Question
Q1 Eric Krecichwost, former CEO and founder of Fincorp. Eric was convicted of dishonestly taking $2.8 million of his investors' money. Prior to his criminal
Q1
Eric Krecichwost, former CEO and founder of Fincorp. Eric was convicted of dishonestly taking $2.8 million of his investors' money.
Prior to his criminal conviction, the liquidator investigated whether Eric was a director at all times leading up to administration.
Eric quit the Board of Directors (BOD) of Fincorp 15 months before the company went into administration. Following his resignation, Eric:
Maintained control of marketing and IT departments
Was appointed to a senior management position, but was made redundant just prior to the administration
Had daily conversations with the Fincorp chairman who sought his opinion on significant strategic and operational issues
As sole shareholder, retained the power to hire and fire board members
Was still updated on every significant Fincorp decision
Attended a number of board meetings but did not vote on Board decisions
Was Eric a shadow director or de facto director in the 15 month period prior to
administration?
Has to be in ILAC format
Q2
X was a company director in a large proprietary company of six directors. The company
does not have a constitution. X provided 1 day notice of a Board meeting to 3 of the 5
directors. The other 2 directors were overseas. A unanimous resolution was passed at the
meeting the following day (X abstained from voting) approving a variation to X's
management services contract (worth >$250,000 per year). Included in that variation was a
contract extension of 3 years (the contract was originally set to expire two months after the
meeting). According to company records, the 2 absent directors attended 40% of Board
meetings in the past two years.
The 2 directors returned from overseas, read the contract variation and noted that it was
heavily in favour of X - they argued that the contract variation was not valid and the
company refused to honour the contract extension. X was then removed as a director at the AGM according to the Corporations Act. X sued for breach of contract at common law and the company made a cross-claim against X under s 1322 CA.
Can the company rely on section 1322? Hint: You need to identify the proceeding, the procedural irregularity (or irregularities - refer to Replaceable Rules) and explain how you would prove substantial injustice (if any) in your answer. Has to be completed in ILAC format
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