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Leading Case of Brunninghausen v Glavanics

Question :

Corporation Law of 2001 is one of the finest law which regulates the working of the companies which are formed under the said Act in Australia. The director is the one who is entrusted with the task to manage the daily operations of the company. The director holds many fiduciary duties towards the company and is required to act in good faith and in the best interest of the company. The case of Brunninghausen v Glavanics has changed the scenario where the directors have been required to owe a fiduciary duty towards the shareholders also.

  • Whether directors owe a fiduciary duty towards the shareholders of the company?
  • Whether the fiduciary duty of director towards company and shareholders absolute or qualified? Support with the case of Brunninghausen v Glavanics.
  • What situation may lead to giving rise to fiduciary duty between the director and shareholder?
Answer :

Background and Facts of the case

Mr Brunninghausen and Mr Glavanics are brothers in law and director and shareholder of the company. Mr Brunninghausen is the majority shareholder and also the controlling director of the company which is entrusted with the activity to import ski gear. Mr Glavanics is also the director of the company and the minority shareholder with one-sixth share but did not take any active part in running the company. The shares were awarded to him when the company was formed. Their relationship tends to decline even when their mother in law intervened in between to make reconciliation. A discussion started between the two directors where the main issue was to convince Glavanics to sell its shares.

As to make the peace, Glavanics sold its share to his brother in law Mr Brunninghausen without any knowledge as to that he was in negotiation to sell the company at a high price. Brunninghausen have approached the third party with an offer to sell its business, unknown to Glavanics. The company was sold at a higher price but the shares of Glavanics were brought by Brunninghausen at less value. When this agreement was reached, at the same time, a transfer deed was also signed between Brunninghausen and Glavanics which stated that Glavanics is transferring its share to Brunninghausen and also resigns from the post of director. After two months, the business was sold by Brunninghausen.

Issue raised in the case

Galvanics raised the issue as to whether Brunninghausen have breached the fiduciary duty towards him to disclose the important fact that he was planning to sell the company at high price.

Claim by Glavanics

Glavanics claimed that there is a breach of fiduciary duty to disclose about the offer and it is a breach of Fair Trading Act of 1987 as Brunninghausen failed to disclose to Glavanics regarding the sale of business to the third party. Also Brunninghausen had fiduciary obligation to towards Glavanics when he agreed to sell i

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