Resource Equities v Carr Resource Equities v Garrett

In Resource Equities v Carr and Resource Equities v Garrett, the dispute arose from actions by the directors of a company, who were accused of breaching their duties under the Corporations Act 2001 (Cth) and common law. The plaintiffs sought to hold the directors personally liable for various breaches, including improper payment of fees, misappropriation of dividends, and improper conduct in relation to loans and share issuances. The case was heard in the Supreme Court of Victoria.

The legal issues before the court involved determining whether the directors had breached their fiduciary duties by accepting fees for work they had not performed, whether they were liable for overpayments, and if dividends could be paid in the absence of demonstrable profits. The court also needed to decide if a voluntary administration was initiated for a proper purpose and whether the directors were personally liable for the associated costs. Furthermore, the court considered whether the directors could be held liable for loans made by the company and for issuing shares to maintain control, as well as whether litigation costs incurred were properly defended.

The court found that the directors had indeed breached their duties in several respects. They had improperly paid themselves additional fees and mischaracterised a payment to shareholders as a dividend. The court also ruled that the voluntary administration was not for a proper purpose and that the directors were personally liable for the costs associated with it. Regarding the loans, the court found that the directors had breached their duties by making an improper loan, and they could still be held liable even if the debtor had not been pursued to bankruptcy. Lastly, the court held that the directors were personally liable for the costs of defending litigation that had no prospects of success. The court determined that the business judgment rule did not apply and declined to exercise its discretion under s 1318 of the Corporations Act.

The court ordered the directors to compensate the company for the improper payments, costs of the voluntary administration, and litigation expenses. The court also determined that the cross-claimant was not indemnified by the settlement deed, and liability was apportionable under the Civil Liability Act. The court found that damages were available for breaches of the Corporations law. Finally, the court ruled that the issue of whether the defendants were indemnified by the settlement deed was not arguable as it had not been pleaded.