Liability for Breach of Duties in Corporate Law

Corporate Law
Running Head: Corporate Law 0
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Student’s Name

CORPORATE LAW 1
Contents
Issue.................................................................................................................................................2
Rules................................................................................................................................................2
Application......................................................................................................................................6
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

CORPORATE LAW 2
Issue
To check that whether Lilian and Gumpta are liable to breach the duties that they were required
to perform in the capacity of director of different companies. Further, if they breach such duties
then what are the possible consequences of this breach?
Rules
Being a corporate entity, a company has different legal status from its members and directors.
The separate legal status of a company has been declared in the decision of the case of Salomon v
A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22. In this case, it has been given that a
company is a separate legal personality and its director, member, and the officer cannot be held
liable for any act that a company does in its own name (Pathak, 2013). Nevertheless, this is to
remember that a company cannot do all these activities by itself, as the same is not a natural
person. Management of a company consists of directors and officers and the same do the
business activities on the name of the company but are not personally liable.
When directors and officer come to know about the fact that they are not going to be held liable
for the acts of companies, they have started misusing the separate legal status of a company.
Following are some of the lead cases where directors of the corporations breached their duties:-
 ASIC v Cassimatis (No 8) [2016] FCA 1023
 ASIC v Adler [2002] NSWSC 171

CORPORATE LAW 3
 Gerard Cassegrain & Co Pty Ltd (in liquidation) v Cassegrain [2013] NSWCA 455
 Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2
 Fodare Pty Ltd V Shearn, Supreme Court of New South Wales, 25 May 2011
 Metropolitan Fire Systems Ltd v Miller (1997) 23 ACSR 699
To prevent such misuses, the concept of corporate governance evolved. Every nation has
different legislation and a set of rules to govern the behavior of corporations. In the case of
Australia, Corporations Act 2001 (Cth) is there to ensure good governance in the corporations.
This legislation defines some duties that every managerial personnel is bound to follow. A
director has a fiduciary relationship with the company. Section 180-183 of the act states the
statutory duties of a director. Because of the fiduciary relationship of director and a company, the
duties mentioned under subjective sections are commonly known as fiduciary duties. In addition
to these duties, common law also prescribes some obligations for the directors of a company.
Moving the focus towards the discussion of some of the statutory duties of directors, first, it is
necessary to discuss the section 180 of the act. This section requires every director/officer to
perform his/her duties with a level of diligence and care in a manner that a responsible and
reasonable person would follow being on the position of a director of the corporation (Wolters
Clover, 2018). Subsection 2 of this section states that while taking the decisions on behalf of the
company, directors need to ensure that the decisions are for a proper purpose and personal
interest of directors are not involved. Further, they must have a rational belief of the fact that
decisions taken by them are in the best interest of the corporation. The requirements stipulated
under this subsection commonly known as best judgment rule.