LAW2598 Corporate Law

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LAW2598 Corporate Law

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LAW2598 Corporate Law

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Course Code: LAW2598
University: The University Of Adelaide

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Country: Australia

Question:
Discuss about the Types Of Director’s Duties And Breaches.
 
 
Answer:

Directors
Any person who is appointed to the position of a director or an alternate director is deemed to be a director of the company under section 9 of the Corporation Act 2001 (Cth) CA. The person would be known as a director regardless of whatever name is provided to such position. People were not properly appointed are also included through sections 9 as the directors of the company. According to such provisions person acting in the position of a director are known as De facto directors of a company.
In the given situation it has been provided that May and June are two directors of the company clan Limited. Thus as they are made directors through appointment they would be deemed as directors under section 9 of the Corporation Act.
Types of director’s duties and breaches
The directors of a company owe a duty towards it under the common law as well as legislations enacted by the parliament. These duties have been imposed on the directors in order to ensure that the interest of the shareholders and other stakeholders of the company such as its creditors are protected (Keay 2014).
In the case of Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA 1023 the Court ruled that as the directors were not able to ensure appropriate diligence and care towards discharging the duties in relation to the company they had violated section 180 (1) of the CA.
Section 180 of the CA directs the directors of a company to discharge there obligations towards the company through observing care and diligence which would be deployed by a reasonable director under the same position and situation.
Section 181 of the CA directs the directors of a company to carry out the activities towards a proper purpose and the best interest of the organisation they are working for.
Section 182 of the CA directs the directors of a company to never misuse the position which they hold in the company to make personal profits and cause loss to the company.
 
Section 183 of the CA makes it mandatory for the directors of the company not to use any information with respect to the company which can be accessed by them for making personal profits and causing loss to the company.
Under common law the directors of the company have a duty to avoid any conflict of interest. Conflict of interest signifies the dispute between the personal interest of the directors and the overall interest of the company (Langford 2015). In case any such situation arises it is the duty of the directors to always prefer and give priority to the interest of the organisation. The common law also provide the duty to deploy due skill and diligence towards operations of the organisation and to act for a proper purpose (Gerner, Paech and Schuster 2013).
Section 588 G of the CA directs the directors of a company to stop trading when the company has become insolvent. In addition the section provides that the directors must not carry on any trade activity if a reasonable person under same circumstances would have a belief that the company would become insolvent if the trading is carried on. The directors of the company who indulge insolvent trading and breach the provisions of section 588G are personally liable for any debt incurred by the company due to the insolvent trading.
According to the facts of the scenario Mary has violated various directors’ duties as discussed above. Firstly while not being careful towards making a decision with respect to the new venture Mary has violated the duty of care and diligence imposed on her through common law as well as section 180 of the CA. The fact that whether a decision taken by Mary was with respect to a proper purpose is also in doubt and thus it can be provided that she has violated section 181 of the CA as well as the common law provisions of acting in proper purpose and best interest of the company. She has misuse the position and not acted in good faith and best interest of the company by retaining all the money in relation to the investment which she made into a risky venture. In addition she violated the duty with respect to the conflict of interest as she gave priority to her personal interest and not to the interest of the company. Moreover she has violated section 588 G of the act as she had used the loan to invest money in a risky venture while the company was not able to pay its creditors.
Remedies
In case the provisions provided in section 180-183 of the CA are violated, it triggers a civil penalty provisions with respect to Section 1317 E of the CA. The directors of the company are also personally liable for any debt incurred by the company as a result of insolvent trading. Under section 206Cof the CA the directors of the company can also be suspended from managing a corporation for a certain time if they are found to violate the directors greatest duties as provided in the Act. Under section 184 if the directors have been reckless they can also be provided with strict liability provisions Under the Criminal Code. The directors may be asked to pay $200,000 as individuals and $1 million if they are corporation.
Conclusions
Therefore to the above discussed provisions and the facts of the case it can be concluded that by carrying on the new venture and using the loan to make personal profits while the company was not able to pay its debts, Mary has violated the provisions of the Corporation Act in relation to directors duties as well as the common law duty is imposed on her and is liable to pay damages to the company and be suspended from managing corporations in the future for a certain period.
 
References
Corporation Act 2001 (Cth)
ASIC v Cassimatis (No. 8) [2016] FCA 1023
Keay, A.R., 2014. Directors’ Duties. Jordans.
Keay, A.R., 2014. Directors’ duties and creditors’ interests. The Law Quarterly Review, 130(Jul), pp.443-472.
Langford, R.T., 2015. Directors’ Duties: Conflicts, Proactive Disclosure and S 181 of the Corporations Act.
Gerner-Beuerle, C., Paech, P. and Schuster, E.P., 2013. Study on directors’ duties and liability.

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