Corporation Law: Duties and Liabilities of Directors

Running head: CORPORATION LAW
CORPORATION LAW
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1CORPORATION LAW
Part A
Answer 1
According to the provisions enumerated in the Corporations Act 2001, the directors are
empowered with various general duties that are laid down in several sections of the Act (Bird &
Gilligan, 2016). Such general duties are also called the fiduciary duties as these are based on
mutual respect, trust and obligations towards each other.
Section 180 of the act states that a director of a company shall use his powers entrusted to
him and shall execute his duties carefully and diligently.
Section 181 held that the directors shall do their duties in good faith to achieve the best
interest and output for the concerned company.
The directors are even stopped as laid down in section 182 from using their director
position to gain any undue advantage for him or for someone else. They are also stopped from
causing loss to the company for incurring any personal gain.
Under section 183, they are prevented from mis-appropriating any information that he
had received by the virtue of his position in the company as the director and use such
information for making personal gain or allowing someone else to gain profit at the cost of the
company as per section 183.
Under section 191, the directors of any company, has a responsibility to disclose all the
information of the company that he had due to his position within his capacity so that the
shareholders have a clear concept and knowledge about the transactions and operations of the
company.

2CORPORATION LAW
Similarly, the directors are under obligation to prevent any insolvent trading of the
company as given in section 588G of the said act.
All the above mentioned duties are also regarded as the fiduciary duties as they are based
on corresponding trust and belief between the directors and the shareholders or investors of the
company (Horne, 2017). The fiduciary duties form the foundation of the mutual relation of trust,
reliance and repose among the parties due to a legal agreement. The statutory duties on the other
hand do not require the need of any mutual trust or repose. It is a duty or responsibility of an
individual to act or otherwise by adhering to the standard degree of care of a reasonable person
to avoid any foreseeable loss or harm. For a statutory duty no mutual trust or obligation is
required. Here one party is bound by a statutory law to act or not to act in a certain manner. In
any company, the directors are embodied with certain duties to perform for the other members of
the company. There lies trust and faith among the directors, officers, shareholders and investors.
Section 588 G is a vital section that provides that a director must not engage in insolvent trading.
It states that the directors’ duties in relation to the shareholders, investors and other members of
the company.
Thus, from the discussion made above, the fiduciaries duties can be distinguished from
the statutory duties on the basis of the mutual relation among the concerned parties. In the breach
of statutory duties, criminal penalties are inflicted on the defaulters whereas breach of fiduciary
duties mostly imposes civil penalties. In only extreme cases, in case of default on the
performance of the fiduciary duty, criminal liabilities are inflicted.
2.

3CORPORATION LAW
Some remedies in the form of defences are allowed to the directors if they cause insolvent
trading under the provisions of the Corporations Act 2001 (Cth ) of Australia Act (Bird &
Gilligan, 2016). Usually, the directors are personally liable for any loss that the company
incurred for trading during the insolvency period. Under the provisions enumerated under the
safe harbor principle, the directors cannot be held personally for any loss or debt incurred by the
company after the company became insolvent provided that they can show prove that those debts
or losses were caused in relation to the action they have taken to effect a result or outcome for
the company as well as for its investors and creditors also and not moving towards a step closer
to liquidation. The Safe Harbour method attempts to carve out the directors from the provisions
of civil insolvent trading given in section 588G (2) (Hill & Conaglen, 2017). It is provided in the
section 588 GA (1) of the said act that the directors of the company are excluded from their
liabilities in case of any insolvent trading as per section 588 G (2) if few criteria are satisfied.
The criteria are that the directors have taken some active and positive actions to prevent
the loss from occurring. For instance, when the directors can suspect that the company is about to
turn insolvent or is already insolvent, then such directors are assumed to have taken measures
that are likely to achieve a better output of the company. Hence the directors are required to
prove that some action in form of positive approaches has been taken up by the directors the
moment they realize that insolvency has happened or going to happen. Moreover, the directors
are also required to maintain a track in order to record the actions he has taken to save the
company from such condition. This provision of safe harbor principle was introduced recently to
complement the Insolvency Reform Law Act.
3.