Corporate Law: Duties of Directors and Safe Harbour Defence

RUNNING HEAD: Corporate Law
Corporate Law
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Corporate Law 1
Contents
Part A...............................................................................................................................................2
Question 1....................................................................................................................................2
Question 2....................................................................................................................................2
Question 3....................................................................................................................................3
Question 4....................................................................................................................................3
Question 5....................................................................................................................................4
Part B...............................................................................................................................................5
Question 1....................................................................................................................................5
Question 2....................................................................................................................................5
Question 3....................................................................................................................................6
Question 4....................................................................................................................................6
Question 5....................................................................................................................................7
References........................................................................................................................................7

Corporate Law 2
Part A
Question 1
Yes it should be noted that it is the fiduciary duty to stop performing the trade activities when the
business is facing solvency. The management of the company have a fiduciary relationship in the
business environment with the shareholders that they will work in their favour and will not
mislead them. Corporation Act 2001 explains the duties of the director in a business, further
Section 588G of the Corporation Act 2001 (hereinafter referred to as an act) states that it is the
duty of the director to disallow the business from performing certain actions when the company
faces indebtedness. The duty of the directors breaks when their actions make the business
gaining more debts in the environment. Further, it should be noted that according to the act, it is
the liability of the directors of the company to prevent trading activities when the business is
facing insolvency (Rodger Reidy, 2016). There are three specific requirements that are needed to
be fulfilled by the directors. First requirement is that the person responsible must hold the
position of director in the company (Pitman, 2019). Secondly, during the time of generating the
debts, the business must be insolvent or going into insolvency because of the respective debts.
Lastly, all the directors must be aware of the poor condition and insolvent status of the company.
If all these three conditions are fulfilled and still the trading activities are performed then the
directors must be held liable for the insolvent trading in the business under the Section 588G.
Question 2
In a normal situation, the directors of the company are held liable when they do not prevent
insolvent trading activities in the business but the safe harbour act defence in respect of the
directors in such circumstances. The act came into existence in the year September 2017 and the
main notion of the act is to create a defence for the directors so as to promote a positive culture
in the business environment. According to safe harbour, the director cannot be held liable for
insolvent trading when they are performing certain actions to create a positive outcome of the
company using a risky approach. This states that in case of insolvent trading in an organization,
the directors perform certain actions to change the current position of the company (Black,
Schaillee, and Cibich, 2018). Thus, such actions of the directors will fall under the category of
Safe Harbour and it will safeguard the directors from any legal action. This defence is mentioned