Corporate Law: Duties and Liabilities of Directors

Running head: CORPORATE LAW
Corporate Law
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1CORPORATE LAW
Part A
Question 1
The directors of a company conferred with the power to manage the affairs of the
company. The treated as a separate individual as that of the personality of the company. The
directors are generally regarded as the agents of the company (Austlii.edu.au, 2019). They are
required to be acting on behalf of the company and has the power of representing the
company. This imposes directors with duty towards a company. In this regard, it needs to be
mentioned that the directors are not the owners of the company. The ownership of the
company belongs to the shareholders. The investors and creditors of the company are also
accrued with certain rights upon the assets of the company. Hence the directors owes
fiduciary duty towards the company as well as the shareholders creditors and investors.
Under section 588G of the Corporations Act 2001(Cth) the directors are conferred with the
duty of refraining from indulging into any insolvent trading while discharging their function
on behalf of the company. This can be explained with the case of The Stake Man Pty Ltd v
Carroll [2009] FCA 1415. In case a director indulges into any trading which has the
probability of causing insolvency of the company, he will be liable to have breached the best
interest of the company and his duty of good faith (Austlii.edu.au, 2019). The fiduciary duty
requires the directors guarantee their actions to have been carried out ensuring the best
interest of the company. Indulging into any trading that has the effect of causing the company
to go under insolvency will not be construed to have affected ensuring the benefits of the
company. Moreover director the fiduciary duty both towards the company as well as all the
shareholders creditors and investors of the company. Hence indulging into any activity that
will make the company insolvent will cause detriment both the company as well as the
shareholders creditors and the investors. It can be stated that refraining from insolvent trading
is required to be considered as a fiduciary duty.

2CORPORATE LAW
Question 2
Under section 588G of the Corporations Act 2001(Cth) a director of a company is
restricted from proceeding with any activity that has the effect of putting the company into
insolvency. In this regard it can be stated that the mere probability of the company of
becoming insolvent if any action has been taken will be treated as an activity causing
insolvency. Under this section the directors are likely to incur a civil liability on the event of
indulging into insolvency trading. Section 588GA has been inserted in this Act for the
purpose of providing a defence to the directors who has incurred liability under section 588G
(Austlii.edu.au, 2019). For the purpose of seeking resort under this section the directors are
required to establish that the action that has been taken by them which has caused the
insolvency has been committed with a good faith to ensure and advantages position for the
company as well as the creditors under the given set of situation. For the application of this
section, needs to be proved by the director that their action has been undertaken for the
purpose of ensuring the benefits of the creditors even if the company has been put under the
verge of insolvency.
Question 3
Section 588GA of the Corporations Act 2001 (Cth) extends protection directors of a
company who have been involved in activities which has the effect of taking the company on
the verge of insolvency. Section 588G of the Act prohibits director to involve in such an
activity which has the effect of making the company insolvent where the director has
knowledge that his action will have the effect of making the company insolvent
(Austlii.edu.au, 2019). Section 588GA of the Act provides for safe harbour for the directors
who have alleged to have contravened the provisions section 588G. To avail resort under this
section, the director needs to establish that the course of action that he has adopted, in a
particular situation, which might put the company into insolvency has been adopted in a good