The Impact of Board Composition on Corporate Governance and Tax Aggressiveness
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Essay
AI Summary
The effect of board composition on corporate tax aggressiveness was investigated in this study. The results showed that a higher proportion of non-executive directors and the presence of independent directors were associated with less tax aggressiveness. This suggests that board composition plays a crucial role in shaping corporate tax behavior, and that companies with more independent and non-executive directors may be less likely to engage in aggressive tax planning.
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CORPORATE LAW
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TABLE OF CONTENTS
CASE STUDY 1..............................................................................................................................1
CASE STUDY 2..............................................................................................................................2
a...................................................................................................................................................3
b...................................................................................................................................................4
CASE STUDY 3..............................................................................................................................5
Scenario A...................................................................................................................................6
Scenario B...................................................................................................................................7
REFERENCES................................................................................................................................9
CASE STUDY 1..............................................................................................................................1
CASE STUDY 2..............................................................................................................................2
a...................................................................................................................................................3
b...................................................................................................................................................4
CASE STUDY 3..............................................................................................................................5
Scenario A...................................................................................................................................6
Scenario B...................................................................................................................................7
REFERENCES................................................................................................................................9
CASE STUDY 1
In accordance to the given scenario the directors of Uninest Ltd., relying on the opinion
of Neales, the board of directors pass a resolution which has been proposed by Neales to give an
interest free loan to one of the directors, Gilligan. Pursuant to the same, requisite shares are
issued in the name of Gilligan. It has been stated that Neales is a consultant working for Uninest
and has undertaken various important decisions for the company. Therefore, relying solely on his
decision the directors passed a resolution to lend Gilligan a sum of $30 million and that too
interest free. It is further been noted that this is a strategy formulated to raise the price of shares
significantly and make it difficult for Urbanlodge Ltd to take over management of the company.
The Corporations Act 2001 (hereinafter referred as the 'Act') imposes a general duties on
the directors of companies, which is subject to a business judgement rule, in pursuance to which
a director is required to make every decision in good faith and for a valid purpose. Their shall not
exist any form of personal interest in relation to the subject matter of the judgement.1 The
directors are also under an obligation to inform themselves of every aspect related to the
judgement, so as to be able to reasonably believe in its appropriateness. Lastly, they shall
rationally believe that the decision being undertaken takes care of the best interests of concerned
business. Section 180 of the Act specifically states that every director as well as other officers of
a corporate shall exercise their powers, along with discharging their respective duties with
reasonable amount of care and diligence. In furtherance to the same, Section 181 of the Act
provides that the stated role of directors shall be undertaken in good faith for the catering to the
best interests of the company and for a valid purpose. In furtherance to the same, the court has
often applied the business judgement rule which has a statutory support. In the case of Australian
Securities and Investment Commission v. Mariner Corporation Ltd. (2015) it was opined that
while ascertaining breach of duty it is imperative for the authorities to assess application of the
business judgement rule as enumerated in Section 180 (1) of the Act.2 In furtherance to the same
court noted various factors which shall be considered while ascertaining the liability.
1 Lanis, Roman, and Grant Richardson. 'The effect of board of director composition on corporate tax
aggressiveness.' (2011) 30.1 Journal of Accounting and Public Policy 50-70.
2 Sealy, Len, and Sarah Worthington. Sealy & Worthington's Cases and Materials in Company Law. (Oxford
University Press, 2013).
1
In accordance to the given scenario the directors of Uninest Ltd., relying on the opinion
of Neales, the board of directors pass a resolution which has been proposed by Neales to give an
interest free loan to one of the directors, Gilligan. Pursuant to the same, requisite shares are
issued in the name of Gilligan. It has been stated that Neales is a consultant working for Uninest
and has undertaken various important decisions for the company. Therefore, relying solely on his
decision the directors passed a resolution to lend Gilligan a sum of $30 million and that too
interest free. It is further been noted that this is a strategy formulated to raise the price of shares
significantly and make it difficult for Urbanlodge Ltd to take over management of the company.
The Corporations Act 2001 (hereinafter referred as the 'Act') imposes a general duties on
the directors of companies, which is subject to a business judgement rule, in pursuance to which
a director is required to make every decision in good faith and for a valid purpose. Their shall not
exist any form of personal interest in relation to the subject matter of the judgement.1 The
directors are also under an obligation to inform themselves of every aspect related to the
judgement, so as to be able to reasonably believe in its appropriateness. Lastly, they shall
rationally believe that the decision being undertaken takes care of the best interests of concerned
business. Section 180 of the Act specifically states that every director as well as other officers of
a corporate shall exercise their powers, along with discharging their respective duties with
reasonable amount of care and diligence. In furtherance to the same, Section 181 of the Act
provides that the stated role of directors shall be undertaken in good faith for the catering to the
best interests of the company and for a valid purpose. In furtherance to the same, the court has
often applied the business judgement rule which has a statutory support. In the case of Australian
Securities and Investment Commission v. Mariner Corporation Ltd. (2015) it was opined that
while ascertaining breach of duty it is imperative for the authorities to assess application of the
business judgement rule as enumerated in Section 180 (1) of the Act.2 In furtherance to the same
court noted various factors which shall be considered while ascertaining the liability.
1 Lanis, Roman, and Grant Richardson. 'The effect of board of director composition on corporate tax
aggressiveness.' (2011) 30.1 Journal of Accounting and Public Policy 50-70.
2 Sealy, Len, and Sarah Worthington. Sealy & Worthington's Cases and Materials in Company Law. (Oxford
University Press, 2013).
1
ď‚· Surrounding circumstances, terms of constitution, nature of business and composition of
the board.
ď‚· Position and role of directors in the company, terms on which they are working, the
manner in which responsibilities are distributed with other officers, reporting systems
and other requirements of company.
ď‚· Applicable legal framework3
In the present case, business judgement is in relation to avoiding the occurrence of take
over and the decision to lend a significant amount of money to one of the directors to enable him
to make a purchase of shares at a higher rate. It can be stated in this respect that the directors
have taken this judgement solely on the advice of the consultant, Neales. The directors of the
company have failed to exercise their own diligence or care in determining the correctness and
appropriateness of the decision. Thus, it can be inferred that this judgement of passing the
resolution for granting interest free loan and significant shares to one of the directors is
completely a decision of Neales. All the directors have solely relied upon the decision of Neales
and have failed to assess the appropriateness of the decision by application of their own skills
and experience. Further, it has been stated by the court in ASIC v. Rich (2009) that both the
directors and officers of the company are under an obligation to inform themselves about the
subject matter of the decision.4 This information shall be to the extent that they can reasonably
believe in the appropriateness of judgement. In light of the stated law and judicial
pronouncement it can be stated that the directors failed to comply with the business judgement
rule as they did not inform themselves about the subject matter and relied only on the opinion of
Neales. Hence, they acted to breach the duty of care and diligence. Furthermore, these laws are
equally applicable on other officers and hence, Neales shall also be liable as he also failed to
assess all the aspects of the decision.
CASE STUDY 2
Primo is one of the construction companies, who has been working with Landstock on an
ongoing basis. Shane, director as well as shareholder of Primo is appraised with the fact that
3 Legal Services Commission, General Duties of Directors – Corporation Act 2001 (2017)
<http://www.lawhandbook.sa.gov.au/ch05s01s03s02.php>
4 The Business Judgment Rule: ASIC v Rich and the reasonable-rational divide (2011)
<http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1021&context=cgej>
2
the board.
ď‚· Position and role of directors in the company, terms on which they are working, the
manner in which responsibilities are distributed with other officers, reporting systems
and other requirements of company.
ď‚· Applicable legal framework3
In the present case, business judgement is in relation to avoiding the occurrence of take
over and the decision to lend a significant amount of money to one of the directors to enable him
to make a purchase of shares at a higher rate. It can be stated in this respect that the directors
have taken this judgement solely on the advice of the consultant, Neales. The directors of the
company have failed to exercise their own diligence or care in determining the correctness and
appropriateness of the decision. Thus, it can be inferred that this judgement of passing the
resolution for granting interest free loan and significant shares to one of the directors is
completely a decision of Neales. All the directors have solely relied upon the decision of Neales
and have failed to assess the appropriateness of the decision by application of their own skills
and experience. Further, it has been stated by the court in ASIC v. Rich (2009) that both the
directors and officers of the company are under an obligation to inform themselves about the
subject matter of the decision.4 This information shall be to the extent that they can reasonably
believe in the appropriateness of judgement. In light of the stated law and judicial
pronouncement it can be stated that the directors failed to comply with the business judgement
rule as they did not inform themselves about the subject matter and relied only on the opinion of
Neales. Hence, they acted to breach the duty of care and diligence. Furthermore, these laws are
equally applicable on other officers and hence, Neales shall also be liable as he also failed to
assess all the aspects of the decision.
CASE STUDY 2
Primo is one of the construction companies, who has been working with Landstock on an
ongoing basis. Shane, director as well as shareholder of Primo is appraised with the fact that
3 Legal Services Commission, General Duties of Directors – Corporation Act 2001 (2017)
<http://www.lawhandbook.sa.gov.au/ch05s01s03s02.php>
4 The Business Judgment Rule: ASIC v Rich and the reasonable-rational divide (2011)
<http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1021&context=cgej>
2
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Landstock is soon going to call for tenders in respect to building a warehouse around a major
port. Shane in pursuance to the same formulates a new company in the name of Iconstruct Ltd. It
has been given in the facts that Shane does not inform the directors of Primo about this new
company and submits a tender to Landstock for construction of the said warehouse. It has also
been ascertained that Shane is aware of the tender quotation which shall be submitted on behalf
of Primo and has thus made a lower price in the submission by Iconstruct Ltd. The contract is
granted to Iconstruct for offering a lower price than Primo.
a.
Section 183(1) of the Act specifically prohibits a director or other officers from
improperly using a confidential information for personal interest or against the interest of the
corporate. This information primarily refers to all the data which is known in pursuance to the
position of a particular person in the company.5 In the case of ASIC v. Stephen William Vizard
(2005) the court refrained the director from using an information which was obtained during the
course of his position of director in the company for an improper use. This section is equally
applicable on directors who are currently holding the position in the corporate or who have held
such a position in the past. While dealing with a case under this section, court also takes into
consideration the character of the director or officer being assessed. In the Vizard case, the court
acknowledged the philanthropic roles and services which the director was catering to the society.
However, in the case of Australian Competition and Consumer Commission v. ABB
Transmission and Distribution Ltd (2002) a contrary view was taken by the court, stating that
nature of offence shall be the primary consideration, rather than the character of the person.
Apart from this specific duty under Section 183, a director is also imposed with Fiduciary
duties which are directly owed to the company. The basis of imposition of this duty is that trust
as well as good faith shall never be compromised by a director.6 In pursuance to this duty,
directors shall not indulge in situations where they are not able to act in best interest of the
company or there arises a situation of conflict of interest. In the case of Fodare Pty Ltd. v.
5 Richardson, Grant, Grantley Taylor, and Roman Lanis. 'The impact of board of director oversight
characteristics on corporate tax aggressiveness: An empirical analysis.' (2013) 32.3 Journal of Accounting
and Public Policy 68-88.
6 Lexology, Directors' duties (May 13, 2015) <http://www.lexology.com/library/detail.aspx?g=7d705ffd-
b15d-44af-9be3-cbda3462436a>
3
port. Shane in pursuance to the same formulates a new company in the name of Iconstruct Ltd. It
has been given in the facts that Shane does not inform the directors of Primo about this new
company and submits a tender to Landstock for construction of the said warehouse. It has also
been ascertained that Shane is aware of the tender quotation which shall be submitted on behalf
of Primo and has thus made a lower price in the submission by Iconstruct Ltd. The contract is
granted to Iconstruct for offering a lower price than Primo.
a.
Section 183(1) of the Act specifically prohibits a director or other officers from
improperly using a confidential information for personal interest or against the interest of the
corporate. This information primarily refers to all the data which is known in pursuance to the
position of a particular person in the company.5 In the case of ASIC v. Stephen William Vizard
(2005) the court refrained the director from using an information which was obtained during the
course of his position of director in the company for an improper use. This section is equally
applicable on directors who are currently holding the position in the corporate or who have held
such a position in the past. While dealing with a case under this section, court also takes into
consideration the character of the director or officer being assessed. In the Vizard case, the court
acknowledged the philanthropic roles and services which the director was catering to the society.
However, in the case of Australian Competition and Consumer Commission v. ABB
Transmission and Distribution Ltd (2002) a contrary view was taken by the court, stating that
nature of offence shall be the primary consideration, rather than the character of the person.
Apart from this specific duty under Section 183, a director is also imposed with Fiduciary
duties which are directly owed to the company. The basis of imposition of this duty is that trust
as well as good faith shall never be compromised by a director.6 In pursuance to this duty,
directors shall not indulge in situations where they are not able to act in best interest of the
company or there arises a situation of conflict of interest. In the case of Fodare Pty Ltd. v.
5 Richardson, Grant, Grantley Taylor, and Roman Lanis. 'The impact of board of director oversight
characteristics on corporate tax aggressiveness: An empirical analysis.' (2013) 32.3 Journal of Accounting
and Public Policy 68-88.
6 Lexology, Directors' duties (May 13, 2015) <http://www.lexology.com/library/detail.aspx?g=7d705ffd-
b15d-44af-9be3-cbda3462436a>
3
Shearn (2011) it was opined by the court that under the fiduciary duty, a director is under an
obligation to always act for a proper purpose with reasonable care and diligence and shall not in
any instance improperly use the position.7 One of the most common instances for not using
confidential information obtained due to the position is that of Insider Trading, which has been
enumerated in Division 3 of the Act.8 The act considers it as an offence which shall be
specifically established on the basis of following elements:
ď‚· Possession of confidential information which may have material impact on the
operations or profitability of corporate.
ď‚· Such an information is not generally available
ď‚· The concerned person is involved in trading, where the said confidential information is
highly relevant.
In pursuance to the same, it can be stated that the Shane had acted in breach of the duty
enumerated in Section 183(1) of the Act as well as is liable for the offence of Insider Trading. In
the present case, Shane was occupying the position of Director in Primo Ltd., and because of this
information was aware of the price quotation which the company was going to bid before
Landstock. Further, Shane purposely formed another company in the name of Iconstruct and did
not inform the directors of Primo. This is a clear violation of the laws enumerated in the
Corporation Act. Furthermore, Shane by making use of the information about the pricing of
Primo, made a quotation which was lower than the quotation of Primo. These facts clearly
establish that Shane has conducted the offence of Insider Trading. Moreover, he has also acted to
breach the general duties of acting in good faith and with loyalty. In addition, he has also
breached the duty to not make improper use of information or position which one has owing to
his/her position in the company
b.
Section 1043B – J of the Act provide for certain statutory exceptions which includes
insurance underwriters or disclosing the information in pursuance to a legal obligation. Further,
Section 1044A of the Act also states that communication of an information in the normal course,
7 The Directors Series: Part 2 - Fiduciary Duties (1st August 2014) <http://www.moores.com.au/news/the-
directors-series-part-2-fiduciary-duties>
8 Hahn, Peter D., and Meziane Lasfer. 'The compensation of non-executive directors: rationale, form, and
findings.' (2011) 15.4 Journal of Management & Governance 589-601.
4
obligation to always act for a proper purpose with reasonable care and diligence and shall not in
any instance improperly use the position.7 One of the most common instances for not using
confidential information obtained due to the position is that of Insider Trading, which has been
enumerated in Division 3 of the Act.8 The act considers it as an offence which shall be
specifically established on the basis of following elements:
ď‚· Possession of confidential information which may have material impact on the
operations or profitability of corporate.
ď‚· Such an information is not generally available
ď‚· The concerned person is involved in trading, where the said confidential information is
highly relevant.
In pursuance to the same, it can be stated that the Shane had acted in breach of the duty
enumerated in Section 183(1) of the Act as well as is liable for the offence of Insider Trading. In
the present case, Shane was occupying the position of Director in Primo Ltd., and because of this
information was aware of the price quotation which the company was going to bid before
Landstock. Further, Shane purposely formed another company in the name of Iconstruct and did
not inform the directors of Primo. This is a clear violation of the laws enumerated in the
Corporation Act. Furthermore, Shane by making use of the information about the pricing of
Primo, made a quotation which was lower than the quotation of Primo. These facts clearly
establish that Shane has conducted the offence of Insider Trading. Moreover, he has also acted to
breach the general duties of acting in good faith and with loyalty. In addition, he has also
breached the duty to not make improper use of information or position which one has owing to
his/her position in the company
b.
Section 1043B – J of the Act provide for certain statutory exceptions which includes
insurance underwriters or disclosing the information in pursuance to a legal obligation. Further,
Section 1044A of the Act also states that communication of an information in the normal course,
7 The Directors Series: Part 2 - Fiduciary Duties (1st August 2014) <http://www.moores.com.au/news/the-
directors-series-part-2-fiduciary-duties>
8 Hahn, Peter D., and Meziane Lasfer. 'The compensation of non-executive directors: rationale, form, and
findings.' (2011) 15.4 Journal of Management & Governance 589-601.
4
with no intention of contravention shall also account for a valid defence to the offence of insider
trading. However, in the present case none of the available defences can be raised by Shane as
clearly the information has been used for gaining personal interest.
The Act provides for penalty for committing this offence which could be upto $450,000
fine and/or 10 years of imprisonment. Thus, the liability imposed for committing this offence is
criminal in nature. Recently, in the year 2016 the court dealt with the case of a Sydney
stockbroker in the name of Oliver Curtis who imprisoned for insider trading. It was ascertained
that he had made illegal profits to the tune of $1.4million.9 In this case, it was also stated that the
nature of offence reduces the consideration which is laid on the good character of the offender.
Thus, in the present case though this is one of the first instances Shane has undertaken such a
criminal action, the liability shall not be reduced.
On the other hand, the breach of general duties imposed by the Act shall impose civil
obligations. For the breach of these civil obligations the court may require payment of pecuniary
penalty which could be upto $200,000 to the Commonwealth and compensation to the concerned
company for an amount of which loss has been sustained by the business.10 Further, section 206C
of the Act also enables the court to make an order to disqualify the concerned director from
management for a certain period which is considered appropriate by the court.
CASE STUDY 3
The given factual scenario involves Dronebotics Ltd. which is a start up and is indulged
in manufacturing as well as supplying of autonomous drone systems. These drone systems
operate with the usage of automatic flying robots and are programmed to accomplish the tasks of
monitoring, inspecting, surveying and then returning to base station. Another company in the
name of CorpGain Ltd. approaches Dronebotics Ltd. For procuring the autonomous drone
systems. CorpGain is into agribusiness and intends to use this system for inspection of towering
grain silos. It has been ascertained that this is a very dangerous task for being performed by the
employees and also imposes an obligation to comply with strict safety regulations.
9 Findlaw Australia, Civil penalty and disqualification orders: An overview of the Vizard case (2017)
<http://www.findlaw.com.au/articles/1970/civil-penalty-and-disqualification-orders-an-overv.aspx>
10 Van den Berghe, Lutgart. International standardisation of good corporate governance: best practices for the
board of directors. (Springer Science & Business Media, 2012).
5
trading. However, in the present case none of the available defences can be raised by Shane as
clearly the information has been used for gaining personal interest.
The Act provides for penalty for committing this offence which could be upto $450,000
fine and/or 10 years of imprisonment. Thus, the liability imposed for committing this offence is
criminal in nature. Recently, in the year 2016 the court dealt with the case of a Sydney
stockbroker in the name of Oliver Curtis who imprisoned for insider trading. It was ascertained
that he had made illegal profits to the tune of $1.4million.9 In this case, it was also stated that the
nature of offence reduces the consideration which is laid on the good character of the offender.
Thus, in the present case though this is one of the first instances Shane has undertaken such a
criminal action, the liability shall not be reduced.
On the other hand, the breach of general duties imposed by the Act shall impose civil
obligations. For the breach of these civil obligations the court may require payment of pecuniary
penalty which could be upto $200,000 to the Commonwealth and compensation to the concerned
company for an amount of which loss has been sustained by the business.10 Further, section 206C
of the Act also enables the court to make an order to disqualify the concerned director from
management for a certain period which is considered appropriate by the court.
CASE STUDY 3
The given factual scenario involves Dronebotics Ltd. which is a start up and is indulged
in manufacturing as well as supplying of autonomous drone systems. These drone systems
operate with the usage of automatic flying robots and are programmed to accomplish the tasks of
monitoring, inspecting, surveying and then returning to base station. Another company in the
name of CorpGain Ltd. approaches Dronebotics Ltd. For procuring the autonomous drone
systems. CorpGain is into agribusiness and intends to use this system for inspection of towering
grain silos. It has been ascertained that this is a very dangerous task for being performed by the
employees and also imposes an obligation to comply with strict safety regulations.
9 Findlaw Australia, Civil penalty and disqualification orders: An overview of the Vizard case (2017)
<http://www.findlaw.com.au/articles/1970/civil-penalty-and-disqualification-orders-an-overv.aspx>
10 Van den Berghe, Lutgart. International standardisation of good corporate governance: best practices for the
board of directors. (Springer Science & Business Media, 2012).
5
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Frank and Diane, the two executive directors of the company are keen on taking up the
project, in order to make expansion in different industries. It has been noted that the two
mentioned directors have the tendency to take risks while undertaking business operations and
hence are of the opinion to enter into the agreement. On the other hand, Ron and Kelly are the
other two non-executive directors, who are of the opinion that entering into this agreement is not
feasible for their current level of business. It is being argued by them that their present
technological capability is not enough to effectively undertake the complex task as required by
CorpGain Ltd, and shall also require considerable cost as well as research for developing a
suitable software. It is important to note that Ron and Kelly are experts who submit report to the
board in respect to feasibility of the projects with the current level of operations.
Scenario A
Director's of a corporate owe obligation both under general law as well as relevant statute
and this classification further enables the court to determine appropriate remedies which are
available. In equity, the director's are under an obligation of fiduciary relationship which sets a
high standard of loyalty. These duties have been further incorporated into the Act in the form of
General Duties of Director. Section 181, 182 and 183 of the Act imposes a general duty on the
directors. In the recent case of Jaques v. AIG Australia Ltd. (2014) it was opined by the court
that both executive and non-executive directors are under an obligation to abide the legal
requirements of the position of directors, however, have certain distinctions in the manner they
are expected to play their respective roles.11 Thus, in pursuance to Section 180 (1) the directors
are required to comply with the business judgement rule, in pursuance to which statutory duty of
care and diligence shall be completely complied with by the parties. In pursuance to the same,
directors are under an obligation to be informed about the subject matter to the decision to the
extent it leads to development of a reasonable belief that the decision is appropriate. However, in
the present case, Frank and Diane, in spite of being the executive directors failed to exercise this
duty.12 This could be established from the fact that both of them refused to attend the meeting
11 Austrlain Institute of Company Directors, Role of non-executive directors (2017)
<http://aicd.companydirectors.com.au/~/media/cd2/resources/director-resources/director-tools/pdf/05446-1-
11-mem-director-tools-bc-non-executive-directors_a4_web.ashx>
12 Hung, Humphry. 'Directors’ roles in corporate social responsibility: A stakeholder perspective.' (2011) 103.3
Journal of Business Ethics 385-402.
6
project, in order to make expansion in different industries. It has been noted that the two
mentioned directors have the tendency to take risks while undertaking business operations and
hence are of the opinion to enter into the agreement. On the other hand, Ron and Kelly are the
other two non-executive directors, who are of the opinion that entering into this agreement is not
feasible for their current level of business. It is being argued by them that their present
technological capability is not enough to effectively undertake the complex task as required by
CorpGain Ltd, and shall also require considerable cost as well as research for developing a
suitable software. It is important to note that Ron and Kelly are experts who submit report to the
board in respect to feasibility of the projects with the current level of operations.
Scenario A
Director's of a corporate owe obligation both under general law as well as relevant statute
and this classification further enables the court to determine appropriate remedies which are
available. In equity, the director's are under an obligation of fiduciary relationship which sets a
high standard of loyalty. These duties have been further incorporated into the Act in the form of
General Duties of Director. Section 181, 182 and 183 of the Act imposes a general duty on the
directors. In the recent case of Jaques v. AIG Australia Ltd. (2014) it was opined by the court
that both executive and non-executive directors are under an obligation to abide the legal
requirements of the position of directors, however, have certain distinctions in the manner they
are expected to play their respective roles.11 Thus, in pursuance to Section 180 (1) the directors
are required to comply with the business judgement rule, in pursuance to which statutory duty of
care and diligence shall be completely complied with by the parties. In pursuance to the same,
directors are under an obligation to be informed about the subject matter to the decision to the
extent it leads to development of a reasonable belief that the decision is appropriate. However, in
the present case, Frank and Diane, in spite of being the executive directors failed to exercise this
duty.12 This could be established from the fact that both of them refused to attend the meeting
11 Austrlain Institute of Company Directors, Role of non-executive directors (2017)
<http://aicd.companydirectors.com.au/~/media/cd2/resources/director-resources/director-tools/pdf/05446-1-
11-mem-director-tools-bc-non-executive-directors_a4_web.ashx>
12 Hung, Humphry. 'Directors’ roles in corporate social responsibility: A stakeholder perspective.' (2011) 103.3
Journal of Business Ethics 385-402.
6
wherein the experts had opined that entering into a contract with CorpGain shall not be a feasible
decision. Moreover, they also did not read the report which clearly elaborated upon the opinion
of experts. Thus, this clearly establishes that Frank and Diane did not completely inform
themselves about the decision to enter into a contract with CorpGain. Furthermore, all of them
including executive as well as non-executive directors failed to exercise their duty to act with
care and diligence.
In the case of ASIC v. Healey & Ors. (2011) it was opined by the court that every director
shall be considered accountable for decisions undertaken by the board.13 The courts of the nation
have adopted a consistent approach towards duties of the director and have opined that each of
them shall strictly make every effort to maintain high standards in performing their duties. It is
important to note that Ron and Kelly made every effort to assess the decision of entering into a
contract with CorpGain and in pursuance to the same attended the concerned meeting to be
informed about decision of the experts. However, they lacked in consistently exercising care and
diligence while undertaking their decisions. The fact that their decision was influenced by the
dominant opinion of Frank and Diane, leads us to conclude that they were not able to effectively
fulfil requirements of their duty.
Scenario B
In the event the experts are of the opinion that the project is feasible to be undertaken
considering the current level of technology, it would be rightful of the parties to given their
assent to the decision. However, if in such an event also Frank and Diane fail to inform
themselves about the aspects of judgement, they shall be considered to have failed to exercise
their respective duty. Further, as mentioned in the facts of the case the drone system is supplied
to CorpGain. While using the same they face technical difficulties, which makes it impossible to
be used. It is then found that the technological abilities of the company is not competent fulfil the
required task. It can be stated that in the opinion of court every director is accountable for the
decision being undertaken by the entire board, as it is based on the consent of individual
directors. However, some of the defences which could be raised by the director are Honest and
13 Financier Worldwide, Implications of recent legal decisions on director duties in Australia (July, 2012)
<https://www.financierworldwide.com/implications-of-recent-legal-decisions-on-director-duties-in-
australia/#.WPcrRqW1Gko>
7
decision. Moreover, they also did not read the report which clearly elaborated upon the opinion
of experts. Thus, this clearly establishes that Frank and Diane did not completely inform
themselves about the decision to enter into a contract with CorpGain. Furthermore, all of them
including executive as well as non-executive directors failed to exercise their duty to act with
care and diligence.
In the case of ASIC v. Healey & Ors. (2011) it was opined by the court that every director
shall be considered accountable for decisions undertaken by the board.13 The courts of the nation
have adopted a consistent approach towards duties of the director and have opined that each of
them shall strictly make every effort to maintain high standards in performing their duties. It is
important to note that Ron and Kelly made every effort to assess the decision of entering into a
contract with CorpGain and in pursuance to the same attended the concerned meeting to be
informed about decision of the experts. However, they lacked in consistently exercising care and
diligence while undertaking their decisions. The fact that their decision was influenced by the
dominant opinion of Frank and Diane, leads us to conclude that they were not able to effectively
fulfil requirements of their duty.
Scenario B
In the event the experts are of the opinion that the project is feasible to be undertaken
considering the current level of technology, it would be rightful of the parties to given their
assent to the decision. However, if in such an event also Frank and Diane fail to inform
themselves about the aspects of judgement, they shall be considered to have failed to exercise
their respective duty. Further, as mentioned in the facts of the case the drone system is supplied
to CorpGain. While using the same they face technical difficulties, which makes it impossible to
be used. It is then found that the technological abilities of the company is not competent fulfil the
required task. It can be stated that in the opinion of court every director is accountable for the
decision being undertaken by the entire board, as it is based on the consent of individual
directors. However, some of the defences which could be raised by the director are Honest and
13 Financier Worldwide, Implications of recent legal decisions on director duties in Australia (July, 2012)
<https://www.financierworldwide.com/implications-of-recent-legal-decisions-on-director-duties-in-
australia/#.WPcrRqW1Gko>
7
Reasonable director Defence.14 In pursuance to this defence, it could be argued by Ron and Kelly
that they had taken the decision relying upon the advice of experts and had acted in a reasonable
manner. Further, in pursuance to the decision of ASIC v. Rich (2003) it can be stated that the
directors also have the right to raise a defence on the basis of Business Judgement Rule as
enumerated in Section 180(2) of the Act.15 It has been referred to as the safe harbour which
intends to protect the directors which have taken use of opportunities which were subject to some
form of risk. Thus, Ron and Kelly shall be entitled to raise a defence in the given circumstance,
as also opined in the case of ASIC v. Adler (2002).
14 Sealy, Len, and Sarah Worthington. Sealy & Worthington's Cases and Materials in Company Law. (Oxford
University Press, 2013).
15 The Business Judgment Rule: ASIC v Rich and the reasonable-rational divide (2011)
<http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1021&context=cgej>
8
that they had taken the decision relying upon the advice of experts and had acted in a reasonable
manner. Further, in pursuance to the decision of ASIC v. Rich (2003) it can be stated that the
directors also have the right to raise a defence on the basis of Business Judgement Rule as
enumerated in Section 180(2) of the Act.15 It has been referred to as the safe harbour which
intends to protect the directors which have taken use of opportunities which were subject to some
form of risk. Thus, Ron and Kelly shall be entitled to raise a defence in the given circumstance,
as also opined in the case of ASIC v. Adler (2002).
14 Sealy, Len, and Sarah Worthington. Sealy & Worthington's Cases and Materials in Company Law. (Oxford
University Press, 2013).
15 The Business Judgment Rule: ASIC v Rich and the reasonable-rational divide (2011)
<http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1021&context=cgej>
8
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REFERENCES
Books and Journals
Hahn, Peter D., and Meziane Lasfer. 'The compensation of non-executive directors: rationale,
form, and findings.' (2011) 15.4 Journal of Management & Governance 589-601.
Hung, Humphry. 'Directors’ roles in corporate social responsibility: A stakeholder perspective.'
(2011) 103.3 Journal of Business Ethics 385-402.
Lanis, Roman, and Grant Richardson. 'The effect of board of director composition on corporate
tax aggressiveness.' (2011) 30.1 Journal of Accounting and Public Policy 50-70.
Richardson, Grant, Grantley Taylor, and Roman Lanis. 'The impact of board of director
oversight characteristics on corporate tax aggressiveness: An empirical analysis.' (2013)
32.3 Journal of Accounting and Public Policy 68-88.
Sealy, Len, and Sarah Worthington. Sealy & Worthington's Cases and Materials in Company
Law. (Oxford University Press, 2013).
Van den Berghe, Lutgart. International standardisation of good corporate governance: best
practices for the board of directors. (Springer Science & Business Media, 2012).
Online
Australian Institute of Company Directors, Role of non-executive directors (2017)
<http://aicd.companydirectors.com.au/~/media/cd2/resources/director-resources/director-
tools/pdf/05446-1-11-mem-director-tools-bc-non-executive-directors_a4_web.ashx>
Financier Worldwide, Implications of recent legal decisions on director duties in Australia (July,
2012) <https://www.financierworldwide.com/implications-of-recent-legal-decisions-on-
director-duties-in-australia/#.WPcrRqW1Gko>
Findlaw Australia, Civil penalty and disqualification orders: An overview of the Vizard case
(2017) <http://www.findlaw.com.au/articles/1970/civil-penalty-and-disqualification-
orders-an-overv.aspx>
Legal Services Commission, General Duties of Directors – Corporation Act 2001(2017)
<http://www.lawhandbook.sa.gov.au/ch05s01s03s02.php>
Lexology, Directors' duties (May 13, 2015) <http://www.lexology.com/library/detail.aspx?
g=7d705ffd-b15d-44af-9be3-cbda3462436a>
The Business Judgment Rule: ASIC v Rich and the reasonable-rational divide (2011)
<http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1021&context=cgej>
9
Books and Journals
Hahn, Peter D., and Meziane Lasfer. 'The compensation of non-executive directors: rationale,
form, and findings.' (2011) 15.4 Journal of Management & Governance 589-601.
Hung, Humphry. 'Directors’ roles in corporate social responsibility: A stakeholder perspective.'
(2011) 103.3 Journal of Business Ethics 385-402.
Lanis, Roman, and Grant Richardson. 'The effect of board of director composition on corporate
tax aggressiveness.' (2011) 30.1 Journal of Accounting and Public Policy 50-70.
Richardson, Grant, Grantley Taylor, and Roman Lanis. 'The impact of board of director
oversight characteristics on corporate tax aggressiveness: An empirical analysis.' (2013)
32.3 Journal of Accounting and Public Policy 68-88.
Sealy, Len, and Sarah Worthington. Sealy & Worthington's Cases and Materials in Company
Law. (Oxford University Press, 2013).
Van den Berghe, Lutgart. International standardisation of good corporate governance: best
practices for the board of directors. (Springer Science & Business Media, 2012).
Online
Australian Institute of Company Directors, Role of non-executive directors (2017)
<http://aicd.companydirectors.com.au/~/media/cd2/resources/director-resources/director-
tools/pdf/05446-1-11-mem-director-tools-bc-non-executive-directors_a4_web.ashx>
Financier Worldwide, Implications of recent legal decisions on director duties in Australia (July,
2012) <https://www.financierworldwide.com/implications-of-recent-legal-decisions-on-
director-duties-in-australia/#.WPcrRqW1Gko>
Findlaw Australia, Civil penalty and disqualification orders: An overview of the Vizard case
(2017) <http://www.findlaw.com.au/articles/1970/civil-penalty-and-disqualification-
orders-an-overv.aspx>
Legal Services Commission, General Duties of Directors – Corporation Act 2001(2017)
<http://www.lawhandbook.sa.gov.au/ch05s01s03s02.php>
Lexology, Directors' duties (May 13, 2015) <http://www.lexology.com/library/detail.aspx?
g=7d705ffd-b15d-44af-9be3-cbda3462436a>
The Business Judgment Rule: ASIC v Rich and the reasonable-rational divide (2011)
<http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1021&context=cgej>
9
The Directors Series: Part 2 - Fiduciary Duties (1st August 2014)
<http://www.moores.com.au/news/the-directors-series-part-2-fiduciary-duties>
10
<http://www.moores.com.au/news/the-directors-series-part-2-fiduciary-duties>
10
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