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reu

1,743 Posts.

24/05/17

21:57

Post #: 24894474
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Originally posted by Travely ↑

Under Corporation Law, let's say that MZN got an agreement over emails with a director of KDR.

MZN can assume that the director is acting as an officer of KDR and had received board permission to enter into this agreement. (This is known as the indoor management rule)

It is most probable that MZN will be suing for damages and/or a stake in Earl Grey. However damages are most likely under performance of contracts. MZN can also ask for an injunction on the use of Earl Grey until the case is resolved. (Stopping drilling etc)

If this is the case that damages are awarded to MZN and that the agreement exists, then KDR shareholders as company members would have the right to take action as a company against the director in KDR (who was involved with emails) for breaching s181(1)(a), s180(1)(a), s182(1)(b) and more sections since he/she wasn't acting in the best interests of the company and had misused his/her position.

Hence, while you think that KDR is in trouble, whatever damages are won by MZN would constitute damage to the company of KDR and KDR can sue the director(s) involved for the sum of company detriment which will be paid out of directors insurance. (It is also important to note that directors insurance for mismanagement rarely exceeds AU $10M and that may not be substantial enough to cover the company detriment.)

If MZN doesn't win, KDR can sue for legal fees to be paid.

However, it will be important to note that MZN director involved would have breached the section of disclosure but it would be expected to not be as severe because he/she was acting in the best interests of the company. The breach would be under s674, unless he/she can prove their actions under s674(2A) as a defense.

To summarise:

Therefore, if MZN loses, they may be sued for damages relating to lawyer fees.

And therefore, if MZN wins damages and/or a stake of Earl Grey, the detriment that KDR suffered would have a material impact on the company's value and the company can try to get the money by suing the director involved and get money through directors insurance.

NOTE 1: I am not a lawyer and am studying corporations law as of current and we have studied similar problems. Do your own research before making any investment decisions.

NOTE 2: This information is general in nature and it will be probable be safe to assume that the circumstances are unique in this case and that listed companies also follow ASX listing rules and there may be penalties from ASX for director's or companies breaching listing rules.

NOTE 3: Don't hold MZN & KDR and currently don't intend on buying either company until the legal case is resolved.

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Hi @Travely, thanks for your input, the more varied arguments we hear the better.

From a cursory reading it would seem the indoor management rule is more to do with the validity of finalised actions by Directors etc that have not complied with internal formalities such as board approval etc.

MZN v KDR is quite different IMO because (1) nothing was signed off on even by MD (and you cannot have 'an agreement to form an agreement') and (2) it was readily apparent between April and early November that no ratification by the board had occurred since KDR proceeded with funding, drilling and assays on Earl Grey and such was entirely inimical to any rights MZN might have contracted for.

Read this post on 'Ratification', which appears to be a crucial point you are missing:

https://hotcopper.com.au/threads/court.3445071/page-67?post_id=24887907#.WSV00IV_WEc

@mainholm's notes that I reference can be found here:

https://hotcopper.com.au/threads/court.3445071/page-54?post_id=24887286#.WSV1AIV_WEc

Thanks for sharing your thoughts and feel free to critique.

Personal opinion, pure speculation, DYOR, seek professional advice, I'm no expert etc

Last edited by reu: 24/05/17

KDR Price at posting: 48.0¢ Sentiment: Buy Disclosure: Held
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