Would A Business Judgment Rule Help Directors Sleep Better at - - PowerPoint PPT Presentation

Would A Business Judgment Rule Help Directors Sleep Better at Night?

By Low Chee Keong Associate Professor in Corporate Law CUHK Business School, Hong Kong

www. www.ic icdm.com.my

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IN THE BEGINNING …

Their Lordships … accept that it would be wrong for the court to substitute its opinion for that of the management, or indeed to question the correctness of the management’s decisions … if bona fide arrived at. … nor will courts of law assume to act as a kind of supervisory board over decisions within the powers of management honestly arrived at.

Lord Wilberforce Howard Smith Ltd v Ampol Petroleum [1974] AC 821 at 832

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ONLINE POLLING

Step #1 Go to www.slido.com Step #2 Enter Event Name as powertalk2 Step #3 Select Polls

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Do you think that the current duties expected of directors are :

Too onerous Just right Too lenient

WITH THAT IN MIND …

A B C

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Do you think that it is not easy to successfully sue a director for breach of duty to the company?

Yes No

WITH THAT IN MIND…

A B

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The ‘Objective’ Directors must exercise the knowledge, skills and experience that would reasonably be expected of a director carrying

• ut the same functions.

The ‘Plus’ The director must also bring his or her own general knowledge, skills and expertise to the table.

SECTION 213(2) ‘OBJECTIVE PLUS’

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S & E

A B C

A’ B’ C’

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CASE STUDIES

COMPANY A COMPANY B COMPANY C

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Do you think that the current duties expected of directors are :

Too onerous Just right Too lenient

ON REFLECTION ….

A B C

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Do you think that it is not easy to successfully sue a director for breach of duty to the company?

Yes No

WITH THAT IN MIND…

A B

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SECTION 214 COMPANIES ACT

A director who makes a business judgment is deemed to meet the requirements

• f the duty under subsection 213(2) and the equivalent duties under the

common law and in equity if the director –

• makes the business judgment for a proper purpose and in good faith;
• does not have a material personal interest in the subject matter of the

business judgment;

• is informed about the subject matter of the business judgment to the extent

the director reasonably believes to be appropriate under the circumstances; and

• reasonably believes that the business judgment is in the best interest of the

company.

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Do you think that the Business Judgment Rule is:

Too complicated Just right Too simplistic

WITH THAT IN MIND …

A B C

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Do you think that the Business Judgment Rule would be of any benefit to directors?

Yes No

WITH THAT IN MIND…

A B

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THE RATIONALE The Delaware Yankee ALI – A Different Yankee The Aussie way

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THE DELAWARE YANKEE The Delaware Yankee ALI – A Different Yankee The Aussie way

A ‘Safe Harbour Rule’ that is strictly not a rule

‘a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action was taken in the best interests of the corporation’

Aronson v Lewis 473 A.2d 805 (Del. 1984) at 812

Conserves judicial resources by protecting decisions made

• free of disabling conflicts of

interest

• with exercise of some (not

necessarily reasonable) care

• on a rational (not necessarily

reasonable) basis

Cede & Co v Technicolor, Inc 634 A.2d 345 (Del. 1993)

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ALI – A DIFFERENT YANKEE The Delaware Yankee ALI – A Different Yankee The Aussie way

• An affirmative or independent judgment
• Must be informed with some care – not due care
• An absence of disabling conflicts of interest
• A rational basis for the decision
• Good faith – the ‘smell test’ surrogate J

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Section 180(2) Corporations Act

• must make a decision: sec 180(3)
• judgment in good faith for proper purpose
• no material personal interest
• informed about the subject matter
• possesses a rational belief that the decision

is in the best interest of company

ASIC v Rich (2009) 75 ASCR 1 ASIC v Mariner Corporation (2015) FCA 589

THE AUSSIE WAY

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LET’S PAUSE AND PONDER

A. DELAWARE B. ALI C. AUSSIE

Which model do you prefer? Why?

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• Courts are ill equipped to review business

decisions a process which is compounded by corporate ownership landscape with dominance of family & state

• Fusion to allow directors to have two bites of the cherry

§ The Yankee to scrutinise the decision making process § The Aussie to assess the general state of knowledge

• NOT a legal transplant but Malaysia (Boleh)-centric

THE MALAYSIAN HYBRID

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LET’S RETHINK …

A. DELAWARE B. ALI C. AUSSIE

Which model do you prefer?

D. MALAYSIAN HYBRID

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Do you think that the Business Judgment Rule is:

Too complicated Just right Too simplistic

WITH THAT IN MIND …

A B C

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Do you think that the Business Judgment Rule would be of any benefit to directors?

Yes No

WITH THAT IN MIND…

A B

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Low Chee Keong & Low Tak Hay

The Business Judgment Rule: A Safe Harbour for Directors?

Journal of the Malaysian Judiciary 159- 191 (January 2018)

Available at http://www.jac.gov.my/images/journal_malaysian_judiciary/jan2018.pdf

FURTHER READING

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Low Chee Keong & Low TakYip

When is the Board Accountable for Delegation and Reliance? A Case Study of the MTR Corporation

[2016] Vol 30 Australian Journal of Corporate Law 285-303

Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2487710

MORE READING

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THANK YOU

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Panel Discussion

CHEE KEONG LOW Associate Professor in Corporate Law, CUHK Business School PHILIP T.N. KOH Senior Partner, Mah-Kamariyah & Philip Koh Moderated by KAMARUL BAHRIN HARON Deputy Editor-in-Chief, ASTRO AWANI DATUK YVONNE CHIA Chairman, Standard Chartered Bank Malaysia