391. Power to grant relief

Question 1

391. Power to grant relief

Answer 1

General overview
[391.01] Section 391(1) provides a person with relief in any proceedings against him for negligence, default, breach of duty or trust where it appears to the court that he has acted honestly and reasonably and that, having regard to all the circumstances of the case, he ought fairly to be excused for the negligence, default, breach of duty or trust, either wholly or partly from such liability and on such terms as the court may order.

Question 2

Persons to which s 391 applies to

Answer 2

[391.02] Subsection (3) provides that the persons to which s 391 apply to are the officers, auditors, experts within the meaning of the Act, and receivers, receivers and managers or liquidators appointed or directed by the court to carry out any duty under the Act. As such, any receiver or receiver and manager appointed under a debenture secured by charges over the assets of the company will not be able to apply for relief under s 391.

Question 3

Relief against suits by third parties

Answer 3

[391.03] The estate of the deceased sent legal notices to the plaintiff, a co-director who became the sole director after the other director died, alleging that he had granted the options to purchase without requisite authority, and in breach of his duties as a director of the company and a trustee for the estate. The plaintiff thus applied for prospective relief under s 391(2) of the Act in anticipation of potential proceedings in negligence, default, breach of duty or breach of trust brought against him by the company or by third parties. It was held that s 391 of the Act operated narrowly to afford relief to directors as against proceedings brought by the company only. It did not extend to affording relief as against proceedings brought by persons other than the company. This interpretation found support in the legislative history of the English and Australian equivalents of s 391 of the Act

Question 4

Acting honestly and reasonably

Answer 4

[391.04] A person who knowingly and wilfully authorised or permitted the commission of the offence could not be said to be acting honestly and reasonably

Question 5

“having regard to all the circumstances of the case”

Answer 5

[391.05] These words give the court wide discretion whether to grant relief wholly or partly to the applicant: see cases cited which all discuss this requirement.

Question 6

Criminal proceedings

Answer 6

[391.06] Summonses were issued under ss 175 and 197(4) of the Act against the petitioner and three other directors for being parties in default of the company failing to hold its annual general meetings in 1983 and 1984, and failing to lodge its annual returns. The petitioner applied for relief under s 391. The High Court left open the question whether s 391 can apply to criminal proceedings. On the facts, it was held that the petitioner need not apply for relief under s 391 because he would be liable under ss 174 and 197(4) only if he was in default, and by virtue of s 408(3) of the Act, a director was only liable if he knowingly and wilfully authorised or permitted the commission of the offence. If he is guilty of the alleged offence, s 391 would be out of his reach because he would not be acting honestly and reasonably

Question 7

Default in complying with court order

Answer 7

[391.07] The court had no power under s 391 to relieve any person in default in complying with a court order from having to comply with it. It was tantamount to asking a court to abrogate or reverse its own order without an appeal and in the absence of the successful party