Corporate Directors' Duties in the Australian Corporation Act

Australian corporations are governed by the Corporations Act 2001, which outlines various provisions and duties of directors. The project has explained several types of duties that a director must follow, as well as the importance of these duties through corporation case law judgments. This assignment aims to explore and summarize the key aspects of corporate governance in Australia, focusing on the duties of directors under the Corporations Act 2001.

Business and Corporation law

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1...................................................................................................................................3
Australian case involving the breach of duty of an officer to a company...................................3
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Employment is the need of today's times. There are many people whose livelihood is
dependent upon the type of employment they have been doing. It is very necessary that when an
employment is carried out by some person then rights and duties attached to the employment
shall get protected. There are many rules and regulation which has been implemented by
government in order to ensure that the rights and duties of a particular shall get protected and no
person shall face any kind of difficulties. Such laws also giver protection against the breach any
kind of duty which will result into violation of some one else right(Horrigan, 2010). Every
officer of the organisation has been granted with many responsibilities and duties which he is
ought to fulfil and if that person fails in doing so then he shall be held legally liable for breach in
duty. The following project shall centralized the breach of duty by an officer and the
consequences regarding same. The aim of the project is to create a better understanding about
rights and duties of an officer in a company.
QUESTION 1
Australian case involving the breach of duty of an officer to a company.
When a business organisation is run by a officers or the head, there are certain duties and
rights which is directed by the guideline of law. Such rights and duties are necessary to follow
otherwise the officer shall be held liable for conduct a breach in his duty which will result into
some kind of legal liability. There are many duties of the officer against the company and
employee, working in his office and a head or an officer is bound to perform these duties. One of
the most important duties which is even recognised by law is the duty to act in a good faith that
is no false impression shall be carried out by the company or its officer(Wigmore, 2012). There
are many acts which has been established in the process to ensure the rights and duties of an
officer for an example in Australia, a major act is implemented by the government that is
Corporation act 2001. some of the provision in this act deals with the duties of an officer residing
in a company. Whenever a business organisation is being set up then a head or an officer is
appointed in the team to ensure that the work is being being managed and all the formalities
regarding work Is carried out properly(Weis, 2013). This act will impose some fiduciary duties
on directors as well as on the officer. But when a government board is appointed in the company

then they are not in pressure to follow the provisions of corporation act. The duties which
corporation act imposes on the director are:-
To act in good faith to establish a proper purpose:- section 181 of corporation act establish
first and foremost duty on directors, secretaries and other officers that when ever these individual
persons are working in a company then they must discharge their duty in good faith. Working is
a good faith will help the company and the board itself to fulfil its purpose. For an example an
officer has launched a new scheme for the office which is helping him to create a self interest
and self profit. Such activity in office will not be considered an act of good faith(Hillman, 2012).
Whenever a person is under an obligation to perform in good faith but due to self interest the
person fail in doing so shall result into criminal liability.
Duty to act with care and Diligence:- according to section 180 of corporation act, it is the duty
of an officer as well as the board that whole discharging his duty towards an individual ir the
company, reasonable degree of care and diligence shall be taken. That it while making of any
decision or judging any kind of situation, it is the duty of director to take care so that the right of
any other individual shall not get infringed. For an example while making any judgements, the
officer has to act in a good faith(Carroll, Shabana, 2010). The officer must not possess any kind
of material personal interest in subject matter of a judgement. To believe reasonably that the
judgement has been taken in best interest of the corporation.
Duty to avoid improper position:- section 182 of the act provide that no individual that is the
officer, the director or any other kind of person from the board shall have the power to take
wrong use of its position that is no person is allowed to use its position in order to gain
advantage from themselves or someone else to cause detriment to the company. Section 182(2)
of the act shall provide that id any person has committed such kind of offence that is wrongful
use of its position to gain advantage then such person shall be held liable for committing an
offence that is to use position for dishonest.
Duty to disclose certain interest:- it is the duty of an officer or the board to that if such
concerned person is making any personal interest or gaining any kind of advantage from the
company then he must disclose such information(Scherer, Palazzo, 2011). For such information
to disclose a particular notice shall be served to the company.
Penalties:- whenever any individual who is the director of the company or an office breach any
kind of statutory duties then penalties shall be drawn to him under corporation act. A penalty of

up to $200,000 shall be imposed on to the person who shall breach his duty. In some of the cases
it has been observed that when an director has breached his duty towards the office, then was
entitled for disqualification from office also.
There are many cases which are instituted in respect to the breach in the duty of an officer but
one of the famous case which has been instituted for breach of duty is a recent case of
CASE LAW: ASIC v CITIGROUP (2007)
the following case has been instituted in federal court of Australia which expressed two major
key principle:-
a law does not possess any kind of power from restricting an investment bank to establish any
kind of contractual relationship in certain circumstances
another principle which has been determined in this case was that the adequacy of information
barriers arrangements can determine the liability has been seen in this case that Citigroup is kind
of global market which has done various kinds of business division including investment
banking and equities trading. It has been seen in this case that there were some kind of Chinese
barriers that is information barriers are being set but the company by which private side of the
market were exposed to confidential and to market sensitive information where as on the other
side public employee are not being exposed to such sides. This attempt has been done by
citigroup in order to reduce proper flow of business information or to restrict the flow of
information related to business.
Significance of the judgement.
After the judgement has been passed by the federal court, there are certain ground rules which
has been established that is :-
whenever a restriction has been passed by the company then the directors has to apply their own
mind and has to review the whole restriction so that necessary change can be done or any
reasonable care shall be taken.
Considering that the director must have the specific knowledge about the Chinese walls and what
are to be restricted information
the director must have the sufficient knowledge about accounting to carry out the financial
procedure and to carry out their duties adequately(Bebchuk, Weisbach, 2010).
And an appropriate enquiries shall be made in terms of any kind of barriers. The court held that:-

in this case it was held by the court that a law does not prevent any investment bank from
making a fiduciary relation at the commencement of the relationship
the court has further held that an office to a company according to this act shall be a senior
person who will perform senior management role which an employee did not
further held in this case that purchase of share could be by the person who will have the
information and such information shall be communicated or advice given by IB with respect to
purchase.
In this case the court found that:-
 It is the duty of the director of the company regarding any kind of Chinese walls that all
reasonable steps shall be taken for an example if any kind of financial statement has been
proposes in from of the company then such statement must be reviewed by the director.
 The directors of the must make an inquiry to all the work carried out in the company so
that no fault can occur later.
 A proper supervision shall be conducted by the director rather then making a detailed
direct involvement in operational matters.
 It is also seen in this case that an investment bank possess right to form contractual
relation.
The court has further held that there are numerous of errors which has been committed on the
end of director and hence he should act in due care diligence and no negligence shall occur on
the part of him(Mishra, Suar, 2010).
Hence the case was fully covered the are of law that the provision related to the duty of director
has been covered and it was clearly seen that a director must review the financial statement and
all reasonable steps must be taken against it.
Summary
There are many other cases which has been outlined on the basis of responsibility of director but
from the above case it can be extracted that that there are many responsibility which has been
granted to the director of the company and he is under the obligation to perform certain duties. If
by chance, director fails in fulfilling his duty then he shall beheld liable for the breach of his duty
and entitled to pay damages(Granovetter, 2010). The part of duty which is being highlighted in
this case is the duty of care and diligence. When the case was decided by the federal court thin
the first step towards fulfilling the duty to due care and diligence in terms of restricted

information is that whenever a company or its director is proposing any kind of Chinese walls
then a review must be done by the director so that no further fault can be rectified once the
financial statement is proposed. The director in this case makes it very much clear that in listed
public company , directors have skill of financial matter which is why a review shall be
conducted by the director(Wood, 2010). It has been seen that section 180 of corporation act has
been infringed by the company's director by which he has to pay a large amount of penalty to the
court. It is very clearly mentioned in the act of corporation 2001 that any director who shall
breach any duty of director in terms of company then such person shall be entitled for penalty. In
certain cases penalty cloud be disqualification likewise it occur in this case that the CEO of the
company was disqualified as he has breached the duty to care and diligence against the company
as no reasonable care regarding the review of restriction regarding information has been
conducted by which the company has to suffer losses(THOMSON REUTERS, 2017).
CONCLUSION
It shall be concluded from the above project that to protect and safeguard the interest of
corporate world, Australia has implemented an act called Corporation of act 2001. there are
many provisions described in this act of which one describe about the duty of director. The
project has explained about various kinds of duties which is being explained in the act and it has
been explained that such duties are necessary for a director to follow. The project has further
explained the duties with the help of corporation case complied with judgement.

REFERENCES
Books and Journals
Bebchuk, L.A. and Weisbach, M.S., 2010. The state of corporate governance research. Review of
Financial Studies. 23(3). pp.939-961.
Brammer, S., Jackson, G. and Matten, D., 2012. Corporate social responsibility and institutional
theory: New perspectives on private governance. Socio-Economic Review. 10(1). pp.3-28.
Carroll, A.B. and Shabana, K.M., 2010. The business case for corporate social responsibility: A
review of concepts, research and practice. International journal of management reviews.
12(1). pp.85-105.
Granovetter, M., 2010. 19 Business Groups and Social Organization. The handbook of economic
sociology. p.429.
Hillman, R.A., 2012. The richness of contract law: An analysis and critique of contemporary
theories of contract law (Vol. 28). Springer Science & Business Media.
Horrigan, B., 2010. Corporate social responsibility in the 21st century: Debates, models and
practices across government, law and business. Edward Elgar Publishing.
Layne-Farrar, A. and Lerner, J., 2011. To join or not to join: Examining patent pool participation
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Lazonick, W. and Tulum, Ö., 2011. US biopharmaceutical finance and the sustainability of the
biotech business model. Research Policy. 40(9). pp.1170-1187.
Mishra, S. and Suar, D., 2010. Does corporate social responsibility influence firm performance of
Indian companies?. Journal of Business Ethics. 95(4). pp.571-601.
Scherer, A.G. and Palazzo, G., 2011. The new political role of business in a globalized world: A
review of a new perspective on CSR and its implications for the firm, governance, and
democracy. Journal of management studies. 48(4). pp.899-931.
Weis, T., 2013. The ecological hoofprint: The global burden of industrial livestock. London: Zed
Books.
Wigmore, J.H., 2012. Principles of judicial proof. Rarebooksclub Com.
Williamson, O.E., 2010. Transaction cost economics: The natural progression. Journal of
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Wood, D.J., 2010. Measuring corporate social performance: A review. International Journal of
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Online
THOMSON REUTERS. 2017. [Online]. Available through.
<http://www.findlaw.com.au/articles/5136/directors-dutiesraising-the-bar.aspx.>. [accessed on
3rd January 2017.