Exploring the Incorporation of Companies Act 2006 in Australia

Running Head: COMPANIES AND SECURITIES LAW
COMPANIES AND SECURITIES LAW
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COMPANIES AND SECURITIES LAW
Introduction
The purpose of this essay is to explore whether Australia should try to incorporate the provisions
of the Companies Act 2006 as provided in section 172 of UK and replace the provisions of
section 181 of the corporations Act 2001. This essay will also discuss the duties of the directors
to act in the best interest of the company and will also highlight the meaning of the term of
acting in the best interest o the company. This essay will consider the duties of the directors to
act in the best of the shareholders of the company and the public. Finally this essay will highlight
the adequacy of the words section 172 of the Companies Act 2006.
Discussion
Interpretation of the Corporations Act 2001 (Cth)
In the notable case Privy Council in Howard Smith Ltd v Ampol Petroleum Ltd. it had been
held by the court that directors of companies are to be treated as the mind and soul of the
company. It was also held in the aforementioned case that the directors can make decisions
related to the operations of the business against the wishes of the shareholders of the company. A
held in the case Imperial Hydropathic Hotel Company Blackpool v Hampsonthe decision of
the directors can be subsided by the resolution of the members of the company, if the directors
have been granted the power to administer the operations of the company. However, it can be
stated that since the powers of the directors are immense, the common law as well as statutory
law imposes man duties on the directors. It can be stated that since the powers granted to
directors of a company are provided by the shareholders, the directors are therefore required to

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COMPANIES AND SECURITIES LAW
act in the best interest of such shareholders1. As opined by2 the directors of company can be held
liable for breaching their duty to the company both through tort as well as contract. In the notable
case Aberdeen Railway Co v Blaikie Bros3it was held that directors of a company owe duties
in equity to the company as such directors share a fiduciary relationship with the company. As
provided in section 181 of the corporations Act, it can be stated that directors are required to act
in the best interest of the company and such duty should be fit for the proper purpose. Thus this
implies that shareholders have the option of challenging the actions of the directors it such
actions are found to be in violation of the statutory and general law provisions of directors’
duties.
There are several remedies available to the shareholders of the company if it is established that
the directors breached the duties imposed on them, even if the company had not suffered an
actual loss due to the breach of directors’ duties The duties of the directors which are imposed by
common law are reinforced by the statutory duties as provided in section 180-184 of the
Corporations act4. However it can be stated that the codification of the directors’ duties are not in
derogation to, but the in addition to the common law duties of the directors. The Corporations
Act 2001 has not only provided a codification of the duties of the directors but also has provided
the government of Australia to enforce the breach of such duties by the Australian Securities and
Investment Commission which had earlier been enforced by the company itself. It had been
explained by the Senate Committee that the basic purpose of the codifying the duties of the
directors in the sections 180-184 was to ensure that the directors act in the best interest of the
1Deegan, C. and Shelly, M., 2014. Corporate social responsibilities: Alternative perspectives about the need to
legislate. Journal of Business Ethics, 121(4), pp.499-526.
2 Stout, L.A. and Blair, M.M., 2017. A team production theory of corporate law. In Corporate Governance (pp. 169-
250). Gower.
3(1854) 1 Marcq 461
42001 (Cth)

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company and the shareholders of the company(Aph.gov.au 2018). Furthermore, it can be said
that the directors share fiduciary relationship with the company and therefore they ought to act in
the best interest of the company rather than their personal interest or in the interest of the third
parties. Section 181 of the Corporation act has thus clearly provided that the directors of the
companies must act in good faith and for a proper purpose while discharging their duties (Talbot
2015). The company or corporation is generally regarded as the shareholders as a whole. It has
been established in the case Brunninghausen v Glavanics5 that the directors do not have any
fiduciary duties to any individual shareholder. The rationale behind this principle is that a
company can be regarded as a separate legal entity from its owners and its shareholders.
Therefore in this regard it can be said that the directors do not have the obligation to make sure
that each of the shareholders realizes his right as that would expose such directors to a large
number of actions.
However an exception to this rule has been illustrated in the remarkable case Coleman v
Myers6. In this case it was held by the court that the directors owed fiduciary duties to certain
shareholders in addition to the company as the directors shared interpersonal relationships with
such shareholders. Further it had been held that the shareholders had relied on the expert advice
of the directors regarding investment. As provided in section 180 of the Corporations Act 2001
directors are required to discharge their duties with proper diligence and care so as to avoid
liabilities of Equity, Contract and Tort.
Government reviews
5(1996) 14 ACLC 342]
6[1977]