Trump Development limited Company has breached its constitution by borrowing money to expand its operations from overseas financial institutions against the company’s constitution provisions that requires it to source financing from the Approved Australian Financial Institutions. It is important to note that the company has 4 directors whereby the majority 3 directors are keen to expand the company’s portfolio to include Casino developments in Caribbean, Atlantic City and Las Vegas. The company’s constitution allows the minority shareholders in a company to negotiate their terms of relationship with the others as well as to protect their interests. In this particular case, a more conservative director Hillary was not in agreement with the other three Big Donald, Little Marco and Bernie to deviate from Core Company’s objective of developing residential properties in Sydney Melbourne and other capital cities.
Article 141 of the Australian Corporations Act, states that a company’s constitution is clear and supreme than the replaceable rules because it provides the framework through which the management of the affair of the company are anchored. Replaceable rules can be enacted by majority of the shareholders in the interest of the company but should not violate the constitution. In this particular case, one of the non-executive directors Slick Willy flouted the provisions of the company’s constitution by seeking funding from overseas financial institutions to enhance expansion of Trump Development Limited into casino markets which terrible failed as a result of capital exhaustion. As a result the company ended up experiencing cost overruns in building the casinos therefore limit its capacity to continue its core operations in the real estate sector.
Directors have the duty to act in the interest of the company by engaging in actions that benefit the shareholders. They also have a duty to avoid a conflict of interest by engaging in transactions for the sole purpose of improving the prospects of the company. Looking at this particular case, the three directors were acting in the interest of the company by expanding the company’s portfolio to include casinos because that would earn Trump development more revenues and profits. It is important to acknowledge that the company’s constitution generally specifies the rules that govern the activities if the company, its directors and shareholders.
The corporations Act does not prescribe the rules that must be incorporated in companies’ constitutions. On that regard, the company through its directors can choose to modify the provisions of the constitution through replaceable rules. This is done through a vote by the directors and each of their votes carries equal vote. The majority are supposed to pass any constitutional amendment resolution. In this case, if the three directors amended the company’s constitution regarding the financing of companies operation to include overseas financial institutions, then they will not have violated the constitution and neither have they violated the Australian corporations Ac. Once it has been proved that the directors were acting in the best interest of the company, the resultant liabilities cannot be blamed on the company because they took an investment risk whose outcome can either be positive or negative.
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