LAWS3100 Final: Director Duties 4 (Chap 14)
Chapter 14: Directors’ Duties 4
1. General law rule against conflict of interest or duty
2. Modifying the rule in the company’s constitution
3. Statutory regulation of situations of conflict
4. Consequences of breach
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The duty to avoid conflicts of interest. There are 3 levels of regulation applying to this duty. These are
1) the general law
2) The company’s constitution (if it has one)
3) Statutory provisions in the Corporations Act 2001 (Cth) (Corporations Act)
The duty to avoid conflicts of interests is not a duty where the statutory provisions in the Corporations Act
are identical to the general law duty. There are 2 main differences:
1) The content of the general law rules and the statutory provisions is different. In some cases, statutory
provisions has additional regulations and more specific rules that add onto the general law rules.
2) Sometimes they do not apply to the same people. The general law rule apply to directors and senior
executive offers who, just like directors, can be regarded as fiduciaries. The statutory provisions are
different in that some of them apply only to directors, while some of them have directors, executives, as
well as employees of the company.
Example of a statutory provision that only applies to directors: s191 which requires a director to notify other
directors of a material personal interest in a matter that relates to the affairs of the company.
Example of statutory provisions that apply not only to directors and senior executive officers, but also to
employees of the company are ss182 and 182: prohibit a director, other officer, or employee from making
improper use of their position or information gained because of their position.
1. General law rule against conflict of interest or duty
General law conflict rule: Director must not place himself/herself in a position where there is an actual or
substantial possibility of conflict between a personal interest and the director’s duty to act in the interests of
the company
Unless the permission of the company is obtained or the constitution allows it
A very strict duty – designed to protect shareholders. Can arise, eg where director:
- contracts with the company
- makes personal profit as a result of his or her position as a director
- misuses confidential company information
- works for a competitor
Where the general law conflict rule applies to a director, the director must disclose their interest to the
company. If not, there is a breach of the duty to avoid a conflict of interest.
How does the rule apply to transactions with the company?
A director may enter into a transaction with the company. Eg the director enters into a contract to sell
property to the company or buy property from the company. IN the case of a contract to sell property to the
company, there is a conflict between the personal interest of the direct (which is to obtain the highest price
possible for the property) and the director’s duty to act in the interests of the company (which is to ensure
that the company buys the property at the lowest price possible)
A director may indirectly contract to buy or sell property to the company, such as through a partnership or
another company. The courts take the general law conflict so serously that it’s not even necessary to consider
whether the ocmpany had a loss or profit. Even if the director does not make a profit, there will still be a
breach of duty if the director does not disclose their interest. Courts have said that a director who is in a
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Document Summary
Chapter 14: directors" duties 4: general law rule against con ict of interest or duty, modifying the rule in the company"s constitution, statutory regulation of situations of con ict, consequences of breach the general law. There are 3 levels of regulation applying to this duty. 1: the company"s constitution (if it has one, statutory provisions in the corporations act 2001 (cth) (corporations act) The duty to avoid con icts of interests is not a duty where the statutory provisions in the corporations act are identical to the general law duty. There are 2 main differences: the content of the general law rules and the statutory provisions is different. In some cases, statutory provisions has additional regulations and more speci c rules that add onto the general law rules: sometimes they do not apply to the same people. The general law rule apply to directors and senior executive offers who, just like directors, can be regarded as duciaries.
