Directors' Duties and Liabilities: A Comprehensive Guide

This assignment provides a comprehensive guide to directors' duties and liabilities. It covers the key aspects of directors' responsibilities, including acting within given powers, exercising reasonable skills and diligence, and refusing third-party assistance. The assignment also delves into the oppression remedy in the corporations act and legal safe harbors for directors. With references to various books, journals, and online resources, this guide is essential for understanding the complexities of directors' duties and liabilities.

Corporation
And
Business Structure

TABLE OF CONTENT
A. Breach of duty by directors.........................................................................................................3
ISSUE..........................................................................................................................................3
RULES........................................................................................................................................3
APPLICATION..........................................................................................................................5
CONCLUSION...........................................................................................................................6
B. Action to be taken by company...................................................................................................6
ISSUE..........................................................................................................................................6
RULES........................................................................................................................................6
APPLICATION..........................................................................................................................7
CONCLUSION...........................................................................................................................7
C. Action of oppressive conduct against Directors and remedies available there to.......................7
ISSUE..........................................................................................................................................7
RULES........................................................................................................................................7
APPLICATION..........................................................................................................................9
CONCLUSION...........................................................................................................................9
Question 1........................................................................................................................................9
Statutory and general duties of law.............................................................................................9
Question 2......................................................................................................................................10
Suggestion to James and Jerry ................................................................................................10
Question 3......................................................................................................................................11
Remedies available for breach of different types of director’s duties......................................11
Question 4......................................................................................................................................12
Legal ground for breach of director’s duty...............................................................................12
REFERENCES..............................................................................................................................14

A. Breach of duty by directors
ISSUE
 Whether Aaron and Cassie are under the breach of their director's duty for the No-Frills
Furniture Ltd.
RULES
Corporation Act, 2001:
Duties and responsibility of Directors
General Duties:
 To act in goof faith in the best interest of the organisation with a proper purpose.
 To exercise care and diligence.
 To avoid conflict between personal and company's interest.
 To avoid trading while insolvency of the company, as business is unable to pay its debts
when are falling due.
General responsibility imposed on director:
 To have a current registered office.
 To have a principle place of business.
 To disclose all the personal details of directors.
 To keep all the financial records.
Section 180 (1) and 181: Duty to act in good faith and best interest of the company:
This section of the Corporation's Act, 2001 imposes a civil obligation over the directors
of the company. The directors are required to exercise a reasonable degree of care and diligence
while exercising their power and duties (Corporations act 2001, 2018). By reasonableness means
to take care and consciousness while taking decision that a person under position of directors in a
company would exercise under given circumstances. This can be explained as:
 to make judgement in good faith and for a proper purpose,
 do not have a material personal interest in the matters for which judgements is being
taken.
 To have a rationale believe that the judgement is in the best interest of the company.
The directors must not fail in abiding by the above requirement of care, skills and
diligence in delegating the authorities in the company.
Section 182: Duty to avoid improper use of position

This is another civil responsibility of director which prohibits a director of a corporation
from using their position to gain advantages for themselves or someone else or causing detriment
to business. Section 184(2), defines that dishonest use of the position leads to commencement of
criminal offence under the Corporations Act.
Section 183: Duty to avoid improper use of information
This is a civil obligation of the director imposed by under the Corporations Act that a
person under the position of director receive any information because on being director of the
company must not use such information for improper purpose, to gain personal advantages for
themselves and cause damages to the business (Barker, 2016)). The information used dishonestly
by the directors leads to commitment of criminal offence [Section 184(3)].
Section 191: Duty to not to abuse corporate opportunity, avoid conflict of personal interest
and to disclose material personal interests
All the directors have a duty to disclose all material of personal interest in affairs of the
company and disclose conflict of interest (Directors' liabilities when things go wrong, 2018 For
such instances the director after disclosing such interest may be refrained from voting on the
issue. The directors are imposed with a duty to not to take advantages of a business opportunity
gain personal benefits at the expenses of the company.
Section 203(C):Removal of director by member
In a private or proprietor company:
 a director can be removed by passings resolution from office; and
 appoint another person as director instead by passing a resolution.
A director may be removed by a majority of the board of directors if it is allowed by the
constitution of the company.
Breach of the duties of director:
To breach means to act against the given provision, set of rules and regulation or law.
Breach of directors duties and responsibilities means violation of the defines duties and
responsibilities as given in the Corporation Act, 2001 of Australia (Hargovan, 2018). The
directors are required to act in accordance with the provision of the act while carrying out their
responsibilities and discharging their duties in the company.
Case law: Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8)
[2016] FCA 1023

In this case the directors were under the breach of their duty under section 108 (1), as a
reasonableness of the director with their responsibilities must under any circumstances should
have been reasonably aware that company was likely to contravene the Corporation Act, with
catastrophic consequences for the company (ASIC v Cassimatis (No 8) [2016] FCA 1023, 2018).
For this case the court held that breach of the duty was reasonably foreseeable but court
regarded them as likely and the directors were held in contravention by directors as committed
by one each.
APPLICATION
With application of the above rules in the given case scenario it can be seen that both
Aaron and Cassie were under contravention of several duties and responsibility as directors of a
company No Frills Furniture Pty Ltd. As for the first instance they violated section 180(1) of the
corporation act as their act of removal of George and formation of the partnership was not in the
best interest of the company. Moreover, they breached section 182 of the act as both Aaron and
Cassie misused their position in the majority voting right to remove George from the Board of
director of the company. Section 183 was violated as they used the business information of
getting a government tender for their personal benefits as the contract was take-up by the
partnership business formed by Aaron and Cassie which was proposed by George to be taken up
by No Frills Furniture Pty Ltd.
This can be clearly seen as being partners of business the profits from tender will belong
to both husband and wife and there will be no sharing in the profits rather if tender had been
taken up be the company the profits would have been distributed as dividend among all three
directors that is husband and wife Aaron and Cassie and third director George. Though the
removal of George from broad of directors was in accordance with section 203(C) of the
corporation act, this section was not breached but the still they abused the corporate information
and section 191 of the act. Both Aaron and Cassie used the business information for their
personal benefits to retain all the profits by themselves without getting it being shred by a third
person that in this case is George. They also made the furniture under their partnership business
on the cost an expense of the company which is again violation section 191 of the act.
This can be seen from above application of the provision of act that Aaron and Cassie
have violated section 180(1),181, 182, 184 and 191 of the Corporation Act, 2001. the act of
reduction of dividend, increasing directors payments and determination of share price by the

accountant is also a clear misuse of the position they are not acting in good faith and best interest
of company.
CONCLUSION
With application of the rules in given case scenario it can be concluded that the couple
Aaron and Cassie have breached section 180(1), 181, 182, 184 and 191 of the Corporation Act,
2001 and misused their position as directors, business information and resources to gain personal
advantages. They are in clear breach of their duties and responsibilities as they have violated
many sections of the act which includes misusing their position and business information to gain
personal advantages. Both of them have acted dishonestly by misusing their fiduciary position of
directors and majority of shareholding in the company, they are libel to be charged with offences
under section 184 (3) and 184 (2).
B. Action to be taken by company
ISSUE
 Can the company No-Frills Furniture Ltd, bring an action against Aaron and Cassie?
RULES
In accordance with provision of Corporation Act, 2001 breaching the duty being in the
position of director can be quite sever (Hill and Conaglen, 2018). A shareholder, creditor or the
company can bring proceedings against the directors for a breach of the duties imposed on a
person who is holding such position in the company.
 Usually, the proceeding for breach of the duty of directors are brought up by the company
on the instigation of the remaining directors of the organisation.
 The remedy is available removal of director from the current posting which can be
temporary or permanent.
 The transaction in which breach is affirmed can be set aside.
The consequences of breaching the duties of directors are:
 Imprisonment for up to a time of 5 years,
 Penalties of up to $200,000,
 Disqualification from managing a company; and
 To personally pay of the debts of the company.
 To get interim injunction preventing any further losses or damages due to the breach of
the duties of director (Schultz, 2016).

 The directors may be order to compensate for the financial losses or damages incurred.
 The directors be may be charged for criminal offences under section 184(2), (3) etc.
APPLICATION
With application of the above rules in the given case scenarios it can be stated that both
Aaron and Cassie have contravened many provisions of the Corporation's Act, 2001 and in such
instances the company is empowered to bring a legal action against the directors who have
breached their duties and responsibilities. With initiating a legal processing both Aaron and
Cassie can be ceased from management practices as well they can be fined and imprisoned as per
the rules of Act.
CONCLUSION
The company No Frills Furniture Pty Ltd can bring action against Aaron and Cassie
which can be instigated by the action of George who is victim of the action of the couple. They
tried to misuse their power and breached duties and responsibilities as directors of company to
gain personal advantage on the cost of business potential profits and resource
C. Action of oppressive conduct against Directors and remedies available
there to.
ISSUE
 Whether action can be brought up by George under Corporation Act, 2001 regarding
oppressive conduct.
 What are the remedies available to George.
RULES
Shareholder oppression:
This is a situation when majority of the shareholder in a company misuse their power to
oppress and suppress the minority shareholder (Huggins, Simnett and Hargovan, 2015).
Regarding the unlisted proprietor company the main reason for arising oppression is that no
readily available security markets for the shares of the many. There are many activities which
them majority shareholders engaged in to oppress the minority shareholder which are refereed as
sharp practises or broad room tactics.
Statutory Relief empowered by Corporation's Act, 2001:
Section 232: Grounds of court order
 when the conduct of the company's affair; or

 the act or omission either actual or proposed by or no behalf of the organisation; or
 an actual or proposed resolution of member of a company;
is either contrary to the interest of the members as a whole or oppressive in the nature which is
unfairly prejudicial, discriminatory against the member or members of the organisation.
Section 233: Remedies available for oppression
The court has discretionary power to grant a range of different remedies to the minority
shareholder of a company for the purpose of reliving them from the effect of oppression:
 That the share of the minority shareholder be purchased by one or more shareholder of
the company at the price determined by the court (The oppression remedy in the
corporations act, 2018).
 That the share's of minority be purchased by the company,
 That a manger and receiver to be appointed,
 That the company be wound up,
 To require a person to carry out a specific act,
 Giving an injunction order over company or a person belonging to it refrain from doing a
particular act.
 To modify or repealed the exiting constitution.
Section 234 who can apply for oppression remedy:
 a member of the company for an act or omission against another member,
 a person who has been removed from register of member,
 a person who shares have been transferral by will or by operation of law,
 a person whom ASIC thinks is appropriate regarding investigation to be conducted into
the affair of the company for the matter related with company's operations (Harris and
Hargovan, 2017).
Case law: Turnbull and Ors v Nrma [2004] NSWSC 577
In this case, resolutions was proposed to be passed at the SGM of NRMA, one by certain
members and another by company, and over both his matter an industrial dispute aroused
TURNBULL & ORS v NRMA, Supreme Court of New South Wales, 25 June 2004, 2019). With
this case recognition of special basis for the intervention of court was established for oppressive
ground under section 232(e).

APPLICATION
With application of the above rules of corporation act over the given case scenarios this
can be clearly seen that George being minority shareholder is being oppressed by majority
shareholder that is Aaron and Cassie. As per section 232 there exist grounds for which court cam
pass an order as from a partnership just to retain all the profits by the couple and prejudicing the
interest of business along with suppressing and discriminating George by removing him from the
Board of directors on acting in good faith of the company.
CONCLUSION
This can be concluded that George is discriminated as per the section of Corporation act
and he has a right against the oppressive conduct of Aaron and Cassie with having a ground of
minority oppression under section 232. In accordance with section 234 he can file to get an
oppression remedy under to sell his share to other member or to company at a price determined
by the court as defined under section 233. More over an order can be taken by the court for
prejudicing the interest of the company by Aaron and Cassie from forming a partnership to gain
personal advantages.
Question 1
Statutory and general duties of law
General duties of directors:
 Directors must have to work with the constitutions of the company and they only have to
exercise power for purpose they have in performing job role (ANDREW. KEAY, L.L.B.,
2016)
 It is the duty of director to act in good faith which is for the best interest of the company
and also for proper purpose. Its director’s duty to avoid any type of conflict and if it arise
then it must be managed by company.
 This is also duty of director to not improperly use company’s information to gain any
type of personal advantage.
Statutory duties of directors:
 Section 181 (1)- Duty to act in good faith: director as well as other officers of
corporations must have to properly exercise their power in good faith only which is in
best practises as well as for the company work only.

 Section 182 (2)- Use of Position: Director of company must have to use its power
properly in company. They did not have to use such power in order to achieve their
personal gain (Omar, 2018).
 Section 183 (1)- Use of information: director of company must not have to disclose any
secret information of company to anyone to benefits themselves.
 Section 191 (1)- Disclosure of interest- director which has material personal interest
which relates to corporate affairs, then they must have to give notice regarding such
interest in written.
Recommendation: as per the case study Jai is helping a competitor which means that he is not
performing his director duty well. Therefore, it is suggested to dismiss him from company and
other director’s may able to claim loss which they bear with interest.
Question 2
Suggestion to James and Jerry
As per the given case it is mentioned that directors did not perform adequate market
research to launch a new product in the company. This means that they did not perform their
duty well. It is the responsibility of director to conduct proper research of product before
launching it into the market. Directors must also have proper assess the risk and opportunities
which attached to launching a new product. In this case, both directors admit that they have taken
decision with not proper case and due diligence.
They have also breached enforcement of duties which states that director must have to
ensure protection of its investors and shareholder. As per this case, legal action will be claimed
by shareholders, investor and supply of the company because they are one who have the power
to know rules and practises which followed by company (Huebner and Klein, 2015). Further, it is
also the duty of directors to provide full disclosure of practises among shareholders which they
are adopting to conduct business affairs.
According to companies act, director personally held liable for losses caused to creditors
where ‘misfeasance’ have occurred. As a result director must have provide loss or dame which
cause as result of their breach of duties to shareholders, creditors and investors (Schwarcz, Jones
and Yan, 2018). They may remove from their position and then pursued by such creditors and
shareholders for recovery of such money which they invested.

Question 3
Remedies available for breach of different types of director’s duties
The breach of fiduciary duty is applied as when directors do not act in good faith and it has a
negative effect on company’s operational activities. James and Jerry owes duties towards
company. Fiduciary duty is applied which means that director have placed material personal
interest in the subject matter of business on the verge or stake of company’s interest, have
engage in conduct detrimental to interests of the company. The remedies available are as
follows-
 Declaration
 Damages or compensation
 Restoration of property of company if it is traceable
 Rescission of a contract
 Account of profits
 Summary Dismissal
It can be ascertained as per statute law that Section 232 (2), director or officers of
company shall at all times act honestly in exercising their powers and discharge duties of their
office in which they are employed. Reasonable degree of care and diligence must be complied by
them (Section 232 (4)). This means that directors in case of breach of duty, shareholder can
claim money invested by it in effectual manner. Moreover, company itself as an artificial person
can claim against the erring director in case of breach of director duties if any losses are incurred.
Moreover, if director has gain any personal profit, he is liable to surrender the gain to company
fully. On the other hand, liquidator can also claim if company becomes insolvent. This claim will
be considered as asset of the organisation and will be provided and realised for the benefit of
creditors for settling their claim against the company.
Question 4
Legal ground for breach of director’s duty
Statutory Law- Statutory law is written by a legislative body. Its law that a government
deliberately creates through elected legislators and an official legislative process. Its ups to
the judiciary to interpret and enforce statutory law but the judiciary can’t create statutory
law. It is the type of law that purposefully created by legislature and made into law. This

law has been passed by parliament of Australia. On the other hand, common law is the type
pf law that made by judges in the exercise of both common law and equitable jurisdiction
whereas statutory law is the law made by commonwealth, State and Territory Parliaments.
As per the case study Fazal has done crime of breaching of his duties and responsibilities.
He is responsible for representing and promoting the interest of the company. Fazal is
also responsible for the shareholders of the company and shareholders can claim their
fund from Fazal as per the common law. In addition to this, both the directors Elaine and
Gerry can also take actions on breaching of duties. It is the duty of Fazal to ask before
announcing anything to shareholders. As per the law of Australia, if a director of the
organisation breaches his or her duties, they could face civil action and, in some cases,
criminal sanction. Breach of directors’ duties and resulting legal actions can have
significant consequences for the directors, company, shareholders and creditors.
As per the law of Australia there are following responsibilities and duties of a directors which
are-
 Directors have to act within the powers given by the company
 To act in a way which is mostly probably to encourage the success of organisations.
 To workout reasonable skills, diligence and care when carrying out their
responsibilities.
 To refuse assistances from third party.
REFERENCES
Books and Journals
ANDREW. KEAY, L.L.B., 2016. DIRECTORS'DUTIES. JORDAN PUBLISHING Limited.
Barker, R., 2016. The Duties and Liabilities of Directors—Getting the Balance Right. The
Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-
for-Profit Board Members. p.249.
Hargovan, A., 2018. Corporate law: Storm without power: Low civil penalties for directors of
Storm Financial. Governance Directions. 70(4). p.197.

Harris, J. and Hargovan, A., 2017. Still a sleepy hollow? Directors’ liability and the business
judgment rule. Australian Journal of Corporate Law.
Hill, J. G. and Conaglen, M., 2018. Directors’ Duties and Legal Safe Harbours: A Comparative
Analysis.
Huebner, M.S. and Klein, D.S., 2015. The Fiduciary Duties of Directors of Troubled
Companies. American Bankruptcy Institute Journal. 34(2). p.18.
Huggins, A., Simnett, R. and Hargovan, A., 2015. Integrated reporting and directors’ concerns
about personal liability exposure: Law reform options. Company and Securities Law
Journal. 33. pp.176-195.
Omar, P.J. ed., 2018. Directors' duties and liabilities. Routledge.
Schultz, A., 2016. Finding the Right Remedy in Minority Shareholder Oppression Law: A
Transnational Analysis of Solutions in Closely Held Corporations. Transnat'l L. &
Contemp. Probs. 26. p.499.
Schwarcz, S.L., Jones, A. and Yan, J., 2018. Responsibility of Directors of Financial Institutions.
Online
The oppression remedy in the corporations act. 2018. [Online]. Available through
:<https://www.lawreform.vic.gov.au/content/3-oppression-remedy-corporations-act>.
Corporations act 2001. 2018. [Online]. Available through
:<https://www.legislation.gov.au/Details/C2018C00424>.
Directors' liabilities when things go wrong. 2018. [Online]. Available through
:<https://asic.gov.au/for-business/your-business/tools-and-resources-for-business-names-
and-companies/asic-guide-for-small-business-directors/directors-liabilities-when-things-
go-wrong/>.
TURNBULL & ORS v NRMA, Supreme Court of New South Wales, 25 June 2004. 2018.
[Online]. Available through
:<https://iknow.cch.com.au/document/atagUio378185sl10435076/turnbull-ors-v-nrma>.

ASIC v Cassimatis (No 8) [2016] FCA 1023. 2018. [Online]. Available through
:<https://mccabecurwood.com.au/asic-v-cassimatis/>.