Corporate Liability and Directors' Duties in Australia

Running head: CORPORATE LAW
Question & Answer
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1CORPORATE LAW
Assessment Item 1
Answer of (A)
There are various cases where the members of a company held liable for certain illegal
acts including negligence. The dispute arise when it becomes hard to proof whether the offender
himself will be liable for the wrongful acts or whether the whole company will held liable for
that. The court has, for the first time, in the case of Salomon v Salomon decided that the
company is a separate legal personality and it will not held liable for the negligent or wrongful
acts of the members. In Australia, offence relating to negligence is fall within the scope of Tort
law and in case where the members of a company are engaged in any negligent act, it will fall
under the provisions of the Corporate Tort. An act can be called as negligent act if the wrongdoer
has failed to show reasonable care during the course of their employment. The Corporation Act
has imposed certain duties on the directors so that they can perform their acts carefully.
According to section 180 of the Act, the directors are required to act in good faith while doing
their business. It is not required to involve in any wrongful gain during the course of their
business. In case of ASIC v Adler (2002) 168 FLR 253 the court has observed that if the
directors are negligently using their position and act for certain illegal way, they will be held
liable for that.
In Australia, many cases are pending before the Court regarding the wrongful acts of the
directors and many times, it can be observed that certain directors are also the shareholders of the
company. The case of the Cassimetes (2012) is an ideal example regarding the same. In this
case, it has been observed that the directors of the company had failed to show sufficient care to
the investors and the investors had to face lots of trouble for that. When they are interrogated by

2CORPORATE LAW
the court, they took the plea that they are also the shareholders of the business and they had to
face troubles too. The court has rightly observed in that case that it is the duty of the director to
take all the reasonable care for securing the interest of the shareholders and in this case, they
have failed to comply with the same. Therefore, the directors could not take the plea that they
have shares in this case. According to the provisions of the Corporation Act, the provisions of the
section 180 to section 183 are applicable to all the directors. It has further been stated that in case
the directors could not meet the requirements and even unable to satisfy the provision mentioned
under section 180(2) of the Act, they have to face civil and criminal penalties. The civil penalty
provision has been comprised in section 1317E of the Corporation Act. Criminal penalty
provision has been engraved under section 183 of the Corporation Act.
In the case of Kramer v Kramer (1979), it has been held that the directors have certain
fiduciary duties and they have to perform it diligently. In case they have failed to do so, they will
be held guilty for it. The acts and duties of the directors are governed by the Corporation Act and
according to section 1317E of the Act, if the directors have failed to perform their duties, they
will have to face penalties for that. However, it is to be noted that the act of negligence is civil in
nature and therefore, if the directors are held liable for any negligent act, they will have to face
civil penalties that are laid down in section 1317E of the Act.
In the case of Turquand v Marshall (1869) LR 4, it has been observed, being a director
of a company, they play important role and considering the potentialities of the directors, it has
been observed that the directors must not misuse their position. If they held liable for misusing
their position, they will make a breach of their duty. According to the Tort Law of Australia,
breach of duty comes under the provisions of the negligence. However, according to the law of
Australia, the negligent must be gross in nature and mere negligence will not attract the provision