminary

discussion for the purpose of describing the essence of the differences between

retrospective ratification and prospective authorisation of a breach of statutory duty and

setting out how ratification and authorisation may arise. As a part of this discussion, the

legislative context is considered first to establish the context of the Australian

corporations law before a consideration of the different legal issues which arise for

consideration of the attenuation of fiduciary and statutory duties.

This Chapter concludes by considering whether retrospective ratification and prospective

authorisation can attenuate a director’s statutory duty and the prejudice to stakeholders

which arises from any attenuation of statutory duties.

In this Chapter, the question whether statutory duties may be attenuated by retrospective

ratification or prospective authorisation is addressed to provide a separate doctrinal

criterion for assessing whether the doctrine of ratification remains relevant and

appropriate to companies incorporated under the Corporations Act.

The case law concerning attenuation of statutory duties arises principally in respect of

‘nominee’ directors and joint venture style companies and is exemplified by Levin v

Clark.1 This question was only partly resolved by the High Court in Angas Law Services2

with respect to ratification and there is limited other authority in Australia considering the

1 [1962] NSWR 686.2 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507.

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legal issues, including in respect of incorporated associations, strata companies and trade

unions. Accordingly, there remains doctrinal and policy issues which have not been

addressed in Australia, including by the academic literature.

The analysis provided in this Chapter considering the attenuation of statutory duties is

principally focused upon statutory interpretation in the context of the codification of

directors’ duties under the Corporations Act and the associated criminal offences. If

there is legal uncertainty in whether a particular statutory duty may be attenuated, then

this suggests that there should be law reform.

As a part of the consideration of the attenuation of statutory duties, this Chapter considers

the prejudice to stakeholders which arises from any attenuation of statutory duties which

would otherwise give rise to a breach of those duties. If there is prejudice to stakeholders

arising from the attenuation of statutory duties, this may suggest that there should be law

reform in Australia.

Following on from the discussion concerning attenuation of directors’ statutory duties,

this Chapter addresses the doctrinal issues concerning the attenuation of directors’ duties.

An important doctrinal question is how a company’s constitution or shareholders’

agreement could affect the content of a director’s duties, especially given that fiduciary

duties of directors developed independently of contract law. It is further questioned

whether the company is the sole beneficiary of duties owed to it by the directors in light

of the duty against insolvent trading and the statutory duties imposed upon directors by

the Taxation Administration Act 1953 (Cth). If there is no doctrinal basis in support of

the attenuation of statutory duties, then this suggests that there should be law reform in

Australia.

This Chapter concludes by considering the policy arguments in favour and against the

adoption of an attenuated duty approach. Whilst the Australian and international case

law has responded to the unique issues which arise from joint venture companies and the

prevalence of directors whom are nominees of particular shareholders, the continued

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development of the common law and the general law is questioned in the context of the

doctrine of ratification. Where the policy arguments suggest that there may be prejudice

to stakeholders of the company, this may suggest that there should be law reform in

Australia.

I. HOW DOES PROSPECTIVE AUTHORISATION OF A BREACH OF STATUTORY DUTY

DIFFER FROM RETROSPECTIVE RATIFICATION?

The jurisprudence and doctrinal issues relevant to the doctrine of ratification are common

to both prospective authorisation and retrospective ratification of a breach of statutory

duty. It is appropriate at this juncture therefore to consider the relevant differences

between a prospective authorisation and retrospective ratification for companies

incorporated under the Corporations Act.

Prior to the directors embarking upon conduct which may be in breach of statutory duties,

the directors may seek prospective authorisation from the shareholders in general

meeting.3 The same requirements, limitations and restrictions which apply to

retrospective ratification apply to prospective authorisation,4 accordingly, not every

proposed breach of statutory duty is capable of prospective authorisation.5

The practical effect of the prospective authorisation is therefore to allow the directors to

engage in conduct on behalf of the company which would otherwise attract personal

liability for any loss or damage sustained by the company which resulted from the

conduct. If the prospective authorisation is not granted, the directors can therefore

conduct themselves in the knowledge that if they proceed with the contemplated

transaction that they may be personally liable for any loss or damage sustained by the

company.

3 See especially Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666.4 Pascoe Ltd (in liq) v Peter Charles Lucas [1998] SASC 7134; Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722; Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666; Bamford v Bamford [1970] Ch 212.5 T Cockburn, L Wiseman, Disclosure Obligations in Business Relationships (Federation Press, 1996), 222.

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If the directors and their associates form a majority of the shareholders, it is to the

advantage of the directors to seek prospective authorisation (as distinct from retrospective

ratification) since the directors may not later be able to form a majority at a future general

meeting of the shareholders to approve a ratification resolution.

II. ATTENUATION OF DIRECTORS’ STATUTORY DUTIES BY AUTHORISATION

The High Court in Angas Law Services Pty Ltd (in liq) v Carabelas6 left open the

possibility that the acquiescence of shareholders to a course of conduct by a director of a

company incorporated under the Corporations Act might affect the practical content of a

director’s statutory duties.7 It follows that authorisation potentially extinguishes the

company’s cause of action in certain circumstances.

In Angas Law Services Pty Ltd (in liq) v Carabelas,8 in the context of statutory duties, it

was stated in obiter that ‘[i]n a particular case, ... [the shareholders] acquiescence in a

course of conduct might affect the practical content of those duties. It might, for example,

be relevant to a question of impropriety.’9 The High Court thereby left open the question

as to whether statutory duties owed by directors could be attenuated, including by the

conduct of the shareholders.

Before considering the attenuation of statutory duties as a result of authorisation, it is

instructive at this point to briefly consider the (i) legal nature of directors’ duties and (ii)

the legal implications of a duty arising from statute.

6 (2005) 226 CLR 507.7 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507, [32] (Gleeson CJ and Heydon J, Gummow, Kirby and Hayne JJ agreeing).8 [2005] HCA 23.9 Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23 at [32] (Gleeson CJ and Heydon J, Gummow, Kirby and Hayne JJ agreeing).

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A. Nature of director’s duties

It is sufficient at this juncture to note the following 4 summary points which illuminate

the nature of director’s duties:

1. It is trite law that a director is in a fiduciary relationship with the company and

that those duties do not arise from contract.

2. There is some uncertainty about whether a director's duty of care is only a

common law and statutory duty or is also an equitable duty; and, if it is equitable,

whether the duty is also a fiduciary duty.10

3. A breach of a statutory duty will result in a breach of duty to the company both

under statute and under the general law.

4. Where a director’s duty was made an offence under the Corporations Act, this

could result in the imposition of a civil or criminal penalty, depending upon the

nature of the duty and the director’s conduct.

B. Codification of directors’ duties

The codification of directors’ duties did not replace the general law duties of directors

and it resulted in directors having wider duties to the company. This is a consequence of

(i) section 185 of the Corporations Act, (ii) the broader wording used in the Corporations

Act when the co-existing fiduciary duty was codified and (iii) the creation of additional

duties which did not have an equivalent fiduciary duty in the Corporations Act or other

enactment of the Commonwealth.11

10 Daniels v Anderson (1995) 37 NSWLR 438 at 505 (common law duty of care); Permanent Building Society v Wheeler (1994) 11 WAR 187 (equitable and common law duty); Heydon, J, ‘Are the Duties of Company Directors to Exercise Care and Skill Fiduciary?’ in S Degeling and J Edelman (eds), Equity in Commercial Law, (2005, Lawbook Co, Sydney); Heath, W, ‘The Director's “Fiduciary” Duty of Care and Skill: a Misnomer’ (2007) 25 C & S LJ 370. See generally Irving, M, The Contract of Employment (LexisNexis Butterworths, 2012), [7.25].11 For example, directors are required to ensure that the companies complies with its tax obligations under Division 269 of Schedule 1 to the Taxation Administration Act 1953 (Cth).

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The codification of directors’ duties brought about statutory remedies, which were in

addition to the remedies available in equity for a breach of a director’s fiduciary duty. A

director may be personally liable for a breach of statutory duty.

The principal remedies for a breach of statutory duty are:

(i) civil penalties under section 1317E;

(ii) pecuniary penalties under section 1317G;

(iii) compensation under section 1317H; and

(iv) disqualification under section 206.

The codification of the duty of care did not result in a higher standard, rather it has been

held that the standards imposed by the statutory duty are essentially the same as the

standards imposed upon directors under the common law.12

C. Effect of codification of directors’ duties

Generally, where directors’ duties have been codified, it will not be possible for the

shareholders to prospectively approve or ratify the conduct of the directors to cure a

breach of the statutory duties by the directors.13 The question which arises for

consideration is whether a director’s statutory duties can be attenuated by authorisation or

ratification and to what extent will that attenuation is permissible.

In Macleod v The Queen14 which concern the alleged consent of a sole shareholder to a

breach of section 173 of the Crimes Act 1900 (NSW) it was stated that ‘[t]The self-

interested 'consent' of the shareholder, given in furtherance of a crime committed against

the company, cannot be said to represent the consent of the company.’15

12 Re HIH Insurance Ltd (in prov liq); ASIC v Adler [2002] NSWSC 171.13 Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; Forge & Ors v Australian Securities & Investments Commission [2004] NSWCA 448; Miller v Miller (1995) 16 ACSR 73 cf Pascoe Ltd (in liq) v Lucas (1998) 27 ACSR 737.14 (2003) 214 CLR 230.15 (2003) 214 CLR 230 at 240.

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In Australian Securities and Investments Commission v Maxwell & Ors,16 the obiter

statements in Angas Law Services referred to at the start of this Section of the Chapter

were relied upon and Justice Brereton extended the statement to include any question of

whether directors acted with a reasonable degree of care and diligence, and whether they

made improper use of their position.17

III. CAN RATIFICATION ATTENUATE STATUTORY DUTIES?

In Angas Law Services Pty Ltd (in liq) v Carabelas,18 Gleeson CJ and Heydon J held that

so far as liability based on breach of the statutory duties in Pt 2D.1 of the Corporations

Act is concerned, disclosure and ratification by the members cannot relieve a director of a

liability and that the shareholders cannot release directors from the statutory duties

imposed on directors by sections 180(1), 182(1) and 184(2). The same decision was

earlier reached in Miller v Miller,19 Forge v Australian Securities and Investments

Commission20 and Australian Securities and Investments Commission v Australian

Investors Forum Pty Ltd (No 2).21

In Forge v Australian Securities and Investments Commission,22 the court stated that civil

penalty proceedings to enforce breaches of directors’ duties involve public rights (noting

that when ASIC brings civil penalty proceedings a purpose can be to have the defendant

director disqualified from managing corporations). Consequently, the Court stated that

shareholders cannot remove the declaration by the Court of contravention of a civil

penalty proceeding by ratifying the original acts of the director.

In Miller v Miller,23 it was considered by Santow J that,

16 [2006] NSWSC 1052.17 Australian Securities and Investments Commission v Maxwell & Ors [2006] NSWSC 1052, [103].18 [2005] HCA 23.19 (1995) 16 ACSR 73.20 [2004] NSWCA 448.21 [2005] NSWSC 267.22 [2004] NSWCA 448.23 (1995) 16 ACSR 73.

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ratification cannot cure a breach of statutory duty, more especially one imposing criminal

liability. The most it can do is remove from the scope of technical dishonesty such

actions as issuing shares for a purpose which is not a proper one, in the sense of not being

for the benefit of the company as a whole.24

It can be seen from the above cases that different considerations apply to statutory duties

as distinct from fiduciary duties because of the public enforcement element of a breach of

statutory duties. This analysis is relevant to the further question of whether prospective

authorisation may be effective to attenuate statutory duties.

IV. CAN PROSPECTIVE AUTHORISATION ATTENUATE STATUTORY DUTIES?

There is legal uncertainty as to whether prospective authorisation may be given by the

shareholders in general meeting which would have the effect of attenuating a particular

statutory duty of the company’s directors. This legal issue was left open by the High

Court in Angas Law Services Pty Ltd (in liq) v Carabelas25 and the question has not been

judicially considered in Australia.

The basis of the legal question arises from the doctrine of attenuation of fiduciary duties.

In the context of attenuation of fiduciary duties, pursuant to the doctrine of attenuation of

fiduciary duties, the fiduciary duties owed by directors may be narrowed by the

unanimous agreement of the shareholders (including through the operation of the

Duomatic principle26) and the shareholders’ acquiescence to a course of conduct can

affect the practical content of a director’s fiduciary duties.27

24 Miller v Miller (1995) 16 ACSR 73, 89 (Santow J). See generally LexisNexis, Ford’s Principles of Corporations Law (at 27 July 2015) ‘Ratification of action in breach of other fiduciary duties’ [8.385].25 [2005] HCA 23.26 Re Duomatic Ltd [1969] 2 Ch 365.27 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507. See generally Japan Abrasive Materials Pty Ltd & Ors v Australian Fused Materials Pty Ltd (ACN 009 415 025) & Ors [1998] WASC 60; Grand Enterprises Pty Ltd v Aurium Resources Limited [2009] FCA 513; Western Areas Exploration Pty Ltd v Streeter (No. 3) [2009] WASC 213; Eastland Technology Australia Pty Ltd & Ors v Whisson & Ors [2005] WASCA 144; Barkley v Barkley Brown [2009] NSWSC 76.

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The authorities in Australia indicate that the shareholders in general meeting have the

power to authorise a proposed course of conduct,28 however, the High Court in Angas

Law Services did not find it necessary to make an authoritative statement about all the

legal considerations which may be relevant to the question of whether prospective

authorisation is effective to attenuate the statutory duties established under the

Corporations Act. This issue is considered below.

The attenuation of a director’s statutory duties may arise under the company’s

constitution, or by the exercise of the powers of a majority of the shareholders in general

meeting. In relation to all companies, the limits to which a director’s statutory duties

may be attenuated is subject atleast to the following matters:

(i) section 191 of the Corporations Act (Material personal interest--director's duty to

disclose);

(ii) corporate governance regulation established by the Corporations Act (addressed

in Chapter 5);

(iii) the operation of the Duomatic principle (addressed in Chapter 2);

(iv) whether the director has modified statutory duties pursuant to sections 18 and 187

of the Corporations Act because the person is a director of a wholly owned

subsidiary;

(v) the exemption limitations pursuant to section 199A of the Corporations Act

(Indemnification and exemption of officer or auditor);

(vi) the prohibition against fraud on the minority; and

(vii) the prohibition against oppressive conduct under Part 2F.1 of the Corporations

Act (Oppressive conduct of affairs).

D. What considerations may be relevant to attenuation of statutory duties arising from prospective authorisation?

Notwithstanding that there is no legal authority on the question of the considerations

which may be relevant to the attenuation of a particular statutory duty established by the

28 See especially Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666.

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Corporations Act arising from a constitutional provision or a prospective authorisation

resolution (or other conduct of the shareholders), the law relevant to the doctrine does not

exist in a vacuum and accordingly, it is possible to determine from existing authorities

which concern the doctrine of ratification and the Corporations Act the likely issues

which would arise for consideration by a court.

Depending upon the facts of a particular case, the considerations which may be relevant

to the legal question of attenuation of statutory duties arising from prospective

authorisation include:

(i) as a threshold question whether the terms of the resolution could be effective to

prospectively authorise the conduct of the directors;

(ii) the statutory duties established by the Corporations Act and their interpretation;

(iii) the solvency of the company;

(iv) the principle of public policy which supports the enforcement of breaches of

statutory duty; and

(v) whether the attenuation of a statutory duty would amount to oppressive conduct

within the meaning of section 232 of the Corporations Act.

Each of these matters is considered in detail below.

1 Whether the resolution could be effective to prospectively authorise the conduct of the directors

As previously stated in section I of this Chapter, the same requirements, limitations and

restrictions which apply to retrospective ratification apply to prospective authorisation,29

accordingly, not every proposed breach of statutory duty is capable of prospective

authorisation.30

29 Pascoe Ltd (in liq) v Peter Charles Lucas [1998] SASC 7134; Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722; Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666; Bamford v Bamford [1970] Ch 212.30 T Cockburn, L Wiseman, Disclosure Obligations in Business Relationships (Federation Press, 1996), 222.

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There is therefore a threshold question whether all of the requirements for a valid

ratification resolution have been satisfied. As to those legal requirements and the types

of conduct which cannot be ratified,31 which relevantly include whether there has been a

fraud on the minority, each of these matters were addressed in Chapter 2. There is also a

separate legal obligation of disclosure by the directors under section 191 of the

Corporations Act.

2 The statutory duties and their interpretation

The statutory duties established by sections 180-184 of the Corporations Act are of

particular interest in this Chapter, however, it is also relevant to consider the modified

statutory duties of directors of wholly owned subsidiaries under sections 186 and 187 of

the Corporations Act, the position of nominee directors and directors of competing

companies.

The doctrine of ratification does not require that the directors acted honestly and in good

faith in the best interests of the company, which is inconsistent with the duty of loyalty of

a director to the company. There is however a relevant requirement for acting in the best

interests of the company arising from the duties established by sections 181 and 182 of

the Corporations Act. It will therefore be necessary to consider any alleged breaches of

statutory duty.

31 The scope of the doctrine of ratification is limited to protect minority shareholders in the following ways: (i) a ratification must be of a lawful act, (ii) where any contract amounts to a fraud or constructive fraud, on account of its being opposed to some positive law, or public policy, it is void and incapable of ratification, (iii) where an act is beyond the power of the principal, it cannot be ratified, (iv) where the act is void ab initio the maxim quod ab initio non valet, in tractu temporis non convalescit applies and accordingly the act is not capable of ratification, (v) an act beyond the purposes of the company for which it was created under the relevant statute is not ratifiable, (vi) acts which are ultra vires are not ratifiable (which in respect of companies incorporated under the Corporations Act would seem to now be limited to acts which are illegal following the abolition of the doctrine of ultra vires), (vii) an act beyond the scope of the purpose for which the power existed (an abuse of a power) is not ratifiable, (viii) a ratification will not be valid where the ratification would constitute a fraud on the minority, (ix) the shareholders in general meeting cannot ratify a transaction where the ratification would constitute a misappropriation of company resources or an appropriation to the majority of the shareholders, of property advantages which belong to the company, (x) a transaction cannot be ratified where the ratification was entered into by an insolvent company to the prejudice of creditors, (xi) the shareholders in general meeting cannot ratify a transaction where the ratification defeated a member's personal right, (xii) where the ratification was oppressive, the ratification will be invalid, (xiii) where the majority in general meeting acted for the same improper purpose as directors the ratification will be invalid, and (xiv) where ratification would constitute bad faith, the ratification will be invalid.

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Directors of wholly owned subsidiaries in Australia

Pursuant to section 187 of the Corporations Act, a director of a wholly owned subsidiary

is taken to act in good faith in the best interests of the subsidiary if:

(a) the constitution of the subsidiary expressly authorises the director to act in the

best interests of the holding company; and

(b) the director acts in good faith in the best interests of the holding company; and

(c) the subsidiary is not insolvent at the time the director acts and does not become

insolvent because of the director's act.

The effect of section 187 of the Corporations Act does effect the operation of sections

181(1)(a) and 184(1) however it does not modify the effect of sections 181(1)(b) or

182(1)(a) of the Corporations Act.32

Directors of wholly owned Australian subsidiaries therefore are subject to modified

statutory duties provided that there is compliance section 187 of the Corporations Act.

Accordingly, it will be relevant to determine whether a director of a wholly owned

subsidiary is subject to a particular statutory duty since that director may not be in breach

of a statutory duty.33

Directors of wholly owned foreign subsidiaries

Pursuant to section 186 of the Corporations Act, sections 180 to 184 do not apply to an

act or omission by a director of a foreign company unless the act or omission occurred in

connection with:

(a) the foreign company carrying on business in this jurisdiction; or

(b) an act that the foreign company does, or proposes to do, in this jurisdiction; or

(c) a decision by the foreign company whether or not to do, or refrain from doing, an

act in this jurisdiction.

32 Allco Funds Management Limited (Receivers and Managers Appointed) (In Liquidation) v Trust Company (RE Services) Limited (in its capacity as responsible entity and trustee of the Australian Wholesale Property Fund) [2014] NSWSC 1251 at [190] per Hammerschlag J.33 There would be a separate question whether the conduct of the director was a breach of a fiduciary duty owed to the company.

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For the purposes of considering the position of directors of wholly owned subsidiaries,

the interaction between sections 186 and 187 of the Corporations Act indicates that these

directors are not subject to the duties established by sections 180-184 of the Corporations

Act. Accordingly, the question does not arise whether prospective authorisation may be

required for any conduct of these directors.

The interpretation of statutory duties

The obiter statements in Angas Law Services with respect to the interpretation of

‘improper’ and separately academic commentary34 suggest that a constitutional provision

which seeks to modify the meaning of certain conduct, such as ‘improper’ conduct, could

be effective to modify the interpretation of the meaning of sections 182 and 183 of the

Corporations Act.

At a more general level, there could therefore be provisions of a company’s constitution

or the terms of an authorisation resolution which seek to modify the interpretation of a

statutory duty which, subject to the other relevant legal considerations discussed in this

section F, could be effective to attenuate a director’s statutory duty.35

3 Solvency of the company

Under the law in Australia, an authorisation resolution is not void only by reason that a

company later becomes insolvent pursuant to section 95A of the Corporations Act. There

will be a relevant connection between an authorisation resolution and insolvency where,

for example there has been a breach of section 588G of the Corporations Act if the

authorisation resolution related to the incurrence of a debt.

34 See Ford, Austin & Ramsay’s Principles of Corporate Law (at 25 July 2015) ‘Nominee directors: attenuation of duty by constitution’ [9.440] .35 See, for example, Levin v Clark [1962] NSWR 686 where the company’s constitution, coupled with the terms of a sale and mortgage, was held to constituted an attenuation of the fiduciary duty of the directors which was sufficient to permit the directors to act primarily in the interests of the mortgagee and thereby did not require the directors to act for the benefit of the company as a whole.

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Accordingly, unless there is a relevant connection between an authorisation resolution

and solvency, it will not therefore be a relevant consideration to consider the later

insolvency of a company to determine whether a statutory duty (separate from a breach of

section 588G) was attenuated.

4 Public enforcement of breaches of statutory duty

As was set out above, a significant factor considered by the Courts in determining

whether a ratification resolution could be effective to attenuate a statutory duty was the

public enforcement element of a breach of statutory duty. On one interpretation, an

underlying reason for this is that the Courts are unwilling to recognise that the

shareholders in general meeting had the authority to modify the effect of the statutory

duties imposed by the Corporations Act because those provisions were civil penalty

provisions and/or imposed criminal liability and there was the possibility that a person

could be disqualified from acting as a director in the future. The decision of the

parliament to codify the duties of directors and impose penalties for the breaches of those

statutory duties accordingly gave effect to the protection of stakeholders of the company

and the enforcement of public rights by ASIC. Such an interpretation is also supportable

on the basis that a ratification resolution seeks to relieve a director of a liability for the

breach of a statutory duty, which is a matter relevant to a question of whether a director

should be relieved from liability in whole or in part under sections 1317S and/or 1318 of

the Corporations Act.

With this possible interpretation in mind, it is likely that a court would approach the

question of whether prospective authorisation could attenuate a statutory duty as a

question independent of what is the effect of the attenuation of the statutory duty.

Based on the authority of Angas Law Services and the authorities relied upon by the High

Court in that case and the discussion above, there would not seem to be a question

whether the effect of the statutory duties is modified by reason of an authorisation

resolution, the question will only be whether there is some legal basis to say that a

statutory duty was attenuated because of (for example), the director was subject to a

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modified statutory duty arising from the person being a director of a subsidiary, or the

interpretation of the statutory duty is modified by reason of the terms of an authorisation

resolution or a provision of the company’s constitution.

5 Whether the attenuation of a statutory duty would amount to oppressive conduct pursuant to section 232 of the Corporations Act?

In Chapter [2], it was discussed that a breach of a director’s fiduciary duties to the

company may be ratified or prospectively authorised. Further, as discussed above, there

are also cases which indicate that fiduciary duties may be attenuated.36 These cases did

not address the question of whether a statutory duty could be attenuated where the

attenuation of the duty amounts to oppressive conduct pursuant to section 232 of the

Corporations Act. There is no authority on this specific question, however there are

relevant legal principles and authority which indicates that a court would not recognise

the attenuation of a statutory duty in respect of proceedings pursuant to section 232 of the

Corporations Act.

As was discussed above, the considerations applicable under section 239(2) are different

to those under section 232. This accordingly permits a court to focus attention on

whether the relevant conduct is contrary to the interests of the members as a whole or

oppressive to, unfairly prejudicial to, or unfairly discriminatory against shareholders.

It will be relevant to consider whether the directors and/or their associates voted, for

example, to modify a provision of the constitution or to authorise the conduct of a

director.37 Where a director has derived an advantage from their own wrong, a court may

be reluctant to recognise the attenuation of a statutory duty, notwithstanding that a

shareholder has a right to exercise their vote in their own interests because the mere act of

voting to attenuate the statutory duty is oppressive conduct within the meaning of section

232 of the Corporations Act.

36 See eg. Levin v Clark [1962] NSWR 686.37 See especially HNA Irish Nominee v Kinghorn (No 2) [2012] FCA 228 where the directors used their voting power to approve a ratification resolution.

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A factor which would also be relevant is whether any constitutional amendment or

authorisation resolution was approved by the shareholders in general meeting

notwithstanding the votes of the director(s) and/or their associates.

In HNA Irish Nominee Ltd v Kinghorn (No 2)38 it was held that two shareholders could

not rely on their control of the general meeting to ratify conduct in breach of their

director’s duties,39 however, the ordinary shareholders can ratify a decision taken by the

directors, provided the decision taken by the ordinary shareholders is not itself oppressive

within the meaning of section 232 of the Corporations Act.40

In relation to oppressive conduct, HNA Irish Nominee Ltd v Kinghorn (No 2)41 is a

significant development in relation to the lawfulness of a ratification resolution and the

limitations on the operation of the doctrine of ratification in Australia. The Court held

that the approval by the major shareholders of a ratification resolution was oppressive

pursuant to section 232 of the Corporations Act, ergo oppressive conduct is independent

of the doctrine of ratification. The obiter statements in Angas Law Services did not

consider the possibility that conduct which seeks to give rise to the attenuation of a

statutory duty may be oppressive conduct under section 232 in the sense of HNA Irish

Nominee Ltd.42

The ratio decidendi of HNA Irish Nominee Ltd43 at least includes the following

propositions:

(i) that an action of directors is in breach of fiduciary duty will be relevant to

whether there has been unfairness in the context of oppression;44 and

38 [2012] FCA 228.39 HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228, [601] (Emmett J).40 HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228, [659] (Emmett J).41 [2012] FCA 228.42 HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228.43 HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228.44 see Sumiseki Materials Co Ltd v Wambo Coal Pty Ltd [2013] NSWSC 235 citing with authority Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228; Re Cumberland Holdings Ltd (1976) 1 ACLR 361; Jenkins v Enterprise Gold Mines NL (1992) 6 ACSR 539.

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(ii) directors which prefer their own interests over those of another group of

shareholders is capable of constituting oppression and unfair discrimination

within the meaning of section 232 of the Corporations Act.45

The reasoning in HNA Irish Nominee Ltd46 leaves open the legal possibility that where

there is a decision taken by the shareholders in general meeting, provided that the

resolution which authorises the future conduct of directors or amends the provision of a

constitution is not contrary to section 232 of the Corporations Act, the decision of the

shareholders could be effective to attenuate a statutory duty.

Whether in fact the express or implied conduct of the shareholders will result in the

attenuation of a statutory duty will depend upon the facts of a particular case because of

the possibility of a director being subject to modified statutory duties and the

interpretation of the content of a statutory duty which may be dependent upon a unique

factual matrix. At the current time, no authorities have followed HNA Irish Nominee in

relation to statutory oppressive conduct within the meaning of section 232 of the

Corporations Act.

PropositionIt is a proposition advanced by this thesis that a constitutional provision, a resolution for

the prospective authorisation of specified conduct or other conduct of the shareholders

giving rise to the operation of the Duomatic principle could be legally effective to

attenuate a particular statutory duty of a company director.

V. DOCTRINAL ISSUES CONCERNING ATTENUATION OF DUTIES

Judicial reasoning concerning directors’ duties may be considered to fall into one of the

following three approaches; (i) the absolutist approach, (ii) the corporate primacy

approach, and (iii) the attenuated duty approach.47 The attenuated duty approach 45 See HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228, [665] citing with authority Reid v Bagot Well Pastoral Co Pty Ltd (1993) 12 ACSR 197, 205-7.46 HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228.47 For a detailed discussion on these approaches see Ahern D, Nominee directors’ duty to promote the success of the company: Commercial pragmatism and legal orthodoxy (2011) 127 LQR January.

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emerged in the 20th century in Australia, New Zealand and in the early 21st century in the

United Kingdom exemplified respectively by Levin v Clark,48 Berlei Hestia (NZ) Ltd v

Fernyhough49 and Re Southern Counties Fresh Foods Ltd; Cobden Investments Ltd v

RWM Langport Ltd.50 Each of the Australian and New Zealand cases concerned nominee

directors and the case in the United Kingdom concerned a joint venture company.

Accordingly, the law has recognised the limited attenuation of director’s statutory duties

in certain circumstances and this is to be distinguished from a more general principle of

law applying to all directors of companies.

Separate from the cases concerning nominee directors and joint venture companies,

semble, the decisions in Forge,51 Miller,52 Maxwell,53 Angas Law Services54 and

Macleod55 suggests that the attenuation of a director’s statutory duties is not generally

possible for the following reasons:

1. the comprehensive statement of the duties of directors established by the

Corporations Act operates as a code in addition to general law duties;

2. the codification of directors’ duties broadened the general law duties and

increased duties imposed upon directors;

3. the codification of directors’ duties from the general law duties creates a

minimum standard of conduct of directors by which the parliament intended to

apply to all companies incorporated under the Corporations Act;

4. the existence of an offence for a breach of a director’s duty to which a penalty

applies indicates that the parliament intended to make individual directors

responsible for their conduct and to deter directors from conduct which would be

in breach of a particular duty;

48 49 [1980] 2 NZLR 150.50 [2008] EWHC 2810 (Ch).51 52 53 54 55

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5. the determination that the shareholders cannot ratify a breach of statutory duty

suggests that the same reasoning would support a conclusion that the shareholders

cannot attenuate a statutory duty;

6. the attenuation of a statutory duty would allow a director to avoid the obligation

of showing that they acted honestly under section 1317S and 1318 where the

Court has the power to relieve a director of the consequences of a breach of duty

and such an outcome appears inconsistent with the purpose of the scheme of civil

penalty provisions under the Corporations Act;56

7. the existence of the defence to a breach of a statutory duty established by section

180(2) of the Corporations Act indicates that the engagement of directors in

commercial decisions is a factor relevant to a question of whether there has been a

breach of duty under section 180(1) and thereby suggests that the parliament did

not intend that the duty created by section 180(1) ought to be attenuated. This

may also indicate that the absence of a statutory defence to a breach of statutory

duty that the statutory duty cannot be attenuated;

8. there is no express statement in the Corporations Act which indicates that the

parliament intended that the statutory duties could be attenuated; and

9. the above reasons, together with the principles of statutory construction suggest

that the overall scheme of the Corporations Act does not support a view that the

statutory duties would impliedly be permitted to be attenuated.

The obiter statements by Gleeson CJ and Heydon J in Angas Law Services57 suggest in

respect of the attenuation of statutory duties that an exception may apply in respect of the

practical content of a particular duty although no basis was suggested for such a

principle. The example cited in Angas Law Services58 was on a question of impropriety

and how the factual question of impropriety may be addressed in certain circumstances.

There are no reported cases of the attenuation of statutory duties in relation to

incorporated associations, strata companies or trade unions from which any principles

56 Acts Interpretation Act s 15A57 Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23 at [32] per Gleeson CJ and Heydon J58

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have arisen which suggest that the attenuation of statutory duties is permissible under the

Corporations Act.

Directors’ duties developed under the general law independent of the law of contract.

Contract may play a role in defining the relationship between parties and the scope of the

fiduciary duties,59 however that principle of law is applied in quite different

circumstances from the fiduciary relationship of director and company.

The doctrinal question is how a contract such as the company’s constitution or a

shareholders’ agreement could affect the content of a fiduciary or statutory duty? As

discussed below, it is not evident from the current law in Australia what is the doctrinal

basis for the attenuation of directors’ duties.

There can be a breach of contract without the conduct giving rise to a breach of duty,

whereas the attenuation of duties approach adopted in Australian jurisprudence seems to

suggest that the content of the fiduciary and statutory duties are dependent in some way

on the constitution and/or the shareholders agreement. This is said to arise from what

may be considered to be the scope of the phrase ‘best interests of the corporation’ under

sections 180(2)(d) and 181(1) of the Corporations Act and the word ‘improperly’ under

sections 182 and 183 of the Corporations Act.60

A key question is whether the attenuated duty approach is consistent with the view that

the company (and indirectly the shareholders) is the sole beneficiary of the duties owed

by the directors. This idea appears to be incorrect in principle and in practice since there

are cases where the Australian Securities & Investments Commission has sought to

enforce the law on behalf of shareholders and creditors which indicates there is a

dimension to enforcement of the law in favour of a wider group of stakeholders where

there is a breach of director’s duties. This follows from the Australian Securities &

Investments Commission’s role in enforcing corporate law and protecting the public. 59 See Australian Securities and Investments Commission (ASIC) v Citigroup Global Markets Australia Pty Limited [2007] FCA 96360 The point was left open by the High Court in Angas Law Services and the doctrinal basis upon which the attenuation is said to arise has never been addressed in Australia.

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It is also the case that under Australian law, employees and unsecured creditors may

benefit from the prohibition against insolvent trading. A liquidator is empowered to

commence proceedings against a director for insolvent trading61 which would directly

benefit employees and creditors. Creditors may also be able commence proceedings

against a director where there has been insolvent trading.62 This further shows that the

company (and the shareholders) is not the sole beneficiary of the duties of directors.

Under the Taxation Administration Act 1953, the directors are required to cause the

company to comply with obligations which include the remittance of PAYG amounts to

the Commissioner of Taxation and pay moneys to employee superannuation funds.63

These obligations on directors are directly beneficial for employees, however there are

indirect benefits to other stakeholders of the company and generally the public.

It is a proposition advanced by this thesis that the public obtain a benefit from statutory

directors’ duties in the following ways:

(i) the possible adverse effect of the company’s business activities on local residents

may be constrained by directors’ duties;

(ii) customers benefit from the company’s goods and services supplied; and

(iii) society as a whole benefits from good corporate governance and taxes paid by the

company.

As discussed above, given that there are a wide range of stakeholders which gain a

benefit from statutory directors’ duties, the legal principle that the shareholders may

attenuate the duties of directors (i) by unanimous agreement pursuant to a shareholders’

agreement or (ii) pursuant to the Duomatic principle or (iii) generally through the

constitution, is contrary to the Australian law which seeks to protect the interests of a

company’s stakeholders, including the public.

61 Corporations Act 2001 (Cth) ss 588M.62 Corporations Act 2001 (Cth) ss 588M, 588R-588U.63 Taxation Administration Act 1953 (Cth) Sch 1 s 269-15(1).

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The current Australian law seeks to protect the legal rights of stakeholders and this has

the effect of reducing the prejudice to stakeholders of the operation of the attenuation of

duties. This argument does not suggest that the directors owe direct duties to

stakeholders, or indeed proposes a change to the Corporations Act to give effect to duties

owed to stakeholders. It is however a proposition advanced by this thesis that the

doctrinal basis for the attenuation of directors’ duties is unclear and the application of the

doctrine of attenuation of duties is inconsistent with modern principles of corporate

governance which are discussed in Chapter 5.

This thesis will now consider the policy arguments in favour and against the adoption of

the attenuated duty approach.

VI. POLICY ARGUMENTS IN FAVOUR AND AGAINST AN ATTENUATED DUTY

APPROACH

There are substantial policy reasons in support of the attenuated duty approach which has

been adopted in Australia in respect of nominee directors and these policy reasons are

summarised as follows:

(i) The appointment of nominee directors is common in commercial practice and

because of the prevalence of the use of nominee directors, the law should

recognise the circumstances as being distinct from other companies and ‘bend’ to

commercial practice;64

(ii) The attenuated duty approach recognises that the nominee director may have a

duty to their appointer through an agreement, which may arise from a contract of

employment;65

(iii) The common law and general law remains flexible and under development. The

law is thereby able to be molded to suit the particular circumstances;

64 See Ahern D, Nominee directors’ duty to promote the success of the company: Commercial pragmatism and legal orthodoxy [check citation].65 See Ahern D [above N]

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(iv) The shareholders’ unanimous agreement protects the minority shareholders from

the actions of the majority since there is no prejudice to any shareholder in these

circumstances;

(v) The shareholders can fashion the terms of the company’s constitution, or a

shareholders’ agreement in a flexible way to suit the circumstances and the needs

of the company. This allows the directors to act in the best interests of the

company with narrowed duties; and

(vi) There must still be compliance with the Corporations Act, and the constitution of

the company and thus the company and the shareholders continue to benefit from

the usual legal protections.

There are also substantial reasons why the attenuated duty approach may have a negative

effect, even in respect of companies which have nominee directors:

(i) The fiduciary and statutory duties of directors arose as a result of the need for

protection of the company and the shareholders from the conduct of directors

because they are fiduciaries. The attenuation of director’s duties is permissive of

narrowing the protections afforded to the beneficiaries of the fiduciary and

statutory duties and this may be of particular relevance in relation to management

buyouts;

(ii) The ongoing development of corporate governance regulation is supportive of the

idea that the interests of other stakeholders including employees, creditors,

customers and the public should also be considered. This is recognised by the

imposition of duties on directors against insolvent trading,66 under tax legislation

to ensure that the company complies with its statutory obligations67 and

environmental legislation to ensure the environment is protected for current and

future generations.68 The allowance of the attenuation of directors’ duties

suggests that the primary beneficiaries of the duties are the company and

consequently the shareholders. The scope of statutory directors’ duties may be

66 67 68

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construed to be for the public benefit which incorporates the benefit to

stakeholders;

(iii) The attenuation of duties raises the possibility of a private benefit being given to a

director or one of their associates which outweighs the benefit to the company

and/or the shareholders and other stakeholders;

(iv) There is no duty on the shareholders to act in the best interests of the company

and this is permissive of shareholders attenuating the duties of directors where the

attenuation would not be in the best interests of the company;

(v) There is no duty on the shareholders to consider the interests of other

stakeholders. This raises the possibility of the shareholders making a choice of

favouring their private interests over the interests of stakeholders;

(vi) The best interests of the company has been judicially considered to be limited to

the current shareholders.69 The attenuation of duties does not therefore protect

future shareholders. The current shareholders can make a choice between the

need for protective regulation (as the primary source of rights, duties and

obligations) and the right to freedom to contract based on what they believe is in

the best interests of the company at that time. Those choices may adversely affect

future shareholders; and

(vii) Nominee directors are motivated to act in the interests of their appointer. It may

therefore be a paradox to thereby allow the attenuation of nominee director’s

duties, the very duties which would protect the company from the conduct of the

nominee director and the nominee director would not be in breach of their duties.

The policy arguments against the adoption of the attenuated duty approach all indicate

there is prejudice to the stakeholders of a company and in this respect it is argued that the

negative consequences to stakeholders outweighs the benefits. It is a proposition

advanced by this thesis that the current law in Australia should be amended to remedy the

apparent prejudice to stakeholders, even though there may be substantial arguments in

favour of the attenuated duty approach.

69

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For the above reasons and the reasons discussed in in Section [xx] of Chapter 3, it is a

proposition of this thesis that the attenuation of statutory duties should not be permitted.

VII. PREJUDICE TO STAKEHOLDERS

It is a conclusion of this thesis that a constitutional provision, a resolution for the

prospective authorisation of specified conduct or other conduct of the shareholders giving

rise to the operation of the Duomatic principle could be legally effective to attenuate a

particular statutory duty of a company director.

If the High Court’s obiter statements in Angas Law Services are correct that different

considerations do apply with respect to prospective authorisation of a breach of statutory

duty as distinct from retrospective ratification of the same breach of duty, with the result

that the director’s conduct was not a breach of statutory duty, whether because the duty

had been attenuated or the company’s shareholders authorised a specific breach of duty,

this would introduce further uncertainty into the operation of the doctrine of ratification

because:

(i) different outcomes would emerge for directors who have breached their duties

because they were involved in authorising (not ratifying) their own breach;

(ii) it is unclear what principle(s) indicate that an ‘organised’ breach of duty is

lawfully acceptable, given that it is the director(s) (and possibly their associates)

approving their own (or related parties) future conduct by modifying the content

of their own duties to the company;

(iii) arising from the current state of the law in Australia, it is unclear in what

circumstances the shareholders in general meeting could approve a resolution

which would have the legal effect of attenuating a particular statutory duty; and

(iv) arising from the current state of the law in Australia, it is unclear whether a court

may consider the authorisation of a breach of statutory duty by the shareholders in

general meeting to be oppressive, unfairly prejudicial or unfairly discriminatory

within the meaning of section 232 of the Corporations Act.

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If a director’s statutory duties can be attenuated by prospective authorisation, then there is

a self-evident prejudice to the company because the legal effect of the attenuation of

statutory duty is to regularise the director’s conduct which may have given rise to a

financial benefit to the director and/or their associates.

The company’s stakeholders including minority shareholders, unsecured creditors and

employees may suffer prejudice as a result of the changed director’s duties. This arises

because the conduct of the director is not considered to be a breach of statutory duty and

thereby, there is no cause of action arising from the conduct, which but for the

attenuation of statutory duty, would otherwise have been a breach of statutory duty and

actionable by the company, or by a shareholder on behalf of the company pursuant to

section 236 of the Corporations Act.

The possible attenuation of a director’s statutory duties established by the Corporations

Act highlights the tension between the application of the following principles:

(i) a director must act in the best interests of and avoid conflicts of interest to the

company;

(ii) no conflict of interest arises for a director since (with limited exceptions on the

principles explained in Peter’s American Delicacy Co Ltd v Heath70) there are no

fiduciary duties owed by a director to a shareholder and a shareholder does not

owe any fiduciary duties to the company, or to any other shareholder;

(iii) corporate property must be used for corporate purposes;

(iv) a person shall not derive advantage from their own wrong;71

(v) a director who is a shareholder may, subject to certain limited exceptions (referred

to in point (vi) below), vote at a meeting of shareholders to prospectively

authorise or to retrospectively ratify their own breach of fiduciary and/or statutory

duties;

70 [1939] HCA 2.71 See especially Meyers v Casey (1913) 17 CLR 90 at 124 per Isaacs J); Cadman v. Horner [1810] EngR 494.

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(vi) the right of a shareholder to vote in their own interests provided that the conduct

is not unlawful (including because of fraud, an abuse of power or a breach or

threatened breach of the Corporations Act or a breach of a director’s duties), a

fraud on the minority, oppressive conduct72 or to expropriate the property of the

company or to expropriate the property of the company;

(vii) equity follows the law;73 and

(viii) good corporate governance principles.

The stakeholders of a company, in particular the shareholders, are subject to prejudice

where there is an attenuation of a particular statutory duty because primarily the

company’s right to commence proceedings does not materialise by reason of the

prospective authorisation resolution, since the legal consequence of the prospective

authorisation resolution is for the director to avoid a potential cause of action.

In light of the fact that a prospective authorisation resolution would be relevant to

whether a court may exercise its discretion to grant relief to a director from a liability

owed to the company arising from a breach of the director’s duties pursuant to section

1317S and 1318 of the Corporations Act, the company together with the shareholders are

prejudiced as a result of the attenuation of a particular statutory duty because the Court is

unable to consider whether the director should be relieved of all or a part of a liability

because the liability did not arise.

The existence of prejudice to the company’s stakeholders arising from the attenuation of

a director’s statutory duties and the legal uncertainty created by the different

consideration relevant to prospective authorisation indicates the need for reform to the

Corporations Act to address the problems which arise from the operation of the doctrine

of ratification.

Proposition

72 Corporations Act 2001 (Cth) s 232. Statutory oppression is particular to companies incorporated under the Corporations Act.73 See generally Miller v Miller (1995) 16 ACSR 73.

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It is a proposition advanced by this thesis that:

(i) under current Australian law, it is unclear whether different principles may apply

to a prospective authorisation of a breach of statutory duty and accordingly, there

is uncertainty in the operation of the doctrine of ratification with respect to

prospective authorisation;

(ii) if there are differences in principle between prospective authorisation and

retrospective ratification, this raises additional issues as to how the best interests

of the company are achieved by the underlying legal principles of (i) the

prevention of fraud on the minority and (ii) oppressive conduct within the

meaning of section 232 of the Corporations Act; and

(iii) the existence of prejudice to the company’s stakeholders arising from the

attenuation of a director’s statutory duties and the legal uncertainty created by the

different consideration relevant to prospective authorisation indicates the need for

reform to the Corporations Act to address the problems which arise from the

operation of the doctrine of ratification.

VIII. CONCLUSION

The importance of the doctrine of ratification significantly reduced in Australia after the

introduction of the statutory derivative action from 13 March 2000, however, the doctrine

continues to be of relevance to companies incorporated under the Corporations Act in

relation to applications for leave to commence proceedings pursuant to section 237,

liabilities of the directors for breaches of duty and the quantum of damages pursuant to

sections 1317S and 1318 in relation to proceedings commenced under section 236(1) of

the Corporations Act.

The High Court in Angas Law Services74 resolved the question of whether retrospective

ratification of a breach of statutory duty is legally effective in the negative. It is clear 74 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507.

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however from the current state of the law in Australia that the law concerning the

attenuation of statutory duties arising from prospective authorisation either by a

constitutional provision or the shareholders (whether as a result of the approval of a

resolution by the shareholders in general meeting or as a result of the conduct of the

shareholders) remains under development.

The factors or considerations which may be relevant to a question of whether prospective

authorisation is effective to attenuate a particular director’s statutory duty remains

unclear because the question has not arisen for judicial consideration in Australia. There

remains the possibility therefore that in certain circumstances, a constitutional provision,

approval of a resolution of the shareholders in general meeting, or other conduct of the

shareholders could be legally effective to attenuate a particular statutory duty of a

director.

The possible recognition of the attenuation of a particular statutory duty is inconsistent

with the protection of the legal rights of a company’s stakeholders and accordingly, this

could operate to prejudice all or some stakeholders of a company. This issue is addressed

in Chapter 4 in greater detail as a part of an analysis of the policy arguments.

In Chapter 4 the theory of the corporation applied by the doctrine of ratification is

discussed and the doctrinal issues and the policy arguments which give rise to questions

about the prejudice to stakeholders are addressed as a part of the question of assessing

whether there should be law reform to the Corporations Act for the purpose of reforming

the operation of the doctrine of ratification.

. Further, there is no known doctrinal basis for the attenuation of statutory duties and the

policy arguments favour the prohibition of the attenuation of directors’ duties as a means

to reduce, or avoid prejudice to stakeholders.

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This thesis will now consider the significance of the regulation of corporate governance

and the importance of the role of shareholders in the context of ratification and

authorisation which provides a different perspective on the prejudice to stakeholders.

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