Corporation Law: Duties and Responsibilities of Directors

Running head: CORPORATION LAW
CORPORATION LAW
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1CORPORATION LAW
Part A
Answer 1
The Corporations Act 2001 discusses with the general duties entrusted to the directors in
its various sections (Horne, 2017). Those general duties are often called as the fiduciary duties
because the basis of those duties is corresponding faith, respect and liabilities towards one
another (Huebner & Klein, 2015).
The Corporations Act 2001 elaborates mainly four duties for the directors of company as
given in the case of ASIC v Cassimatis (No 8) [2016] FCA 1023. Those are duty of care and
diligence, good faith, not to improperly use position and not to use information improperly
(Horne, 2017).
The duty of care and diligence provides that the director must act with a standard degree
of care and diligence which can be expected from a reasonable person (section 180 ) as seen in
ASIC v Cassimatis (No 8) [2016] FCA 1023.. The duty of good faith needs a director to act and
perform his duties in good faith for an adequate reason in the best interest for the company. Such
duty is a duty of fidelity and trust imposed by section 181 of the Corporations Act 2001 as well
as by the common law (Horne, 2017).
The duty of not to use position improperly requires that a director must not gain any
undue advantage for himself or others or to the detriment to the company (s 182).
The duty of not using any information inadequately requires that the directors must not
use any information they gain in their tenure as directors to gain any advantage for them or
others causing detriment to the company. (s 183).

2CORPORATION LAW
Apart from the four main duties of the directors, there are some additional duties and
responsibilities of the directors under the provisions of the said act. Those are as follows.
The directors are under a duty not to do insolvent trading under section 588G which says
that directors have the duty to assure that the company must not trade while it is or they can
expect that insolvency may occur as seen in case of Spies v R (2000) 173 ALR 529.
Moreover, the directors must also take reasonable steps to ensure that the company must
always comply with the obligations listed under the provisions of the Corporations Act in
relation to keeping of financial reporting and records ( s 344) (Horne, 2017).
Moreover, the directors shall also disclose information and matter related to the affairs of
the company in which such directors have personal material interest (s 191) particularly in
relation to section 208 and section 205G.
Further, the directors have duty to lodge the necessary information with ASIC as given in
section 188 (Brown, 2016).
Apart from these, the continuous disclosure of information to the market in case of the
information that are not usually available and which affects the share price of the company as
given in section 674.
Of all the duties mentioned above, the duty to prevent insolvent trading laid down I
section 588 is one of the fiduciary duties that the directors have towards the investors and
stakeholders of the company (Huebner & Klein, 2015). The fiduciary duties are based on mutual
trust, obligation and fidelity. The director have obligation towards the investors, stake holders
and other members of the company such that his act cause no loss or detriment to their interest as

3CORPORATION LAW
well as to the interest of the company. It based on the principle of mutual trust between the
directors and the creditors. If the directors allow insolvent trading, then the interest of the
creditors will be at stake as observed in Walker v Wimborne (1976) 137 CLR 1. Hence, the duty
to prevent insolvent trading as given in section 588 is a fiduciary duty as per the provisions of the
said act.
Answer 2:
On 19th of September 2017, the Corporations Act (Cth ) introduces the safe harbour
provisions under section 588 GA by amendment (Horne, 2017). As per Harris, the amendment
created the defence for directors against any insolvent trading regarded as the safe harbor
defence which was incorporated to encourage the directors to make an attempt to restructure the
company which is at the risk of insolvent trading instead of placing the company into the
voluntary administration at the first instance of trouble ( Dunn, 2017).
The said section 588 GA (1) provides that the duty given in section 588 G(2) will not be
applicable to a director and a debt if two conditions are complied. The first condition is that at a
particular time after the director is able to suspect that the company is or can be insolvent, then
he has taken one or more course of action that can be presumed to result into a better result for
the company than appointing the administrator or liquidator immediately. The second condition
is the debt is incurred by the company directly or indirectly in relation to any such action taken
by the director during the period that begins at that time and ends on the earliest of the following
time; the end of reasonable period after the time that the action is ended provided the director is
unable to take the action in such time or when the director stops to take the course of action or
when the action is unlikely to lead to a better result than the immediate appointing an