BLAW20001 Lecture Notes - Lecture 6: Trading While Insolvent, Civil Penalty, Cash Flow
19 Jun 2018
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CORPORATE LAW LECTURE 6
Company Directors’ and officers’ duties
What are the duties? Divided into two broad categories:
1. Care, skill and diligence
General Law Duties: Duty to act with reasonable care and diligence.
s 180: Duty to act with reasonable care and diligence
s 588G: Duty to prevent insolvent trading.
2. Loyalty and good faith
General Law Duties: Duty to retain discretion; Duty to avoid conflicts of interest; Duty to act in good faith in
the interests of the company; Duty to use powers for a proper purpose.
ss 191-196: Requirement to disclose certain interests
Ch 2E: Related party transactions
ss 182,183: Duty not to misuse information or position
s 181: Duty to act in good faith in the best interests of the company and for a proper purpose.
Statutory duties gives company and ASIC the right t take action. ASIC is also able to seek criminal action in some
cases.
General Law (case law) duties: Duties are owed by directors and senior executive officers. They are in a fiduciary
(reliant on trust) relationship with the company due to the power they exercise and the vulnerability of the company
for their wrongful actions. The duties can be owed to the company, and in some exceptional circumstances, to an
individual shareholder. Brunninghausen v Glavanics
Who owes statutory duties? Statutory duties apply to directors as defined by the Corporations Act, this is including
shadow and de facto directors. Statutory duties also apply to officers as defined in s 9(Dictionary).But not s 191
(material personal interest-directors duty to disclose) or s 588G (Directors duty to prevent insolvent trading by
company). Two statutory duties imposed on employees are:
s 182: directors, other officers and employees must not improperly use their position to gain an advantage for
themselves or someone else, or cause detriment to the corporation (a civil penalty provision).
s 183(1):A person who obtains information because they are, or have been, a director, other officer or employee of a
corporation must not improperly use the information to gain an advantage for themselves, or cause detriment to the
corporation.
Consequences of breach of the statutory duties: statutory duties are “civil penalty provisions” under Pt 9.4B of the
Act. Following a declaration or contravention, a court may impose:
-Pecuniary penalty up to $200,000 paid to the Commonwealth s 1317G:Pecuniary penalty orders
-Disqualification (banning) order. s 206C: Court power of disqualification – contravention of civil penalty
provision.
-Compensation to company: s 1317H: Compensation orders – corporation/scheme civil penalty provisions.
Criminal consequences in some cases:
-No breach for duty of care.
-There are breaches of other duties when done with intentional dishonesty or recklessness
s 184: Good faith, use of position and use of information- criminal offences.
-Contravention is an offence with a criminal penalty of prison and/or a fine of $420,000.
Duty of care, skill and diligence: sources of this duty come from general law negligence cases, s 180(1) CA and
contract of employment- for executive directors and other directors. Directors and other officers breach this duty if
they are ‘negligent’. The standard required of a director is determined if a reasonable person doing their job in the
specific company would act in the same way.
Directors duties: Daniels v AWA Ltd
Every director must:
-Obtain a basic understanding of their company’s business
-Keep informed about and monitor the company’s activities
-Regularly attend board meetings
-Monitor the company’s financial position
Directors with special skills are held to the standard of a person professing to those skills ASIC v Vines. The bigger
position you hold, comes with bigger expectations. Executive directors’ greater involvement in the business of the
company leads to an expectation of greater knowledge, focus and awareness.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Divided into two broad categories: care, skill and diligence. General law duties: duty to act with reasonable care and diligence. s 180: duty to act with reasonable care and diligence s 588g: duty to prevent insolvent trading: loyalty and good faith. Ch 2e: related party transactions ss 182,183: duty not to misuse information or position s 181: duty to act in good faith in the best interests of the company and for a proper purpose. Statutory duties gives company and asic the right t take action. Asic is also able to seek criminal action in some cases. General law (case law) duties: duties are owed by directors and senior executive officers. They are in a fiduciary (reliant on trust) relationship with the company due to the power they exercise and the vulnerability of the company for their wrongful actions. The duties can be owed to the company, and in some exceptional circumstances, to an individual shareholder.
