Given the recent increase in shareholder disputes, automatic disqualification (and consequent removal) of a director for conviction of an offence involving dishonesty can become particularly relevant.
The meaning of the phrase “involves dishonesty” was considered earlier this year by the Victorian Court of Appeal. Dishonesty is defined in the Corporations Act as “dishonest according to the standards of ordinary people”.
In Water v Diesel Holdings Pty Ltd [2024] VSCA 77, the court decided unanimously that section 206B(1)(b)(ii) of the Corporations Act, and by extension, the phrase “involves dishonesty”, only applies to offences where dishonesty is inherent in, or a statutory element of, the offence being considered. After considering the purpose, context and text of section 206B(1)(b)(ii), the court concluded that an offence involving dishonesty is one that can be classified as such on the face of the relevant offence provision or common law rule, without consideration of the circumstances of the particular offending. All that is required to ascertain whether section 206B(1)(b)(i) applies is consideration of the applicable legislative provision or common law rule for the offence and no further inquiry is needed.
This means that there is no reason to delve into the circumstances of a particular offending. The events surrounding the commission of the offence, etc do not need to be considered; this affords more certainty to what would be caught under section 206B(1)(b)(ii). Although this level of certainty is tempered because “dishonesty” has to be interpreted according to the standards of ordinary people (and this is a matter on which reasonable minds may differ), such an interpretation is less complicated than one that would involve considering the events surrounding the offence.
The court held that Mr Baxter, who was convicted of several offences including causing injury intentionally, contravention of a family violence intervention order, contravening a conduct condition of bail and committing an indictable offence whilst on bail, was not automatically disqualified and so removed as a director because these offences, while reprehensible, did not inherently involve dishonesty in the manner that, for example, an offence like conspiracy to defraud would.
This guidance on interpretation of the phrase “involves dishonesty” and also the ruling that breaching a bail condition is not caught by section 206B(b)(ii) is welcome and will afford some clarity to persons potentially subject to section 206B(b)(ii), and also to others involved in the relevant company. Given the recent rise in shareholder disputes, fellow directors and shareholders will be able to claim with more certainty that their colleague convicted of a relevant offence is removed as a director of the company, thereby possibly resolving an existing deadlock.
For the full article, see my LinkedIn Article.
