Commercial Law Case Studies: Breach of Director's Duties

Commercial law 1
Commercial law

Commercial law 2
Case Study 1
Issue:
Whether director of the Uninest breach any of their general as well as statutory duties, and
whether Neals as the consultant only bear any liability towards the Uninest?
Law:
Corporation Act 2001 imposes number of obligations on the directors of the company, and some
of these obligations are compulsory in nature. General and statutory duties of the directors of the
company are stated below:
Section 1801 of the Corporation Act 2001 imposes duty related to the care and diligence on the
directors. As per this section, it is necessary for the directors to act with due care and diligence
while conducting their functions as the director of the company.
Section 1812 of the Act defines the provisions related to the good faith. As per this section,
directors must take actions in good faith, for appropriate purpose, and in the best interest of the
organization. This section also impose obligation on directors to evade the conflict of interest.
Section 1823 of the Act imposes the obligation on directors not to use their position for improper
manner for getting the benefit for themselves or for someone else.
Section 183 of the Act imposes the obligation on directors not to use the information received by
them in the capacity of director for improper manner for getting the benefit for themselves or for
someone else.
Section 9 4of the Act defines the meaning of officers, and as per this section any person can be
considered as the officer who is making or participating in making the decisions of the company.
All above provisions are also applicable on the officers of the company also.
Application:
In the present case, directors of the Uninest breach their obligations stated under section 181,
182, 183, and 184 of the Act.
 Directors fail to act with due care and diligence while performing their duties.
 Directors fail to act in good faith, for proper purpose, and in the best interest of the
company, as they fail to get the takeover bid from Urbanlodge.
1 Corporation Act 2001- Section 180.
2 Corporation Act 2001- Section 181.
3 Corporation Act 2001- Section 182.
4 Corporation Act 2001- Section 9.

Commercial law 3
 Directors use their position for improper purpose by approving the resolution related to
loan provided to directors of the company.
 Directors use the information get by them for their own purpose.
This can be understood through case law ASIC V Adler 2002,5 Court decided that directors
failed to perform their duties stated under section 180, 181, 182, and 183 of the Act in the
following manner:
 All three directors of the company that were Adler, Williams and Fodera breach their
director duties under section 180 of the Act.
 Adler contravenes section 181 of the Act, as he fails to act in good faith and in the best
interest of the company.
 Adler also breaches section 182 of the Act in context of adjusting the loan of $ 10 million
from HIHC to PEE.
Facts of ASIC v Adler are similar to the present case, as both the cases include the carelessness
on part of the directors, and in both the cases directors prefer their own advantage instead of the
company advantage.
Neals is considered as the officer of the company and above stated provisions are liable on him
also, and because of this Neals is liable towards the company.
Conclusion:
All the directors and officers of the company are liable towards the Uninest.
Case Study 2
5 Asic v Adler and 4 Ors [2002] NSWSC 171 (14 March 2002).