Business Law

This document discusses the duties of a director under the Corporations Act 2001 (Cth) and analyzes a case scenario to determine whether Rubin as the chairman of the company has reached any fiduciary or statutory duties.

Running head: BUSINESS LAW
Business Law
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Issue
The issue is to determine whether Rubin as the chairman of the company has reached
any fiduciary or statutory duties.
Rule
Subject to the constitution of a company, the directors bear the overall responsibility
of the management of the company and thereby holding certain duties, fiduciary and
statutory. Section 180 to 184 of the Corporations Act 2001 (Cth) lays down the general duties
of a director in Australia. Section 180(1) of the Act expects a director or other officer of a
company to carry out their duties with care and diligence just like any other reasonable
person would1. Exception to this provision as stated under section 180(2) of the Act and in
the case of ASIC v Rich, the Business Judgment Rule holds the view that the judgment of a
director taken in the best interest of the company should be considered valid if such judgment
was made in good faith, not having a personal interest in regard to such judgment and
believing that search judgment would prove to be the best decision for the company2.
Section 181 of the Act holds the view that a director or officer of the company must
carry out their powers and responsibilities in good faith for the best interest and a proper
purpose of the company3.
Section 182 of the Act states that a director, officer, employees or secretary of a
company should not make use of their position improperly in order to derive personal
advantage or cause harm to the company4.
1 Corporations Act 2001 (Cth), s 180(1)
2 Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; Corporations Act 2001 (Cth), s
180(2)
3 Corporations Act 2001 (Cth), s 181
4 Corporations Act 2001 (Cth), s 182

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Section 183 restricts director not to misuse their position in order to obtain
information of the company and use such information for personal gain or causing harm to
the Corporation5.
Section 184 of the Act attracts criminal offence if a director is being
reckless, intentionally dishonest, fails to carry out his duty in good faith, misuses position to
gain personal benefit or for causing harm to the company6.
However the Corporations Act allow the directors to defend themselves by the help of
the Business Judgment Rule by which the directors could state that the steps taken by
them was reasonable and for the best interest of the company as they had no foreseeability of
the breach in near future.
Application
In the given case scenario Rubin being the non executive director and the companies
Chairman held the fiduciary as well as legislative duties of a director. Rubin does not meet
the provision of carrying out his duties with care and diligence as he did not counter
the decision of the executive directors, Bill and Sam regarding considering the oil exploration
activity even after the company had lost $15 million and was left with only 5 million. Rubin
used his position improperly and caused harm to the company, as the company subsequently
ran out of money by spending it all on the oil exploration activity. Rubin have had the
opportunity to stop the two other executive directors from sending the last $5 million from
the company account, yet he did not exercise his position for proper purpose for the best
interest of the company.
However as discussed in the ASIC v rich case, Rubin shall be given the opportunity to
defend himself in which he could cite that his actions were taken on the basis of the best
5 Corporations Act 2001 (Cth), s 183
6 Corporations Act 2001 (Cth), s 184

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judgment rule7. The Best Judgment Rule could help Rubin defend his failure to meet his
duties as he could state that his judgment was made in good faith, for a proper purpose and
for the best interest of the company8. He could state that he agreed with Sam and Bill
pertaining to the continuation of the oil exploration program for there was an expectation that
such continuation of the exploration could bring a better outcome for the company.
In addition to the Business Judgment Rule, Rubin could also held that as in the
position of a director he did not foresee the company being at loss by failing in its oil
exploration program. Rubin need to prove his innocence by proving that he had no
knowledge of the company being bankrupt by spending all its money on the oil exploration
program which was originally Sam and and Bill’s idea.
However Rubin cannot evade his responsibilities as the Chairman of the company
even if he cite defences as it could be adjudged from the given scenario that even though he
had a different opinion about the oil exploration initially, yet he agreed with sam and bill
subsequently.
Conclusion
Therefore it could be stated that Rubin has breached the statutory duties of a director
under the Corporations Act 2001 (cth).
7 Australian Securities and Investments Commission v Rich (2009) 236 FLR 1
8 Legg, Michael, and Dean Jordan. "The Australian Business Judgement Rule after ASIC v Rich: Balancing
Director Authority and Accountability." (2013) 34 Adel. L. Rev. 403.

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Bibliography
Books/Journals
Legg, Michael, and Dean Jordan. "The Australian Business Judgement Rule after ASIC v
Rich: Balancing Director Authority and Accountability." (2013) 34 Adel. L. Rev. 403.
Legislation
Corporations Act 2001 (Cth)
Case law
Australian Securities and Investments Commission v Rich (2009) 236 FLR 1