Advice on Issues Relating to Corporate Law - Desklib

Running Head: BUSINESS LAW
Business Law
Name of the Student:
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Author Note

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MEMORANDUM OF ADVICE
To
Ms Luna Billy
SUB: ADVICE ON ISSUES RELATING TO CORPORATE LAW
Respected Madam
We write this memorandum of advice to you in relation to the issues which are raised
through the facts provided by you. By going through the facts of the situation we think that you
require advice primarily on three specific Issues. These issues are as follows
 The potential breaches in relation to the duties owed by you as a director of the company The potential breaches in relation to the disclosure obligation owed by you as a director
of the company The defenses on which you may rely upon in the relation to the breach of duty and
disclosure obligations
POTENTIAL BREACHES OF DIRECTORS DUTIES
A director of a company is imposed with duties under statutory provisions and common
law. The company which is in context (LulLaBy) is a public company which has been registered

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with the ASX for eight years thus the provisions of The Corporation Act 2001 (Cth) (CA) are
applicable in the given situation. The CA is the primary statue which governs corporate affairs in
Australia.
The following general duties have been provided through the CA towards any person
who is a director of the company within the meaning of Section 9 of the CA. 1
SECTION 180 - The duty of care and diligence
This duty imposes an obligation on the directors or other officers of an organization to
depict a degree of “care and diligence” while they discharge their functions associated with the
organization. “care and diligence” in the given situation is measured through a “reasonable
person standard”. To make it simple for you a director or officer of a company has to discharge
his duties in a way which a reasonable person may be expected to discharge in a similar role as
the original director. If you have acted in the same way as a reasonable person (director) would
have done if he was in your position then the court would deem that you have complied with the
duty. On the other hand if the hypothetical reasonable director who was in your position would
have not taken the actions which you have taken it would be considered as a breach of the duty2.
The same form of duty is also imposed on the directors of the company through the provisions of
common law. The duty has been discussed on various occasions in Australia in a number of
cases by the courts. Few of the cases which involve the discussions of the duty and are relevant
to your situation have been included in this memorandum of advice for your reference. We
would like you to know that this duty may also be violated if you have made your company enter
into a transaction which is of a very risky nature if there is no or very little prospect of profits for
1 The Corporation Act 2001 (Cth) s. 9
2 The Corporation Act 2001 (Cth) s. 180(1)

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the company. In addition if the you as a director have not informed the board about the nature of
the transaction you may also be liable for the breach of this duty.
In the case of Daniels & Ors v Anderson & Ors [1995] 13 ACLC 614 it had been stated
by the courts that irrespective of their background the director have a duty to exhibit a greater
degree of care and diligence. Although the directors generally have an expertise they have to
have greater care towards the organization than only representing their expertise. The directors
are required to be informed about all aspects in relation to the business of the company3.
ASIC v Hellicar [2012] HCA 17 is a case where the directors have been held liable for
the breach of section 180 of the CA by approving the CEO to make misleading announcement in
relation to the ASX. 4Further in the case of Australian Securities and Investment Commission
(ASIC) v Cassimatis (No. 8) [2016] FCA 1023 the court held that the directors are liable for the
loss of reputation of the company as well, if its results out due not observing care and diligence
in their actions5. Another case where the duty of care and diligence has been discussed is the case
of ASIC v Adler and 4 Ors [2002] NSWSC 1716. In this case the managing director of the
company had been held to violate the provision of section 180(1) of the CA as there was a
failure on his part ensure that he properly safeguards a loan which has been sanctioned by his
company to a third party which was not in best interest of the company. This was because a
reasonable person in the same position would have discussed the proposal with the board before
the loan had been provided.
3 Daniels & Ors v Anderson & Ors [1995] 13 ACLC 614
4 ASIC v Hellicar [2012] HCA 17
5 Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA 1023
6 ASIC v Adler and 4 Ors [2002] NSWSC 171