Question

Use ILAC format to answer the questions.

Question: what is Director's duties : (chapter 13 of Understanding Company Law)

Key duties S180, S181, S182, S183, S184 and S588G of the Corporations Act

You will be asked to advise ASIC have there been breaches of the Corporations Act in the above circumstances. You must look at that for each of the five directors (2 executive directors and three non-executive directors). The company is in financial difficulty that is related in terms how the directors should be responding to that, and whether the major response to represent the breach or not. Some directors involve in an activity that is deceptive and it is not utilized the assets to the company for their best value. Nominate Type of breach. Discuss the provision that has been breached by each director.

Answer 1

As per corporation Act 2001, “Director” means a person who is validly appointed,or acts in position of director, or a person who is accustomed to act in accordance with that persons instructions.

The duties of directors can be divided into the following based in nature of directors duties:

1. General Duties
2. Statutory Duties

General Duties: The directors have fiduciary duties under general law.

The general duties are:

1. Duty to act in good faith.
2. Not act contrary to interest of company
3. Duty not to use power in improper manner
4. Avoid conflict of interest
5. Duty to retain discretion.

Statutory Duties: The statutory duties under corporation Act 2001, are:

1. Duty to act in good faith: It mirrors the general law, to act in good faith and for betterment of company and for proper purpose. (Sec 181)
2. Duty not to misuse position to gain advantage. ( Sec 182)
3. Duty not to misuse information to gain advantage ( Sec 183)

These duties are applicable to all directors, and all directors include executive and Non-executive directors. Hence for ASIC having 5 directors have to follow the above mentioned duties.

When the directors involve in an activity that is deceptive and it is not utilized the assets to the company for their best value it results into breach of duties, and directors are responsible for the same.

Breach of duties:

1. Under statute, when director breaches law, it will result into criminal liability, under general law it will not result into criminal liability.
2. Under general law, the likely remedy is equitable damages or statutory compensation or recession. If it is statutory duty ASIC will enforce statute.