Breach of Director's Duties under Corporations Act 2001

This case study discusses the breach of director's duties under the Corporations Act 2001 and the remedies available. It analyzes the issues, rules, and application of the law.

Running head: COMPANY LAW
COMPANY LAW
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Issue
In this case there are two issues present. These two issues are relating to the director’s
breach of duty. The first issue is whether there was a breach of director’s duties under the
Corporations Act 2001 (Cth)1 towards the company DIG by Adoni. The second issue is finding
any remedy that can be taken by DIG against Adoni and his company Adoni Mining Pty Ltd
(AM).
Rule
In the various sections of the Corporations Act 2001 (Cth) the duties of the directors of a
company are discussed. As can be seen that the general duties of a director are based on faith,
respect and mutual liabilities the general duties are also known as fiduciary duties.2
A director’s general duties towards his company are discussed in the Corporations Act
under four main categories. These four duties can be classified as duty of due care and diligence,
duty of good faith, duty of not using their position for their own benefit or to cause detriment to
the company and the duty of not using the information of the company for their own benefit or
for the detriment of the company.3
In the sections 180-183 of the Corporations Act 2001 the provisions for the general duties
of a director are discussed. Duty of a director to act with a degree of care and diligence can be
seen to be mentioned in the section 180 of the Act. Under the provision of this section a director
is required to exercise his power with a degree of care and diligence as can be expected from any
1 Corporations Act 2001 (Cth)
2 Huebner, M. S., & Klein, D. S. (2015). The Fiduciary Duties of Directors of Troubled Companies. AM. BANKR.
INST. J., 34, 18-18
3 Home, A. (2017). Call for review of Corporations Act. Governance Directions, 69(8), 450.

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reasonable person. A director is required to act in good faith for the best interest of the company
under the provisions of the section 181 of the Act. A director has been refrained from misusing
the position he has in the company for any personal benefit or for detriment of the company
under the section 182 of the act. The duty of a director is further mentioned to be not misusing
any confidential information of the company for any personal benefit or for causing detriment to
the company.
There are few other sections apart from the above mentioned sections that discusses some
other duties of a director. Disclosing the affairs of the company mentioned in relation with the
sections 208 and 205G to the shareholders and investors of the company is a duty of a director
that has been discussed under the section 191 of the Act. For maintaining correct financial
reports of the company a director is obliged, under the section 344 of the Act, to take necessary
steps. The duty of a director to not involve in insolvent trading has been mentioned in the
section 588G of the Act. A director can be held liable, under the section 674 of the Corporation
Act, for disclosing information affecting the shares of the company to the investors and
shareholders.
Under the Corporations Act remedies for the breach of director’s duties are also
mentioned. Sections 206C and 1317E of the Act provide the remedies for breach of a director’s
duties. By ASIC’s application the court may disqualify a director if found guilty of breach of his
duties under the provisions of the section 206C of the Act. Under the section 1317E of the act a
court can make a declaration for contravention of civil penalty.

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Application
In this case it can be seen that Adoni, director of Desert International Gold NL (DIG) met
Max, managing director of the Western Mining NL (WM) in June 2018, who casually mentioned
that the company was looking for a buyer for the sale of a gold mining lease in Western
Australia. After returning back from the mining industry conference Adoni proposed the board of
directors to buy the lease as soon as possible. The board of directors were, however, not
enthusiastic and promised to re-examine the proposal.
In September 2018, after getting an ultimatum from the managing director of WM Adoni
again advised one of his co-directors to buy the lease who told him of her lack of interest in the
matter.
Losing patience with his co-workers Adoni purchased the lease and after three months
sold it to his own company Adoni Mining Pty Ltd (AM) at a substantial profit after resigning
from DIG.
In this case Adoni can be found to be in breach of sections 180-183 under the provisions
of the Corporations Act 2001 and under the common law he breached his duty to avoid conflict
of interest as he used his position and the company’s private information for his own benefit and
not for the best interest of the company.
Section 180 to act with due care and diligence was breached by Adoni in this case. The
provisions of this section has been discussed in the case Australian Securities and
InvestmentsCommissiion v Cassimatis (2016)4.
4 Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA 1023

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The duty to act in best interest of the company mentioned in the section 181 of the act
was breached in this case. this section was reviewed in detail in the case Bell Group Ltd v
Westpac Banking Corp (2008)5.
Adoni further breached the sections 182 and 183 of the act. By purchasing the lease from
the WM and later selling it to his own company AM he breached his duty to not misuse his
position in the company for his own benefit under the section 182 and the duty of not misusing
company’s information for his own benefits. These sections has been discussed in the case MG
Corrosion Consultants Pty Ltd v Gilmour (2014)6.
He further breached his duty to avoid conflict of interest as mentioned under the common
law.
The directors of the DIG can file for remedies under the section 206C and 1317E of the
Corporations Act 2001. Under the provisions of section 206C the court can disqualify a person
from his position in the company. Under the section 1317E a court an declare for a
contravention if it finds that a person has contravened his duties mentioned in the sections 180-
183 of the act7.
Conclusion
Thus it can be concluded that Adoni has breached his duties as director under the
provisions of the sections 180-183 of the Corporations Act and his common duty to avoid
conflict of interest and the company can claim for remedies against those breaches under the
sections 206C and 1317E of the act.
5 Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1; 70 ACSR 1; [2008] WASC 239
6 MG Corrosion Consultants Pty Ltd v Gilmour [2014] FCA 990
7 Legislation.gov.au. (2019). Corporations Act 2001. Retrieved from
https://www.legislation.gov.au/Details/C2004C03060/Html/Volume_5

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