CORPORATION LAW.

Running head: CORPORATION LAW
CORPORATION LAW
Name of the Student:
Name of the University:
Author Note:

1CORPORATION LAW
Answer (a):
Issue:
The issue of the case is; whether Sonal, the liquidator will be able to sue the directors
Shilpa and Sonal to recover the debts incurred by their company?
Laws:
In order to analyze the issue mentioned above, the Corporations Act 2001 (Cth) has to be
referred. In a company, the directors are responsible for the proper management of the affairs of
the company1. The directors are entrusted with certain duties which they are bound to follow2.
The breach of such duties will make them liable as per the provisions of the act. The directors of
any company as per section 180 to 183 are provided with few general duties which are often
called the civil duties of the directors. Section 180 enumerates that the directors have a duty to
perform their duties with diligence and care like any reasonable person acting as a director in
such situation of the company3. As per section 181 of the act, the directors must act and perform
their obligations in good faith to affect company’s best interest. These two liabilities are denoted
as the positive duties of the directors4.
1 Langford, Rosemary Teele. "Company Directors' Duties and Conflicts of Interest (Introduction)." Company
Directors' Duties and Conflicts of Interest, OUP (2019) (2019).
2 Hedges, Jasper, et al. "The policy and practice of enforcement of directors' duties by statutory agencies in
Australia: An empirical analysis." Melb. UL Rev. 40 (2016): 905.
3 The Corporations Act 2001 (Cth), s. 180.
4 The Corporations Act 2001 (Cth), s. 181.

2CORPORATION LAW
In contrast, directors’ negative obligations are given under sections 182 and 183. As per
section 182, the director shall not mis-utilize his position as the director of the company to gain
any undue profit for himself or anyone else at the cost of the interest of the company5. Further, as
per section 183, he must not misuse any information that he received by virtue of his position to
incur personal gain or for someone else that may be detrimental to the company6.
Section 184 imposes criminal liability on the directors which states that the directors are
required not to act recklessly and dishonestly while performing their duties. Moreover, they must
not recklessly or dishonestly misuse their position or any information that they received by using
their positions as directors, to achieve any personal gain or profit causing loss to the company.
The violation of section 184 imposes criminal penalty on the directors7.
Section 588 G of the act is a significant section which provides that the directors must act
to prevent insolvent trading in order to protect and secure the interest and benefits of the
creditors of the company89. The directors of the company are bound to place the interest of the
directors at the highest esteem; hence they must prevent insolvent trading as it affects the interest
of the creditors primarily.
When a liquidator is appointed for a company, he must investigate the affairs of the
company prior to his appointment in the company as the liquidator before making any decision
for the company. The liquidators must look that whether the directors have discharged their
duties as per the provisions of the act. After considering the performances of the directors, the
5 The Corporations Act 2001 (Cth), s. 182.
6 The Corporations Act 2001 (Cth), s. 183.
7 The Corporations Act 2001 (Cth), s. 588G.
8 The Corporations Act 2001 (Cth), s. 182.
9 Hedges, Jasper, et al. "The policy and practice of enforcement of directors' duties by statutory agencies in
Australia: An empirical analysis." Melb. UL Rev. 40 (2016): 905.