Corporation Law

(PREPARED BY TUTOR DANIEL PAN)

Directors
Directors Duties
2019

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• Directors duty
• S180(1), s180(2)/ s181/s182/s183 (employee)
• s588G
• S191/s194/s195
• S207/s208 (public)

• s203C/s203Db
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DIRECTOR’S DIRECTOR’S
WHO IS RATIFCATIO
COMMON STATOTRY
DIRECTOR ? N
LAW DUTY DUTIES
 Directors duties
• Directors duty
• Common law duty
• Statutory duty
• Common law duty is enforced by the company but
subject to ratification.
• Statutory duty is only enforced by ASIC which can
not be ratified.
• S.185 : statutory law duty is overlap with common
law duties which might apply at the same time.

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DIRECTOR’S DUTIES
STATUTORY LAW DUTIES
COMMON LAW DUTIES
• S180 / S588
1. Exercise reasonable
care, skill and diligence
• S181
2. Act bona fide (ie. in
good faith) in the
interests of the • S182
company • S183
3. Exercise powers for a
proper purpose • S191/194/195
4. Avoid a conflict of • S207/208
interest
 Duty to disclose conflict of interest
s191/194/195
• S.191 (all): Director must:
• Disclose material personal interest before the meeting
being held
• Standing Notice (but material interest do not substantially)
altered.
• S.194 (pty) :
• may still present in the meeting if disclose under s.191
• vote on the matter if disclose under s.191
• Company can not avoid the transaction only base on such a
reason
• S.195 (public):
• can not vote and attend the meeting unless director
resolve to permit the attendance.
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• 1317E: civil penalty
Due care and Diligence
s180
• S.180(1): apply to officer
• Must exercise power with due care and skill (Vines)
• Apply to non-executive directors (Daniel v Anderson)
• Issues: whether a reasonable person in the same
position would have done the same thing.
• ASIC v Healey 2011, ASIC v Adler (2002)
• Result of the breach
• Civil penalty under s.1317E (s.206)
• Not a criminal offence under s.184
• Pay company’s damages s.1317H
Defence 1
• S.180(2) BJR
• Apply both under common law and statutory law
s.185(2)
• If the defendant meet all the requirement state under
s.180(2), than it’s a perfect defense under due care
provision
• Criterias of s.180(2):
• Good faith and proper purpose
• Without material interest
• Inform themselves about the subject matters
• Rationally believe its in the best interest of the company
 Defence 2

• Other defense: s189

• S.189 : directors reasonable reliance on information
• Directors must:
• Reasonable reliance with good faith s.189(c)
• Making independent assessment about the subject matter
• Information must be given by
• Professional
• Competent employee
• Directors with authority & board of directors
Defence 3
• Other defense: s190
• If directors has delegate power to an agent under s.198D
• Director has the responsbility under s.190(1)
• However, defence apply under s.190(2)
• If the that is a reasonable ground to trust the delegate
• Make all necessary enquiry
• Delegate is reliable and competent
 Duty to act in the best interest
s181
• S.181: apply to officer
• act in the best interest of the company as a whole (5)
• Exercise power for proper purpose (3)
• Common law equivalent
• Duty to act bona fide and best interest
• Duty to exercise power for proper purpose
• Result of the breach:
• s1317E, s1317H,s1317G
• S184 (intention) – criminal offence
 Best interest?
• What is the best interest?
• For the firm as a whole
• Not employee (park v daily news ltd)
• To individual member when reliance is substantial
(Coleman v. Myer)
• Insolvent: act in the best interest of creditor

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 When to breach the best interest:

• Cant keep personal profit

• Regal Hasting v. Gulliver
• Even without profit/loss (even company unable to act)
• Exception: constitution permit or Resolution
• Not to take up corporate opportunity
• Resign to take up : Cook v. Deek
• Take up after company’s rejection - Peso Silver Mine V.
Cropper
• Not to compete with the company (Street V. Golt)
• Bribes and undisclosed benefits
• Misuse of company funds
Proper Purpose
• Exercise power for proper purpose
• Do not need to be the substantial purpose
• “but for Test” – whitehorse v. carlton hotel
• Breach even its in good faith
• What is the improper purpose:
• Issues shares to maintain control
• Restrict share transfer
• Prevent hostile take over
 Duty to not misuse position
s182
• S.182: apply to officer and employee
• 1. Must not misuse position and authority
• 2. Contravene the act if
• Take personal gain and advantage or
• Cause a damages to the company
• What is misused of position
• inconsistently discharge one’s obligation and authority
(Grove V Flavel)
• Included the breach of constitution
• Breach the section even in good faith (Chew v R)
• Result : s1317E, s1317H / S184
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Duty not to misuse information
s183
• S.183: apply to officer and employee
• Must not misuse company information
• Contravene the act if
• Take personal gain and advantage or
• Cause a damages to the company
• What is misused of information
• Breach the section even in good faith
• Criminal Offence under s.184
• Civil penalty Provision and might leads to disqualification
• Common law duty equivalent :
• Duty to avoid conflict of interest
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Duty for insolvent trading
s.588
• S.588G: apply to directors
• Only apply to directors
• A debt incur when the company is insolvent
• Voluntary issue / contingent debt issue
• Or the incurrence of the debt cause company’s
insolvency
• S.588E
• Directors is liable when
• He has a reasonable ground to suspect
• Or he should known the existence of insolvency
 Defence
• Defense : S.588H
• (2): reasonable ground to expect solvency
• (3):reasonable reliance on information
• (4):absence from management
• (5):reasonable step to prevent insolvency
• (6) : other good reason
• Civil penalty apply s.1317E

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 Duty for receiving financial benefit
Chapter 2E
• S.208- only apply to public company or entity it
controls
• Public company is prohibited to
• give financial benefit s.229
• to related party s.228
• Included the parties control by the related parties
• Unless members approval is obtained

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 Exemption

• Exemption apply
• S.210; arm length transaction
• S.211: reasonable remuneration
• S.213:less than $2000 to directors
• S.215: receive benefit as a member
• If breach , civil penalty
• However, the breach of S.208 do not
• Affect the validity of the transaction
• Company do not guilty under CA
• But the person who responsible for the act is liable
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 Summary of Common Law Duty
• Common law duty
• Duty of act with reasonable care and diligence s.180
• Duty of acting in good faith and in the best interest of
the company s.181
• Duty of exercising power of proper purpose s.181
• Duty of retain discretion s.181
• Duty of avoiding received unauthorized benefit
s.208,s181
• Duty of avoiding conflict of interest
s.191,s.208,s182,s.183

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 Ratification
• Ratification of the breach of the duties
• Only common law duties can be ratified
• Members can ratified the directors breach of duties but not
the statutory duties under corporation act
• Pass ordinary resolution
• Requirement :
• Member must be fully informed
• Full and frank disclosure
• If the breaches are ratified, the company loss:
• The right to rescind external contract
• The right to sue directors for damages
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 • Exception apply:
• Fraud on minority
• Oppressive behavior
• Prejudice creditor
• Affect personal right
• For improper purpose
• Misappropriation for company’s asset

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 Director’s Duty Summary
(Statutory duty)
• First out of the First thing you should do is to justify if the
company is public or Proprietary!!
• S. 180(1)
• Due care and diligence
• Defence: Business Judgement Rule s.180(2)
• S.181
• Exercise power in good faith
• In best interest of the company
• For proper purpose
• S.182
• Misuse of position to gain self-advantage & cause detriment to the
company
• S. 183
• Misuse of information
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 • S. 588G
• Insolvent trading
• S.588H as defence
• S. 191(1)
• Disclose of personal material interest
• S.194 (for Pty) after disclose, can vote
• S.195 (for Public) after disclose, can not vote unless
board of directors pass resolution
• S.208
• Chapter 2 E
• Prohibition of giving financial benefit to related party!!

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Insider Trading
Provisions aimed at preventing
people with access to particular
information:
• trading in company’s shares
• having someone else trade for them
• pass on info to others for payment
or some other motive
 Exam question
SAL Pty Ltd (SAL) was incorporated in 2005 and had
adopted the Replaceable Rules.  
• Gerry holds 80% of the issued capital of SAL although he is
not on the Board of Directors. Donny and Benny are the
two directors of SAL and the only other members of the
company. They are compliant to Gerry’s wishes. Gerry’s
nephew, Stuey, was appointed the finance officer of SAL
when the company was incorporated and he exercised
many managerial functions at Gerry’s request.
• Stuey immediately caused SAL to embark on some of his pet
projects which proved to be financially disastrous for SAL.
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• These projects were approved by Donny and Benny at Board
meetings where Gerry was also present. In any event, Donny
and Benny were quite complacent with the whole arrangement
as they did not have much responsibility. They thought that they
had delegated such responsibilities to Stuey in accordance to
Gerry’s wishes.
• By the end of May 2009, SAL’s employees are owed two months
wages and invoices issued by the company’s creditors have not
been paid for months.
• REQUIRED:
• What breach(es) of duty(ies), if any, attaches to the directors of
SAL, Gerry and/or Stuey? Your answer should include a
consideration of whether Donny and Benny have delegated their
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powers and the consequences of the delegation, if any.
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