Corporate Law: Duties and Liabilities of Directors

Running head: CORPORATE LAW
CORPORATE LAW
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1CORPORATE LAW
Table of Contents
Part A...............................................................................................................................................2
Question 1....................................................................................................................................2
Question 2....................................................................................................................................3
Question 3....................................................................................................................................4
Question 4....................................................................................................................................5
Question 5....................................................................................................................................6
Part B...............................................................................................................................................7
Question 1....................................................................................................................................7
Question 2....................................................................................................................................7
Question 3....................................................................................................................................8
Question 4....................................................................................................................................9
Question 5....................................................................................................................................9
Reference.......................................................................................................................................11

2CORPORATE LAW
Part A
Question 1
The general duties of the directors are discussed in various sections of the Corporations
Act 2001. As the basis of the general duties is faith, respect and liability towards each other they
are also known as fiduciary duties (Huebner & Klein, 2015).
Four main fiduciary duties of the directors had been discussed elaborately under the
Corporations Act 2001. These duties are- duty of due care and diligence, duty of good faith, duty
of not using their position in an improper way, and duty to not using company’s information
improperly (Home, 2017). These fiduciary duties have been discussed under the sections 180-
183 of the Corporations Act 2001.
Section 180 mentions the duties of a director for due care and diligence. This section
requires a director to act with a standard care and diligence expected from any reasonable person.
Section 181 of the act requires for a director to act in a good faith for the best interest of the
company. The duty of fidelity and trust is imposed on the directors by section 181 of the
Corporations Act as well as by the common law. Section 182 refrains a director from taking any
undue advantage of his position for his own benefit or the benefits of others in a way that is
detrimental to the company. In the section 183 the director is further refrained from using any
information regarding the business of the company for his own benefits or the benefits of any
other person that can be detrimental to the company.
Apart from these four main duties there are some additional fiduciary duties of the
directors mentioned under various sections of the act. The sections discussing the duties of the
directors are sections 188, 191, 344, 588G and 674.

3CORPORATE LAW
Section 188 states the duty of a director to inform ASIC with all necessary information
relating the business of the company. In the section 191 the director’s duty is mentioned to
disclose information related to the affairs of the company in relation with sections 208 and 205G
to the shareholders and other directors. Following section 344 of the act the director is obliged to
take reasonable steps to maintain correct financial reports and recordings according to the
provisions mentioned under the Corporations Act. Duty of a director to refrain from trading
while the company is insolvent or there is a risk of the company to become insolvent is
mentioned under the section 588G of the act. The director is further liable under the section 674
of the act for the disclosure of the information affecting the share of the company to the market.
Towards the stakeholders and investors of the company a director has the duty to prevent
trading during insolvency. This duty has been mentioned in the section 588G of the act (Huebner
& Klein, 2015). Section 588G of the Corporations Act 2001 (Cth) mentions the duty of director
to refrain from performing trade while the company is or expected to be insolvent. For the breach
of this section the directors are imposed a penalty of $200,000 under the Part 5 of the Act (Hill &
Conaglen, 2017).
Question 2
The provision refraining a director from trading during the company’s insolvency is laid
down in the Corporations Act 2001. The provision of safe harbor is introduced under the section
588 GA of the Corporations Act 2001 (Cth). This section provides for the directors a defense
against insolvent trading encouraging them to attempt the restructuring of the company (Dunn,
2017). In the case there is breach of the provision of this act the directors are to be held liable for
the loss incurred by the company (Hedges et al., 2016). Under two conditions the provisions
mentioned in the section 588G (2) is inapplicable to a director towards his duties. These