Case Study on Corporate Law - Relevant Law

Running head: CORPORATE LAW
CORPORATE LAW
Name of the Student
Name of the University
Author Note

CORPORATE LAW1
Case Study 1
Issue
The issue to be discussed in this present scenario is whether Joe Johnson owed any duty
as a director and whether such duty owed by him had been breached. In addition to such the
potential equitable, common law and statutory liability would also be discussed.
Relevant Law
Each director is considered to owe certain kinds of duties towards the company according
to the Australian legal system. These duties are considered to be designed in order to protect the
company and along with such ensure that the directors satisfy the high standards regarding good
faith and loyalty to the corporation or the company. Directors are considered to use and apply
their particular skills and along with such their experience to the matter which is being
considered in a company. If the director breaches any of the duties then they would have to face
the consequences, which would be in the form of financial penalties or in the form of
imprisonment. It can be observed from the case of Crowther Group Plc. v Carpets International
Plc. and Others [1990] BCLC 460.
Under the common law principle there are certain duties set for the directors where the
directors need to act in good faith and for proper purpose. This would imply that the directors
need to act in the best interests regarding the company and should not gain any private advantage
as the power was not granted for such purpose. The directors also have the duty to not misuse the
information or their position in the company in order to improperly use or along with such profit
from the position that had been granted to the director. The directors should not use the
information obtained by them for any personal gain or advantage as such would be detrimental to

CORPORATE LAW2
the company. The directors should always try to avoid any kind of conflict of interest, as their
personal interests should not get in the way of the interests of the company. They should not
fetter any discretions, which implies that all matters should be given adequate consideration, and
the decisions of the directors regarding such should be unfettered. It can be understood from the
case of Percival v Wright [1902] 2 Ch 401.
The statutory duties are considered to be laid down under the Corporations Act 2001
(Cth) from section 180 to 184. These duties are applicable along with the general law or the
common law principles as both of these provisions are similar to each other and they are
consistent. The Corporations Act may impose some other specific obligations. In addition to
those duties the directors are also considered to prevent insolvent trading of a company which
implies that the directors are considered to have breached the duties if they fail to prevent the
company from suffering any kind of losses or incurring debts at the time when the company is
considered to be insolvent or would become insolvent once they incur the debts. It would also be
a breach if the director is considered to be aware of the grounds and suspects that the company
might become insolvent or if a reasonable person in the position of a director is considered to be
aware of such. In such a case, the director can also become personally liable to the company. It
can be observed from the case of ASIC v Adler (2002) 41 ACSR 72.
Under the Australian legal system if the directors breach their duties then they would be
exposed to certain criminal or civil liabilities in order to pay compensation for such breach.
Furthermore, in addition to such, the directors might also have a significant impact on
themselves and the reputation of the company. If the directors breach their duties then the
company, the shareholders, the regulators such as the ASIC, the ACCC, any third parties, or the
creditors can bring a claim against such directors. The Australian government has intended on