Understanding Business Law and Director's Duties

Running head: BUSINESS LAW
Business Law
Name of the Student
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1BUSINESS LAW
Table of Contents
Part A.............................................................................................................................2
Question 1..................................................................................................................2
Question 2..................................................................................................................2
Question 3..................................................................................................................3
Question 4..................................................................................................................4
Question 5..................................................................................................................5
Part B..............................................................................................................................6
Question 1..................................................................................................................6
Question 2..................................................................................................................6
Question 3..................................................................................................................7
Question 4..................................................................................................................8
Question 5..................................................................................................................8
References....................................................................................................................10

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Part A
Question 1
The general duties of a director also known as fiduciary duty requires a director to act
in good faith with due care and diligence, not to misuse power, must avoid conflict of
interest, must act in a way for the best interest of the company, must not make personal
games from the company, and should maintain the confidentiality of the information of the
corporation. However, the duty of the director to refrain from insolvent trading comes under
the Corporations Act 2001 (Cth).
The general or fiduciary duties of the directors are imposed upon them on mutual trust
that exists among the parties to a contract, binding them in a relationship (Bruner, 2013). On
the other hand statuary duty imposes obligation on the director to adhere to a certain standard
of reasonable care to foresee any probable harm while executing their duties. Section 588G
of the Corporations Act 2001 (Cth) states the duty of the director to refrain from insolvent
trading, which should not be breached by the directors otherwise they are imposed a penalty
of $200,000 under part 5 of the Act (Hill & Conaglen, 2017). Therefore the directors could be
held liable for paying compensation for breaching a statutory duty for which the corporation
may have suffered certain injury or loss; however, the director may not be required to
compensate for breaching a fiduciary duty (Bruner, 2013).
Question 2
The Corporations Act 2001 lays down provisions that reference a director from
reaching his statutory duty to refrain from trading in a situation when the company is
insolvent and is under debt (Marsh & Roberts, 2017). In case of breach of this provision the
directors ourselves personally liable for the losses that the company has incurred due to the
debt accumulated while insolvent trading, or became insolvent by way of such debt (Hedges

3BUSINESS LAW
et al., 2016). To fetch compensation from the Director for breaching his statutory duties, it
must be proven that he had reasonable and sufficient grounds to foresee the probability of the
company of becoming insolvent of becoming insolvent and therefore must have refrained
themselves from trading in such condition (Marsh & Roberts, 2017).
However the directors are bestowed with a provision to defend themselves under
Section 588 GA of the Corporations Act 2001. This section provides a safe harbour to the
directors for defending themselves from situations where they are blamed for certain
activities of the corporation (Hill & Conaglen, 2017). Section 588GA(1) of the Act save the
directors from the liability that arises when they are accused of insolvent trading under
Section 588G(2) of the Act. This defence are offered to the director if it is proved that the
director had embraced proactive steps for preventing the corporation from carrying out
insolvent trading (Marsh & Roberts, 2017). It must be established that the directors must have
suspected the insolvency of the company and had taken steps from entering into any
transactions that may have boosted the course of insolvency. It also needs to be established
that the company had kept appropriate financial records to prove that the business course was
being conducted correctly.
Question 3
It is the Directors of a corporation that are protected by the safe harbour defence as
laid under section 588GA of the Corporations Act 2001 (Dunn, 2017). The directors are
protected by this provision for the time when they acted in the position of directors while the
company was involved in insolvent trading or during any other statuary breach of conduct.
Section 588 GA and section 180 (2) of the Corporations Act 2001 (Cth) must be
differentiated on the basis of their approach towards its stakeholders. Section 180 (2) of the
Act lays down the principle of business judgement rule which must also comply with
section 180 (1) of the same Act as both exhibit duties that the directors are required to fulfil;