Media Case study of Termite Resources NL v Meadows, 2022

Running head: CORPORATIONS LAW
CORPORATIONS LAW
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CORPORATIONS LAW1
Media Case study of Termite Resources NL (in liq) v Meadows, in the matter of Termite
Resources NL (in liq) (No 2) [2019] FCA 354.
Introduction:
The corporation is nothing but an artificial person having a separate legal entity distinct
from its members. However, directors, officers and shareholders are not. The directors represent
the will as well as mind of the company and they are behind the control and management of the
company (Hedges et al., 2016). This is because the company is just a legal and fictional character
existing in the eyes of the law. It has been the main objective of the corporate law to restrict the
powers given to the human agents of the company. In a company, the directors possess two types
of duties namely duty to care and fiduciary duty of good faith and loyalty (Nosworthy, 2016).
While the first category deals with tort of negligence under common law, the other category has
equitable approach similar to that of the agents and trustees (Hedges et al., 2016). The case of
Termite Resources NL (in liq) v Meadows provides a reminder to the directors of the company
about regarding their duties. Although it was decided by the Federal Court that the liquidators
could not establish proper amount of losses in its decision for which the court gave much lesser
amount of damages amounting 7 million dollars for insufficient cash.
Discussion:
The case was against the company directors regarding the amount of money reserved by
the company for meeting its liabilities which includes the Distribution Policy of the company.
Case involved an action initiated by the liquidators of the company against its six former
directors and the officers. It was alleged by Termite that there was breach of duties under
sections 180, 181 of the Corporations Act 2001 (Cth) (Langford & Ramsay, 2015). On 12th

CORPORATIONS LAW2
March of 2013, 3 million dollar was designated by the company as its reserve retained. In the
beginning of the year of 2014, there happened a sudden fall of the spot cost of iron ore due to
which price reduced from 130 dollar per ton to about 100 dollar per ton. Due to thus, Termite
incurred tail liabilities amounting to 25 million dollars. As a result iron ore production reduced.
On June 18 of 2014, it was revealed that this amount was inadequate for which the company was
subjected to voluntary administration (Brotchie & Morrison, 2017). During voluntary
administration, the iron ore spot price was continuously falling down to about 80 $ per ton.
Finally in September 2014, the Termite creditors caused winding up of the company.
The main question in the case was whether the managerial, strategic and primary
decisions taken by Termite Resources NL were actually taken by the Board of its holding
company called Outback Iron Pty Ltd, in such situation Board directors will be also made liable
like the Termite directors for breaching their duties as provided under the said Act.
The Federal Court discovered that the directors belonging to Outback were considered
deemed directors of Termite as per the Act and they also possessed statutory duties towards
Termite as the decision- making locus for Termite was on the basis of the agreement between the
parties and the shareholders and also on the parties’ conduct (Tiba, 2019). The court decided
against the defendant directors of Termite such that each of them had breached their duties. It
was ordered by Justice White that Termite must be given compensation of 7 million dollar by the
directors for their breach of the duties.
The case critically examined the scope and ambit of the duties of the directors u/s 180,
181 of the Act and also under common law principle. It was decided that it is significant to
consider matters which controls solvency of a company. The following matters were found by