Corporation Law: Duties and Liabilities of Directors

Running head: CORPORATION LAW
CORPORATION LAW
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1CORPORATION LAW
Part A
Answer 1
The Corporations Act 2001 (Cth ) of Australia provides the general duties of the directors
of a company in its different sections (Horne, 2017). These general duties as provided under the
act are often called the fiduciary duties as they are developed from relation of mutual trust, faith
and responsibilities towards each other (Sollars & Tuluca, 2018).
The said Act enumerates four kinds of duties for the directors which include a duty of
diligence and care, a duty to act in good faith, a duty not to misuse position and a duty of not
using any information inappropriately.
Section 180 of the said act gives that the director has a duty to act with a duty of care and
diligence like a reasonable person. The duty of acting in good faith as depicted in section 181
states that the director of a company must act in good faith for incurring best result for the
company. This duty is often regarded as the duty of trust together with fidelity. Section 182 of
this act elucidates that a director must not ever misuse his position to incur any personal interest
for himself or for other causing detriment or loss to the company. On the other hand, section 183
elaborates that any information received by a director because of his position shall never used by
such director for having any personal gain or for others but not for the company resulting loss to
such company.
Apart from these duties discussed above, the director also has a duty of not involving into
and conducting insolvent trading. This has been provided is section 588 G of the aid act. This
duty of not involving into insolvent trading is often termed as a type of fiduciary duty of the
directors of any company. The duty to prevent insolvent trading is a duty of the directors to

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secure and safeguard the interest of the creditors, stakeholders and investors of the company
mainly. If any company is involved in insolvent trading, the interest of the creditors, stakeholders
and the investors are mainly going to get hampered as they might not get back the appropriate
output for their investments. As said above the fiduciary duty is based on mutual obligation,
faith, fidelity and reliance. The directors must take care of the fact that their act must not hamper
the interest of the stakeholders, investors or creditors together with that of the company. this duty
is based on confidentiality between the directors on one side and the stake holders, investors,
creditors on the other side. It is in the hands of the director their interest as well as that of the
company lie. When a director is involved in insolvent trading, then the interest of the company as
well as that of the stake holders, creditors and investors are at stake.
Thus, the duty to not getting engaged in trading during insolvency of the company or
when the company is approaching towards insolvency as given in section 588 G of the said act is
definitely a fiduciary duty which the directors have towards the stake holders, creditors and
investors of the company (Sollars & Tuluca, 2018).
Answer 2:
The Corporations Act 2001 (Cth) introduces the section 588 GA comprising of the safe
harbor provision by amending the act on September, 19th of the year of 2017 (Horne, 2017). This
section was introduced by the legislature with a view to provide protection to the directors
against insolvent trading. As enumerated in section 588 G of the Act, the directors shall not
involve in insolvent trading as it is against the interest of the company as well as of the investors,
creditors and share holders of that company. The directors will be personally liable for any loss

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incurred by the company and others for conducting trading during the insolvency of the company
or when it is gradually approaching toward insolvency (Marsh & Roberts, 2017).
The amendment of the act by introducing the safe harbor method is intended to protect
the directors from their personal liability and to encourage them to take an initiative to
restructure the company when it is already insolvent or going to be insolvent. The underlying
principle of this shield is encouraging the directors to take innovative and modern measures to
overcome the insolvent stage of the company and not forcing them to sit idle and rely on the
traditional approach of voluntary administration of the company (Brotchie & Morrison,2017).
The section 588 GA (1) of the act states that section 588 G (2) cannot be applied to a
director and a debt unless two criteria are fulfilled. The former is that at any point of time, when
the director can assume that the company is already insolvent or going to turn insolvent very
soon, then he had attempted to or already taken any action that can be expected to give a better
result for the company than by appointment of the administrator or liquidator instantly. The other
criterion is that the debt incurred by the company due to such action of the director directly or
indirectly during the time beginning at that time and ending at the earliest of any of the following
times; when the director did not able to take any action within a reasonable time after that time,
or when the directors stopped to take any further action, or when the action made by the director
stops to provide any reasonable and better result of the company or when an administrator or
liquidator is appointed for the company.
Answer 3:
As per the provisions laid down in the Corporation Act 2001, safe harbor method is
employed to provide protection to the directors against personal liabilities for doing insolvent