Legal Issues and Liabilities under the Corporations Act

Running head: CASE STUDY ASSIGNMENT
CASE STUDY ASSIGNMENT
Name of the Student:
Name of the University:
Author Note:

1CASE STUDY ASSIGNMENT
Issues:
The issues to be discussed in this case study are the legal issues under the Corporations
Act regarding Gus’s actions and liabilities, his status as a director and whether he has breached
his duties as the director of the company.
Rules:
The Corporations Act 2001(Cth) deals with the provisions related to the rights and duties
of the directors (Barker 2016). Sections 180 to 184 of the said Act give the general duty of the
directors of the company. Section 180 (1) states that the director of a company must act carefully
and diligently while executing his duties as a reasonable person. Section 180 (2) provides the
business judgment rule. It states that the director must ensure to act with care plus diligence
while making any business decision. It is provided that when making any business decision he
must act in good faith, he must not have any personal interest in such decision. Moreover, he
must believe that such judgment is adequate and perfect for the best interest of the company.
Section 181 provides that the directors and other officers of a company must use their
powers and perform their duties in good faith for proper reason and for the company’s best
interest. Section 182 of the Act states that directors, other officers as well as employees must be
true to their position. They must not use their position to gain benefits and advantages personally
or for others causing detriment or loss to the corporation. It states that they must not unduly or
inappropriately use their position and powers to gain personally at the expense of the company.
Section 183 of the Act enumerates that any person being the director, employee or any
other officer of the company shall not use any information received at the virtue of such position

2CASE STUDY ASSIGNMENT
to gain personally any advantage or benefit for them or others at the cost of causing loss or
detriment to the corporation in which they were employed. Sections 180 to 183 impose the civil
duties on the directors, employees and other officers of the company. Any person who violates or
infringes any of these above mentioned sections will be liable to civil penalty in accordance to
section 1317E of the Act.
Section 184 on the other hand imposes criminal liabilities on the directors as well as the
officers. It states that an offence is said to be committed by any officer or director of the
company if they are not honest intentionally and are reckless and fail to use their powers and
perform their responsibilities they are entrusted with. It also states that they must act for the best
interests and for a proper reason and in good faith while performing their obligations as the
directors or any other officers of the company. Moreover, an offence will be committed if it is
found that they misuse their position or inappropriate the information received for their position
to gain an unauthorized advantage or benefit for themselves at the cost of the company
subjecting it to detriment. Any director or officer who violates this section is subjected to
criminal sanctions.
One of the main duties of the directors is to protect the main interest of the creditors of
the company by prevent insolvent trading as given under section 588G of the said Act. A
company is said to an insolvent company if it unable to pay off the debts of its creditors. It is the
duty of the directors to prevent insolvent trading as it results into losses to the creditors of the
company (Marsh and Roberts 2017).