Corporate Law: Duties of Directors and Safe Harbor Provision

Running head: CORPORATE LAW
CORPORATE LAW
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1CORPORATE LAW
Part A
Answer A
The Corporations Act 2001discusses in its various sections the general duties of the
directors of a company. The general duties of a director are also known as fiduciary duties as the
basis of these duties are faith, respect and mutual liability (Huebner & Klein, 2015).
In the Corporations Act 2001 the duties of a director are discussed under four main
categories. The four main fiduciary duties of a director are- due care and diligence, good faith,
not use their position in a way that is harmful for the company, not use the company’s
information for their personal use (Home, 2017).
The provisions regarding general or fiduciary duties are mentioned in the sections 180-
183 of the Corporations Act 2001 (Cth). In the section 180 the duty of a director relating to due
care and diligence is mentioned. A director is required under this section to act with due care and
diligence as can be expected from any reasonable person. Under the provisions of the section 181
a director is required, in the best interest of the company, to act in a good faith. A director under
the section 182 is refrained to misuse his position in the company for his personal benefits or for
the benefits of the others that can be detrimental to the company. Section 183 of the act further
refrains a director from misusing any information in regard to the business of the company for
his personal use or for benefitting others which can be termed detrimental towards the company.
Apart from these provisions section 188 mentions the duties of a director to provide with
ASIC all the information that is necessary to the business of the company. Section 191 provides
the duty of a director to disclose the affairs of a company under the sections 208 and 205G to the

2CORPORATE LAW
shareholders and investors of the company. A director is obliged to take any necessary and
reasonable steps to maintain correct financial reports of the company under the provisions of
section 344 of the Corporations Act. Section 588G of the act prohibits a director from involving
in trading activities when the company is either insolvent or is in risk of being insolvent. Section
674 of the act makes a director liable to disclose the information that affects the company’s share
to the investors and shareholders.
The duty of a director to prevent insolvent trading has been provided in the section 588G
of the Corporations Act (Huebner & Klein, 2015). The director is liable to perform this duty
towards the stakeholders and the investors. In the section 588G of the Act the duty of a director
to refrain the company from trading while it is insolvent or it has a risk to be insolvent has been
provided. A director when found to be in breach of this section can be imposed with a penalty of
$200,000 as mentioned in the part 5 of the Corporations Act (Hill and Conaglen, 2017).
Answer 2
The Corporations Act 2001 lays down various provisions relating to insolvent trading of
a company. Section 588GA of the Corporations Act 2001 (Cth) lays down the provision of safe
harbor. A director is provided with a defense in this section against insolvent trading that further
encourages them to attempt to restructure the company Dunn, 2017). If a director breaches any
provision of the act they are held liable for the loss that has been incurred by the company
(Hedges et al., 2016). The provisions mentioned under the Section 588G (2) of the act is
inapplicable to a director under two conditions. Section 588GA (1) of the Corporations Acts
provides these conditions- a director, after suspecting the insolvency of the company, has taken
certain course of action and has further appointed liquidators or administrators to prevent the
insolvency as soon as the company has incurred a debt because of the direct or indirect actions of