Breach of Director's Duty to Act in Good Faith: A Case Analysis

This presentation analyzes the breach of director's duty to act in good faith and in the interest of the organization under section 184 of Corporations Act 2001. The penalty for such an offense and the case analysis of Clive Palmer is also discussed.

Corporate
Law
Assignment

Introduction
Corporations Act 2001 acts as a guide to the corporate
industry of Australia.
Section 184 of Corporations Act 2001 deals with faith,
use of position and use of information as a criminal
offence.
Section 184 (1) deals with good faith- Under this
reckless decisions by the director or any other officer is
considered as criminal offense.

Continued…
Section 184 (2) deals with the use
of position- under this section, the
director or any other employee or
officer of an organization is held
guilty if he or she intentionally
directly or indirectly used his
position for personal advantage or
in someone else’s favour.

Continued…
Section 184 (3) deals with use
of information- under this
section if a person uses
information for personal
advantage or to favour
someone else then that
person is held responsible, as
guilty for a criminal offense.

Discussion
The duties and responsibilities of the directors in Australia are
guided by statutory laws as well as laws made by judges of
the country.
The main aim behind framing these laws is to ensure that
good governance is practiced in corporate industries.
This also makes sure that all the activities of the organization
are in favour of the organization.

Case Analysis
The case revolves
around Clive Palmer who
took $200 million from
Queensland Nickel in
order to invest that
amount on his other
flagship business.
From that amount he
donated nearly $21.5
million to Palmer United
Party.
$189 million was
reflected in the loans
section of FTI Consulting,
one of the flagships of
Palmer.

Contd…
$5.9 million was
spent over the
plans of Titanic
II.
In 2014
Queensland
Nickel accounted
for nearly 27 per
cent of the
political
donations of the
country.
Allegations have
been made
against Mr.
palmer that he
has used the
money in order
to build his
Empire.

Contd…
Mr. Palmer reacted to these
allegations by saying that it is his
money and he can do anything with
his money.
This raised further controversies
against him.

Analysis
On the basis of Section
184 of the Corporations
Act 2001 it can be
clearly inferred that
Clive Palmer is guilty
under the breach of his
duty to act in good faith
and in the interest of
the company.

Continued…
Under Section 184 (1) Clive Palmer is guilty
for being reckless and taking irrational
decisions.
Because of this Queensland Nickel collapsed
and nearly 800 employees of the company
became unemployed.

Continued…
Under Section 184 (2) Clive Palmer is guilty of using
his position for his personal advantage.
Without considering the fact as to what negative can
happen to Queensland Nickel he used his position as
the director and used the organization as a piggy
bank.

Continued…
According to the duty to
act in good faith, the
directors are expected
to think of the benefit of
every stakeholder
before taking any
decision.
Clive Palmer clearly
failed in this.
Mr. Palmer also denied
to take any
responsibility of the
employees of
Queensland Nickel
which is against the
duty of a director.

Penalty for such an
offense
The legality of such breach is
taken care of by the Australian
Securities and Investments
Commission (ASIC).
The penalty depends on the
seriousness of the offense as well
as the damage caused.
The officer found guilty needs to
pay a penalty of up to 2000 units
at $180 per unit.

Continued…
The director can
also be debarred
from
undertaking any
kind of
managerial
activity in the
company.

Conclusion
It can be concluded that Clive Palmer
is guilty for the breach of the
director’s duty to act in good faith
and for the interest of the
organization under section 184 of
Corporations Act 2001.
ASIC should take the necessary
action against him in order to set an
example as well as give a lesson so
that such an act is not repeated in
the future.

References
 Bartholomeusz, S., 2014. Criminalisation of Directors' Duties. [Online] Available at:
https://youlegal.com.au/criminalisation-directors-duties/ [Accessed 31 August 2018].
 Craddock, 2014. Director’s Duties – Duty of Good Faith. [Online] Available at:
http://www.craddock.com.au/Document/Director-e2-80-99s+Duties+-e2-80-93+Duty+of+Good+Faith.aspx
[Accessed 2018].
 Eisenberg, M.A., 2006. The Duty of Good Faith in Corporate Law. [Online] Available at:
https://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1736&context=facpubs [Accessed 31 August
2018].
 Federal Register of Legislation, 2007. Corporations Act 2001. [Online] Available at:
https://www.legislation.gov.au/Details/C2007C00541 [Accessed 31 August 2018].
 Legal Vision, 2016. What is the Duty to Act in Good Faith in the Best Interests of the Company? [Online] Available
at: https://legalvision.com.au/what-is-the-duty-to-act-in-good-faith-in-the-best-interests-of-the-company/
[Accessed 31 August 2018].
 Silva, K., 2017. Clive Palmer denies responsibility for unemployed Queensland Nickel workers. [Online] Available
at: http://www.abc.net.au/news/2017-07-21/clive-palmer-court-clive-mensink-queensland-nickel/8731278
[Accessed 31 August 2018].
 Stevenson, A., 2018. Clive Palmer's assets frozen by Supreme Court over Queensland Nickel collapse. [Online]
Available at:
http://www.abc.net.au/news/2018-05-25/clive-palmer-assets-frozen-queensland-nickel-supreme-court/9799036
[Accessed 2018].
 The West Australian, 2016. Clive Palmer treated Queensland Nickel as $200m piggy bank. [Online] Available at:
https://thewest.com.au/news/australia/clive-palmer-treated-queensland-nickel-as-200m-piggy-bank-ng-ya-103832
[Accessed 31 August 2018].
 Wolters Kluwer, 2018. Corporations Act 2001 – Section 184 Good faith, use of position and use of information—
criminal offences. [Online] Available at:
https://iknow.cch.com.au/document/atagUio485900sl14504575/corporations-act-2001-section-184-good-faith-use
-of-position-and-use-of-information-criminal-offences
[Accessed 31 August 2018].

Thank You