Fiduciary Duties of Directors under the Corporations Act

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

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Introduction
A fiduciary is someone who has undertaken in order to act for someone or on behalf
under some circumstances, which gives rise to develop a relationship of trust as well as
confidence. The obligation of loyalty is the main distinguishing obligation of a fiduciary. The
relationship between the shareholders and the directors generally is not presented in that
manner. The director of the company is generally a fiduciary for his company or
organization. When a person is appointed as the board of director of the company, he
generally agrees to act as per the interest of the company1. The Directors of a company not
only owes fiduciary duty to many but also many other duties that may not be mentioned in
the statute as sometimes their obligation goes beyond the letters of the law. The fiduciary
obligations or duties on the board of directors as well as on the corporate officers arise from
the legal relationships with the corporation. The officers, controlling shareholders and
directors owe these fiduciary duties of a company.
The fiduciary duties of the board of directors mainly includes the duties of taking the
exercise care of the managerial department in corporate affairs, in the duty of obedience and
in the duties of loyalty to the corporation2. The standards of the officers to which the duties
are held vary from the stringent obligations of a managing officer who also might have the
same fiduciary obligations of the director of the company. The fiduciary duties of both the
officer as well as the directors require exercising their powers in order to gain benefit from
the corporation and get a hold of the company stockholders. Apart from the fiduciary duties,
the directors and other officers owe several other duties, some of which are held under the
Corporations Act and some are under the common law3. This paper would strive to explain
1 Shanahan, Theresa Gemma. "Good Governance and Canadian universities: Fiduciary duties of university
governing boards and their implications for shared collegial governance." (2019) 14.8 International Journal of
Education Policy and Leadership.
2 Baxt, Robert. Duties and responsibilities of directors and officers. (2005) AICD.
3 Corporations Act 2001 (Cth).

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the various duties that are held by the directors along with the issues that are faced when the
management of a company is not well defined, with reference to the case of Vanguard
Financial Planners Pty Ltd & Anor v Ale & Ors4
Fiduciary Duties under the Corporations Act
Section 9 of the Corporations Act defines the term Director as a person who has been
appointed as a director by a corporation under the statute, or any person acting in the position
of director as a de facto director, or a person under whom the directors are accustomed to
work with, known as the shadow director. They are all considered as a director in some way
or the other. The basic fiduciary rights of the director under section 180 to 183 of the
Corporations Act are as follows:
Section 180 of the Act states that a director has the duty to provide care and diligence
to the company, which is similar to the duty that is imposed upon the directors under the
common law5. The duty to act with care and diligence includes the duty of the director
pertaining to the approval of financial plans and statements as discussed in the Centro case6.
It also includes the approval of statement of board, issued by a company as held in the James
Hardie Cases7. However, there can be a breach of the duty of care when a company gets into
risky agreements that involves risky transactions that does not provide for a beneficial
prospect and also sometimes when the directors fail to intimate the board about matters which
should have been conveyed to the board. The Business Judgement rule gives a safe harbour to
the directors when claims are made against them pertaining to their breach of duty of care and
diligence under the section 180 of the Corporations Act or under the common law8.
4 Vanguard Financial Planners Pty Ltd & Anor v Ale & Ors [2018] NSWSC 314.
5 Corporations Act 2001 (Cth), s 180.
6 Australian Securities and Investments Commission v Healey [2011] FCA 717.
7 ASIC v Hellicar & Ors [2012] HCA17; Shafron v ASIC [2012] HCA 18.
8 Corporations Act 2001 (Cth), s 180.

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Section 181 of the Act asks the directors to exercise their duty in good faith for the
best interest of the company with a proper intent9. They are meant to avoid anything that
would lead to conflict of interest and to let the board know anything that may conflict with
the best interest of the company. This is an important fiduciary duty of the director which
involves trust and fidelity on the part of the directors, which is also imposed by the
Corporations Act as well as the common law. Section 182 of the Act requires the directors to
use their position properly and to avoid gaining advantages from the affairs of the company
for their personal purpose10. Their actions should not be detrimental to the good interest of the
company. Section 183 of the Act restricts the directors to use the confidential information of
the company for their personal gains or in such a way that might affect the company11.
Additional Statutory duties under Corporations Act
In addition to the director’s duty held under section 180 to 183 of the Corporations
Act, there are few other significant duties of the director under the same act that must be
mandatorily carried out by him. Section 588G of the corporations act ensures that the director
does not indulge in any form of trading while the company has become insolvent or the
directors have a suspicion of it been insolvent12. Section 344 of the corporations act direct the
officers as well as directed to take reasonable measures for ensuring that the company is
complying with its duties and obligations held under the Corporations Act 2001 pertaining to
keeping proper financial records and reports13. The Act states that the directors are having
the responsibility to disclose the matters that are regarding the company affairs from which
he may derive personal gains as held under section 19114. The directory must disclose his
interests to the market as per section 205G of the Act15. In any situation if the director finds
9 Corporations Act 2001 (Cth), s 181.
10 Corporations Act 2001 (Cth), s 182.
11 Corporations Act 2001 (Cth), s 183.
12 Corporations Act 2001 (Cth), s 588G.
13 Corporations Act 2001 (Cth), s 344.
14 Corporations Act 2001 (Cth), s 191.
15 Corporations Act 2001 (Cth), s 205G.