A company is a separate and distinct legal entity from the directors that operate a company. Circumstances can sometimes arise where one or another of the directors of a company wish the company to commence legal proceedings against a third party, or to defend legal proceedings commenced against it by a third party, whereas another director of the company may not wish to take such a course of action. Subject to the provisions of the Constitution of the company and subject to all other relevant facts and circumstances, the disagreement between directors can often be resolved if the majority of directors are in favour of a particular course of action and if they properly resolve to take that course of action at a duly convened meeting of directors.
However, commercial litigation and disputes can often arise if there is effectively a “deadlock” between the directors. The facts and circumstances relevant to commercial litigation and disputes between directors of companies are almost always different. However, it is always important to ensure that quality legal advice is available to assist your company’s business in a timely manner in any such disputes with your co-directors and business partners.
Legal advice may be required if there is disagreement or deadlock between directors in a number of circumstances, including the following:
– If you wish your company to take action but are being inhibited by co-directors;
– If a co-director wishes your company to take action but you do not want the company to take such action;
– If you have, or another director has, already caused your company to take action but without such action having been authorised by a duly convened meeting of directors; or
– If there is a conflict of interest situation between the interests of the company and the interests of a particular director.
By way of an example relating to a number of the above issues, there was a legal proceeding commenced in the County Court of Victoria at Melbourne in relation to recovery of a debt and damages alleged to be due to the Plaintiff by the Defendant in those proceedings. In February 2009 and shortly prior to the date fixed for the Trial of the legal proceeding, the Defendant applied to the Court for an Order that the director of the Plaintiff who had retained lawyers (on behalf of the company) to commence the legal proceeding and thereafter to continue to act on its behalf did not have the requisite authority from the board of directors to do so. The director who had retained the lawyers on behalf of the company had not formally been appointed the managing director of the company, but he had ostensibly assumed that role. The only other director of the Plaintiff company was also a director of the Defendant company – so it was clearly in the interests of the opposing director that the legal proceeding be brought to an end.
The application was heard in the County Court in February 2009. In the application, the Defendant sought an order that the proceeding commenced by Plaintiff be struck out on the basis that it was allegedly brought without the authority of the company. The decision of the Court was handed down in favour of the Plaintiff – the Court found, having regard to all of the relevant facts and circumstances of the particular case, that the director (as managing director) who had retained lawyers to act on behalf of the company had appropriate authority (implied from the circumstances of the functions he was performing at the time) to bring the legal proceeding.
Nicholas Corr is a business lawyer in Melbourne [http://www.dsclawyersmelbourne.com.au/lawyers.a