Another Way Forward? The Scope for an Appellate Court to Reinterpret the Statutory Business Judgment Rule (original) (raw)
Related papers
The Statutory Business Judgment Rule: Putting the Wind into Directors’ Sails
Company directors should welcome and embrace the statutory business judgment rule, due to commence on 13 March 2000. It finally provides them with the certainty that they need to take their companies into the next millenium. The Corporate Law Economic Reform Program Bill 1998 was passed by Parliament on 20 October 1999. The position is now clear – the merits of bona fide business judgments made by directors, meeting the four requirements, will not be subject to judicial review. Directors will be taken to have met their duty of care and diligence.
The concept of business judgment
Legal Studies
Categorising something as a business judgment can provide directors with a powerful shield from accountability. It has been said that the courts in England and Wales defer to directors’ business judgments and directors’ decisions are protected from review in other jurisdictions by a business judgment rule. Yet what a business judgment is has never been addressed, and so precisely what is being protected, and why, is unclear. This paper analyses case law in England and Wales and key Australian and US cases to answer this question. It argues that the courts use the term judgment in two senses: an ability, and a decision sense, and that business judgment in both senses can be linked to Knight's concept of entrepreneurial judgment, and directors’ wealth creation function. Conversely, decisions that are linked to directors’ corporate governance function and are less easy to categorise as entrepreneurial are less likely to be viewed as business judgments.
2018
Section 71(5) of the Companies Act 71 of 2008 provides that a director who has been removed from office by the board of directors may apply to court to review the board's decision. If the board of directors decides not to remove a director from office, any director who voted in favour of the removal, may, under section 71(6) of the Companies Act 71 of 2008, apply to court to review the board's decision. This article critically examines: the powers of a court under the judicial review processes; the permissible court orders which may be made; the locus standi to apply to court for a judicial review under section 71(5) and 71(6); the time period within which an application for judicial review must be instituted; the costs of the judicial review procedures; and the discretion of a court in granting or dismissing such applications. It is argued that the judicial review processes in section 71(5) and 71(6) are unclear and ambiguous in certain respects. Recommendations to amend and modify section 71(5) and 71(6) are made with a view to removing ambiguities in these provisions, and to improving and strengthening the judicial review processes under these provisions.
The business judgment rule, as it has been traditionally understood, seems to be based on three underlying assumptions that make this rule economically desirable. First, directors are subject to a credible threat of being sued for a breach of the duty of care. Second, the primary role of the corporation is to maximize shareholder value. Third, shareholders are not risk averse, and therefore they just want the directors to pursue those investment projects with the highest net present value regardless of their volatility. However, this article challenges these assumptions and argues that the business judgment rule might not be desirable in some jurisdictions outside the United States and even in many US corporations. Moreover, it points out that the implementation of the business judgment rule may actually create new, unintended costs for both managers and shareholders. By re-examining the law and economics of the business judgment, this paper draws conclusions about the most efficient way to implement the business judgment rule across jurisdictions, taking into account divergences in capital markets, corporate ownership structures, the quality of courts, the level of enforcement of the duty of care, and the primary role of the corporation in different countries.
Alaska Law Review, 2007
In Alaska Plastics, the Supreme Court of Alaska affirmed the trial court's rejection of the dissident shareholder's complaint about lack of fire insurance and other directorial misconduct. 5 The supreme court held that the directors' decision not to insure the property was protected by the BJR, and therefore it would not be reviewed by the court. 6 This was the first time the Alaska Supreme Court had discussed or applied the BJR. The court's most recent BJR case, Shields v. Cape Fox Corp., 7 is substantially more controversial, as it mistakenly asserts that the BJR is codified in Alaska Statute section 10.06.450(b), 8 confusing the common law rule with the codified corporate directors' standard of care. 9 This Comment traces the history of the BJR in Alaska. It explains where and how the court has erred in its definition of the rule; it explains the difference between two concepts-standard of directors' care and standard of directors' liability-and their separate treatment in the Model Act. 10 It also collects examples of the same judicial misunderstanding from the case law of other states. It concludes that the BJR has not been codified in Alaska nor in most other U.S. jurisdictions, although there have been recent suggestions to do so in the Model Act 11 and in the American Law Institute's Principles of Corporate Governance. 12 Finally, this Comment provides reasons why the BJR should not be codified. 3. Id. at 273. 4. Id. at 278. 5. Id. The dissident shareholder complained that "the directors failed to insure the Fairbanks plant, they kept large reserves of cash in noninterest-bearing checking accounts, and they loaned an employee money at a rate below prevailing rates of interest." Id.
Conference Panel Discussion: The Business Judgment Rule
1984
First, I want you to know that this Conference was the brainchild of Professor Bill Cary and our Dean Jim Meeks. Bill helped select the topics and was eager to come and join the debates until the aggravation of his illness and untimely death. He was one of the giants in our field and it is fitting for us today to pay tribute to his memory. Jim was actively and enthusiastically involved in putting this Conference together and he would have been here today had it not been for a serious traffic accident which has kept him in the hospital. All of us on the panel and, I am sure, all of you down there wish him speedy recovery. Our discussion today will focus on the so-called "business judgment rule," a judicially developed law concept that the business decisions of corporate management should not be second-guessed by the courts. The courts will not interfere with such decisions as they are being made and carried out, nor will they impose liability on management if it turns out that the decisions were wrong. Recent corporate practices, especially defensive measures by corporate boards to fend off takeovers, and terminations by disinterested boards or committees of derivative suits involving foreign bribes, have rekindled interest in the purpose and scope of the business judgment rule and have contributed to its refinement and clarification. Some of the controversial topics include the relationship between the rule and the duty of care of management, especially in the context of the monitoring role and responsibilities of outside directors; and the exclusion from business judgment protection of decisions affected by conflicts of interest, or pursuing improper purposes, or not involving "management of business" matters. Dean Manning's article eloquently presents the issues and apparently expresses an agnostic position. I detected a certain degree of sympathy for the protective aspects of the business judgment rule. By how they delineate its scope, one may classify some persons as greater supporters and others as lesser supporters of the rule. That's not an easy line to draw. We will follow up now with a brief commentary by Professor Frankel, who will discuss how, if at all, the business judgment rule can be reconciled with the fiduciary obligations of management. Prof. Frankel: I have a somewhat different scenario than the one presented to you by Professor Manning. The players are not Mr. Smith and Ms. Jones. They are Tom, Dick, and Harry. To them, the business judgment rule serves as an ideological battleground. And here is what Tom would say. Management is the controller of the corporate enterprise. This view, he would say, is supported by those economists who maintain that management is entitled to the residue of the corporate assets after the * The panelists were moderator P. John Kozyris, Professor of Law, The Ohio State University; Richard M.
Reviewing Directors’ Business Judgements: Views from the Field
Journal of Law and Society, 2020
Directors take decisions that can have significant impacts on others as illustrated by the global financial crisis and the collapse of Thomas Cook Group plc. Yet many academics argue that courts should not review or impose liability on directors for poor business judgments. These arguments often rely on untested empirical assumptions about directors' behaviour and attitudes. Through semi-structured interviews and focus groups with directors, company secretaries, and others we explored their responses to the prospect of judicial review of directors' business judgment. Our findings challenge orthodox thinking: many directors supported some form of review and the impact of review may not be as great as the literature predicts, nor necessarily detrimental. The debate about whether courts should review directors' business judgment should therefore move away from reliance on negative empirical assumptions about the impact of review, to clearly articulating, and engaging with, normative positions that underpin opposition to, and support for, review.
The business judgement rule – approach and application PhD . student
2015
The business judgment rule represents a central doctrine of corporate governance, due to its major implications on corporate directors' liability and to its infl uence on the relationship between shareholders and the board of directors. The interpretation of the Rule as a behavioral standard or as an „abstention doctrine” can determinatively influence the liability proceedings against directors who acted in consideration of their fiduciary duties. This paper aims at analyzing the national legal provisions of the Business Judgement Rule and the compatibility of the legal provisions with the established interpretations of the Rule that can be found in the foreign literature. Absent a case law that clarifies de approaches of the Business Judgement Rule by the national courts, the research analyzes the traditional Common Law approaches of the Rule and the obstacles which hinder a faithful transfer of the Rule in Romania. The objective of these identifications is to draw de lege fere...
A New Sheriff in Town? Section 596A and Shareholders’ Newfound Powers
Australian Business Law Review, 2023
In the case of Walton v ACN 004 410 833 Ltd (in liq) (Walton), the High Court of Australia interpreted s 596A of the Corporations Act 2001 (Cth) in a way that benefits shareholders and former shareholders. Before this ruling, it was believed that examining company officers could only be done for the benefit of the company, its creditors, or contributories. However, post-Walton, eligible applicants, including shareholders and former shareholders, can now examine certain company officers about the examinable affairs of the company for their own benefit. This includes uncovering information about misconduct to potentially reclaim financial losses. As a result, there may be an increase in applications for eligible applicant status received by Australian Securities and Investments Commission and an overall increase in the enforcement of the Corporations Act.