Corporate Law

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

CORPORATE LAW1
PART A
Answer 1
A director company is entrusted with the management of the company and has the power
to act on behalf of the company. This creates an agency relationship between the company
and its director. The presence of an agency relationship creates a fiduciary duty for the
director to be ensured in his actions. Fiduciary duties implies duty of trust and faith to be
ensured. This requires the directors to act in a way that will ensure the well being of the
company. Official relationship will require the directors two different from causing detriment
to the company and remain faithful to the company. Insolvency is a detriment to the company
as it deprives the company of its power to repay its debts out of its own assets. It pushes the
company towards liquidation as a result of which the company loses its identity and it is put
to an end. The duty of a director to refrain from indulging into insolvent trading has been
provided u/s 588G pertaining to the Corporations Act 2001 (Cth) (Austlii.edu.au, 2019). This
can be treated as a restriction to be imposed upon the directors to keep them away from the
commission of insolvent trading. As insolvency cannot be construed as a benefit or advantage
to the company and the same pushes the company towards liquidation causing detrimental the
company, it will not be treated as a duty of faith and loyalty. Hence refraining from
insolvency trading can be said to have fiduciary duties being insured by the directors. Hence
duty to prevent insolvency trading is a fiduciary duty(Austlii.edu.au, 2019).
Answer 2
The duty of a director to refrain from indulging into insolvent trading has been provided
u/s 588G pertaining to the Corporations Act 2001 (Cth). This can be treated as a restriction to
be imposed upon the directors to keep them away from the commission of insolvent trading.
The mere affinity of a company insolvency in the event of any actions being taken by the

CORPORATE LAW2
directors will also be construed as insolvent trading. However, the Corporations Act 2001
(Cth) u/s 588GA extends defence towards the directors who are suspected to have
involvement in the insolvent trading in relation to the company (Austlii.edu.au, 2019).
However, this safe harbour rule that extends a defence towards the directors of the company
can only be availed by them if they can establish that the actions they have undertaken
furthering the company towards insolvency has been taken for the purpose of ensuring good
faith and for the purpose of restoring a beneficial position to the company. The directors are
required to prove that the actions they have taken enhancing the process of insolvency for the
company was the best action that could have been taken under a given situation. They must
also ensure that the action they have taken was objected to uplift the interest of the creditors
of the company and was to make the best of the assets of the company to pay out the
creditors. Their action should be the best possible action that it could have been taken in the
event of an upcoming insolvency.
Answer 3
The directors of a company are protected under the Corporations Act 2001 (Cth) u/s
588GA who are claimed to have involvement in the activity of insolvent trading. However,
this protection is only available to those directors who have acted in innocent manner for the
purpose of bringing benefits and advantages to the company. If it cannot be proved by the
directors that their actions were taken in a good faith the same will attract s 588G. This
section puts a prohibition on the directors stay away from being involved in any activity that
might push the company towards insolvency (Austlii.edu.au, 2019).
On other hand, u/s 180(2) pertaining to the Corporations Act 2001 (Cth), a director is
extended immunity of being held liable for the breach of general duties as a director
(Austlii.edu.au, 2019). For the purpose of this section the directors need to prove that their
conducts were undertaken guarantee interest of the company to be retained. This section does