Corporation Act: Duties of Directors and Safe Harbour Protection

This document discusses the duties of directors under the Corporation Act, including the fiduciary responsibility to stop trading when the company is in debt. It explores the concept of safe harbour protection and the conditions for its application. The document also examines the implications of breaching these duties and the consequences for the company. It provides insights into the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017 and its role in promoting entrepreneurship and innovation. Real-life cases of directors breaching their duties and misusing company funds are also discussed.

Running Head: Corporation Act
CORPORATION ACT 2001
System04128

Corporation Act
Table of Contents
Part A.........................................................................................................................................2
Question 1..............................................................................................................................2
Question 2..............................................................................................................................3
Question 3..............................................................................................................................4
Question 4..............................................................................................................................4
Question 5..............................................................................................................................5
Part B..........................................................................................................................................7
Question 1..............................................................................................................................7
Question 2..............................................................................................................................7
Question 3..............................................................................................................................8
Question 4..............................................................................................................................9
Question 5............................................................................................................................10
Bibliography.............................................................................................................................12
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Corporation Act
Part A
Question 1
It is fiduciary responsibility of the administrator to stop trading when the organization is
in debt. The administrator has fiduciary relationship with members and shareholders of the
company so it is his duty not to mislead them. The duties of directors are mentioned in
Corporation Act 2001 (Corporations Act 2001). Section 588G (Corporations Act 2001- Sect
588G) of Corporation Act gives that the director owes duty to prohibit the company from
doing business after it becomes indebted. The obligation is said to be break when he/she
neglects to keep the company gaining debts, when it is supported by sensible reasons for
doubting that the company is indebted. The obligation to stop indebted transaction occurs to
an individual who is the head when the company incurred significant amount of debt. The
responsibility is forced just on heads since they manage the administration of association and
having extreme capacity to prevent debts brought about. Administrators should make sensible
measures to anticipate obligation brought about and essential standards of obligation of
consideration, ability and perseverance will come up in structure a resistance whenever
required (Fiduciary and Statutory for Directors of Ability Centre Australasia Limited, 2017).
Section 588G of Corporate Act is applicable if:
(i) an individual is head of an organization when organization brings incurs debt
(ii) the organization is indebted around then
(iii) around then, there are sensible reason for suspecting that the organization is
bankrupt, or would become insolvent.
The director of the company will be held responsible for the profit incurred due to breach
of fiduciary duty.
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Question 2
The safe harbour begins to apply when directors, after starting to speculate that the
organization may become indebted, begin to search for alternatives, and one of those
alternative is reasonably inclined to provoke an unrivaled outcome for the association that
earnest arrangement of an outlet. The time consumed during thinking about what to be
performed and really moving forward and the sheltered harbor will just protects directors in
“reasonable period” among the thought of different course of action and usage. The length of
the sensible time will fluctuate on different cases. It suggests that administrators can be
ensured by safe harbour regardless of whether the strategy has not been put without
hesitation, however it is in improvement stage. Without a doubt, the administrators might
think to consider an assortment of effective alternatives for the organization's future (The
insolvency safe harbour: Duties of Directors, 2018). To be in protection of Safe Harbour
continuously, directors should take care of following parameters mentioned in section 588GA
(2) (Corporations Act 2001- Sect 588GA), they are-
(a) directors are continuously notified of the monetary position
(b) taking reasonable measures to tackle misconduct
(c) correct financial records should be maintained
(d) advice is obtained from qualified adviser
(e) directors are actively developing strategy to restructure the company’s fiscal position
(Entering a Safe Harbour, 2019).
These parameters are simply guide solely and it is possible to be important that the
administrators still monitor the performance of the corporate.
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Question 3
Section 588GA of Corporation Act 2001 gives a “safe harbour” from indebted trading
claims for directors who, while suspecting an organization might be or is bankrupt, begin
building up a strategy that may give better result for the company. In choosing whether a
course of action gives security for the purpose of the section, respect might be needed to
whether the individual acquired guidance from a fittingly qualified element that was given
adequate data to give suitable counsel. Section 180(2) (Corporations Act- 2001 Sect 180,
2019) deals in duty of care and perseverance. It provides that the director of an organization,
who makes the decisions of the business, while making those decisions, will have to meet the
needs of duty of care and due diligence in some situations (Directors’ duty of care and
diligence, 2018).
Question 4
Yes, there are certain restrictions while operating section 588GA (Apathy, Spencer, &
Filippin, 2017) of Corporation Act. The first restriction is that, directors should remember
that the security of safe harbor will not make a difference if a debt is caused by indebted
organization when it is not considerably agreeing to remittance of workers privileges
(includes superannuation) as and when they fall due or its tax collection detailing
commitments, except if the Court different order. The second exception is that when an
organization neglects to agree to those worker privilege installments or tax revealing
commitments on at least two events (in total) inside a year paving the way to the obligation
being caused (Marcar & Renfrey, 2017). In the event that directors of big scale corporates
additionally goes wrong in the exacting necessities of the safe harbour by neglecting to give
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representatives or agree to tax collection commitments- they will hand evidence to the
official liquidator of the doubt as to indebtedness and violation of section 588G of
Corporations Act 2001 (The new safe harbour insolvency laws – basics for directors and
commercial contracting, 2017).
Question 5
The Parliament of Australia introduced Treasury Laws Amendment (2017 Enterprise
Incentives No. 2) Bill 2017 (Treasury Laws Amendment (2017 Enterprise Incentives No. 2)
Bill 2017, 2019) to market a culture of entrepreneurship and innovation which is able to
facilitate in organization’s expansion, native jobs and international accomplishment. The
danger of Australia’s wiped out exchanging legislations, united along with weakness over the
exact minute. An association winds up obligated have for a long while been upbraided as
chiefs to search for deliberate association even in conditions where the association may be
practical in more longer term. Stresses on circumstantial infringing upon indebted exchanging
laws are a great part of the time alluded to as a reason that beginning time examiners and
master executives are reluctant to finish up related with a start-up (Treasury Laws
Amendment (2017 Enterprise Incentives No. 2 Bill) Bill No. X, 2017). After this change in
the Corporate Act 2001, new area 588GA gives safe harbor to the chiefs of any wiped out
organization to give assurance against individual risk to negations of the indebted exchanging
arrangements under subsection 588G(2) of the demonstration. This insurance of safe harbor
from arrangement identified with bankruptcy is planned to encourage increasingly fruitful
organization rebuilds outside of formal indebtedness forms. In addition, they are likewise
gone for driving a social change in the organization chiefs who faces vulnerability. The
sheltered harbor will ensure an executive in connection to obligations that an organization
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acquires in regard with game-plan taken by the chief that may prompt better result for the
organization and the partners of the organization than procedures to deliberate bankruptcy.
The safe harbor may apply to an executive even where the final product of assuming
extra obligations as a component of a strategy is a more regrettable result for the organization
and its lenders, insofar as the game-plan was sensibly prone to prompt a superior result. This
perceives there are numerous factors that could affect on an organization's restoration, some
of which may not be conceivable to foresee.
Section 588GB (Corporation Act 2001- Sect 588GB) puts standards to shield chief
from depending upon books as confirmation to help a protected harbor safeguard where these
things have been held from a vendor or manager. It will make sure that an executive can
make an affirmation around an association’s prospects and take appropriate exercises to
recover or keep up anyway a lot of an association’s a motivating force as could be normal.
This will guarantee that a head or vendor can rapidly make an assurance about an
organization’s prospects and take fitting activities to recoup or keep up however much of an
organization’s an incentive as could be expected. Likewise, the absence of access to books or
data about an organization could keep an executive or outlet from getting data about a chief's
misfeasance that would have empowered them to properly recoup assets for the
organization's leasers. There are a portion of the confinements yet these new limitations won't
anyway apply to chiefs who demonstrate that they didn't have the pertinent books or data and
there were no sensible advances that could have been take to acquire the materials. This will
ensure executives who really don't approach the material at the time it is looked for by a
vendor or chairman.
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Corporation Act
Part B
Question 1
Yes, Mr. Daly has breached the duties of the director. Under section 588, the person
starts to develop various alternatives that can provide improved results for the company. The
main issue here arises that whether the steps taken by Mr. Daly were in the direction for the
betterment of the company or not. It can be seem from the podcast that Mr. Daly withdrew
the money of the customers for his own use. Using of organization’s money for personal use
does not lead company anywhere to the betterment. The protection under safe harbour will
not be applicable because Mr. Daly did not pay the money of the investors and some of the
employees of his company are still not paid. His company failed to give payment so
protection of safe harbour will not be applicable to him. Mr. Daly did not act within the
shadow of care and diligence, which a normal individual might expect to do in situation
under section 180 (Corporation Act 2001- Sect 180). Another duty that Mr. Daly breached is
the duty to act in good faith organization’s benefit for an appropriate purpose under section
181 (Corporation Act 2001- Sect 181). Another duty, which is breached by Mr. Daly, is
using his position improperly to take benefits for himself or for someone else under section
182 (Corporation Act 2001- Sect 182). One more duty breached by Mr. Daly under section
183 (Corporation Act 2001- Sect 183) that is not wrong use of the data gained for
themselves.
Question 2
The other two directors also breached their respective duties as well. One director was
given loan because he was short of money as he was having property dispute with his ex-
wife. The dispute cost him lot of money and now he want to recover the money from his
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company. He wrote a letter for request of money in which he wrote that he has number of
costs associated as his ageing mother is falling sick often (Christodoulou, 2018). They both
are responsible for the allowing the application of Dr. Daly to take the money of the investors
for Mr. Daly’s daughter’s wedding. The act of all the directors is highly unethical. Australian
Securities and Investment Commission have given proof to Federal Court alleging huge sum
of money in the Investport Income Opportunity Fund was moved in the business acquisition
and credits to the administrators. Moreover, there were two funds, one was registered, and
other one was unregistered. In the unregistered one, there was transaction consisting of huge
among of money. On August 28, 2015, in a signed letter "Personal Loan Application" Mr.
Daly requested his other directors to give money from the Investport Income Opportunity
Fund fund on credit (The talented Mr Daly: The story of a businessman, 150 investors, and a
$20 million opportunity, 2918). One of the directors of the firm was investigated by ASIC
investigator in which he disclosed that Mr. Daly took loan for his daughter’s wedding and
another director took for making up for the expenses for his mother’s treatment and to settle
the matter between him and his ex-wife. It is highly unethical on the part of all the directors
that they used the investors’ money for their personal use. The other administrators of the
organisation breached section 180, 181 and 182 of the Corporation Act.
Question 3
Yes, the company was insolvent and yet it was trading. There are numerous reasons given
in the podcast for claiming that company was insolvent while trading-
 The company was insolvent. This can be said because Beacon, the alleged company
was not able to pay back the investors when they asked for it.
 Some of the investors were denied to withdraw their money when they were applied
to withdraw the money.
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 The directors of the company themselves were not having enough money so meet
their personal needs and this led to use of investors’ money for their personal use.
 There were two funds in the company: one was public, which was registered, and
another was unregistered and unregistered fund was having huge amount of money.
 The directors and other associates of the company used the money of the investors for
their personal use and hence the company left with almost nil investment.
 The company was not having money to pay the salary of the directors of the company.
This can be said because Mr. Daly promised to give loan to himself whenever it was
required. He was not paid so he had to apply for the loan for his daughters’ wedding.
 Mr. Day wrote an email with the text “My financial position is becoming more
desperate each week that passes by”. This email was sent after he asked for “Personal
Loan Application”. He was provided with the loan of $70,000 and when was
questioned by the ASIC investigators for the purpose of the loan then he said that he
have to cover his cash flow problems.
Question 4
Yes, there are defences available to Mr. Daly and the other directors of the company in
section 588H (Corporations Act 2001- Sect 588H) of Corporation Act 2001. The
responsibility is on the administrators of the organization that the organization is solvent
while incurring debt. There are some of the protections available for the administrators in
section 588H of the Act when administrator fails to stop the company from becoming
insolvent. The defences are-
 The directors has valid reasons to assume that the organization is solvent when the
debt occurred;
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 Directors expect that the organization was not insolvent at the time of indebtedness;
 Directors have proper reasons to assume and actually assumed that the organization
will remain solvent in the future if the debt is incurred or any other debt;
 If the director of the company believe that the advice given by the expert was
adequate and proper about the solvency of the company;
 Directors need to demonstrate that they not just had sensible grounds to trust these
issues however that they did really trust them. Proof should be delivered
demonstrating this conviction.
 The directors needs to demonstrate that sensible request were made of issues that
were not comprehended at the time and that additional data was mentioned of the
guide.
 Dependence on the counselor's data is critical to demonstrate the conviction of the
executive in connection to the dissolvability of the organization when acquiring the
obligation making the organization become ruined or liable to end up indebted
(Tunstall).
Question 5
The new safe harbour will not assist the directors because there are some conditions that
should be fulfilled and the directors of the company failed to fulfill these said conditions. The
conditions are-
 the indebtedness should be brought directly as well as indirectly regarding the
confirmed course of action. The obligation can incorporate conventional exchange
obligations brought about in standard duration of business or obligations taken for the
particular motivation behind influcing the arrangement (counting obligations caused
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regarding a rebuild or misfortune making exchange), however exclude debts outside
this reason or acquired for an inappropriate reason;
 the organization must keep on paying all representative qualifications (counting
superannuation) as and when they fall due; and
 the organization must keep on agreeing to all duty announcing commitments (Black,
Schaillee, & Cibich).
 Further, the assurance given by the sheltered harbor arrangements does not stretch out
past shielding a chief from common risk for wiped out exchanging. Amid the
protected harbor time frame, executives must keep on conforming to their other
lawful commitments, for instance chief obligations to act in compliance with common
decency and the best advantages of the organization (New safe harbour laws
explained, 2018).
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