Breach of Director Duties in Company Law

This six-question assignment delves into the concept of director duties under Australian company law. Students analyze a case study involving Bond, examining whether he breached his statutory and common law obligations. The assignment requires application of relevant legislation like the Corporations Act 2001 and landmark cases such as ASIC v Macdonald (No 11) and ASIC v Stephen William Vizard. It emphasizes understanding key principles like care and diligence, conflict of interest, and misuse of company information.

Company Law
Question based assignment
(Student Details: )
15-Oct-17

QUESTIONS 2
Issue
Whether there had been a breach of director duties on part of Bond in this case, or not?
Rule
In Australia, the Corporations Act, 20011 is the legislation which rules over the conduct
and the working of the companies in the nation and included in Part 2D.1 of this act is the
director duties2. As per section 180(1) of the Corporations Act, it is the duty of the directors in
the nation to act in a manner which depicts care and diligence particularly when the directors
use their powers and discharge their obligations3. In case where the provisions covered under
section 180(1) are contravened, civil obligations covered under section 1317E are raised and in
such cases, the court gets the power to make a declaration of contravention4.
In Australian Securities and Investments Commission v Macdonald (No 11)5, the chief
executive officers of the company, was deemed to have contravened this section as he was
covered under the definition of other officers in section 180(1)6. The chief executive officer in
this case was MacDonald, and he had failed in advising the board of the company about the
Draft ASX Announcement. Apart from this, he had also failed in getting the necessary approval
before the Final ASX Announcement was released and also regarding the facts that some
1 Corporations Act, 2001 (Cth)
2 Corporations Act 2001, pt 2D.1
3 Corporations Act 2001, s180(1)
4 Corporations Act 2001, s1317E
5 [2009] NSWSC 287
6 Katherine Czoch and Michelle Mulder, Australia: The James Hardie Decision: Australian Securities &
Investments Commission v Macdonald (No. 11) [2009] NSWSC 287 (2010)
<http://www.mondaq.com/australia/x/106690/Corporate+Governance/The+James+Hardie+Decision+Australian+Se
curities+Investments+Commission+v+Macdonald+No+11+2009+NSWSC+287>

QUESTIONS 3
modifications had been carried on before the announcement was released. As a result of this
conduct of Macdonald, the same was deemed as a contravention of director duties, apart from
being misleading and deceptive7.
In addition to the statutory law, the common law also provides certain obligations over
the directors of the company, in addition to the key officers of the company. As per the
common law, it is the duty of the directors to steer clear of such circumstances in which a
conflict of interest is present and also are required to avoid using the corporate opportunities
for their personal benefits8. These provisions are also covered in the statutory law, i.e., the
Corporations Act, as per which the directors and the officers of the company are under an
obligation to make proper use of the position which they hold in the company, on the basis of
section 1829; and also have to use the information of the company in a proper manner
particularly when it relates to confidential information, on the basis of section 18310; and the
applicability of both these sections put a restriction against such misuse, whereby an advantage
is attained for someone else or for themselves, particularly when it is detrimental for the
company11.
A leading matter in which this was upheld was the case of ASIC v Stephen William
Vizard12. This was a case in which the court banned the director of the company, i.e., Vizard,
from managing the affairs of any company for a period of 10 years and was also awarded
7 David Jacobson, ASIC v James Hardie Decision: Company, Directors And Officers Were Misleading (2009)
<https://www.brightlaw.com.au/asic-v-james-hardie-decision-company-directors-and-officers-were-misleading/>
8 PwC, A guide to directors’ duties and responsibilities for non-listed public companies and proprietary companies
in Australia (2008) <http://etraining.communitydoor.org.au/pluginfile.php/608/course/section/95/
GuideDirectors_Apr08.pdf >
9 Corporations Act 2001, s182
10 Corporations Act 2001, s183
11 Julie Cassidy, Concise Corporations Law (The Federation Press, 5th ed, 2006)
12 [2005] FCA 1037

QUESTIONS 4
pecuniary penalties to the sum of $390,000. The reason for such high penalties was that the
director had dealt with the shares of the company for gaining a personal benefit and in order to
do so, the confidential information of the company was used, which he got by being Telstra’s
director13.
Application
The case study shows that Bon had decided on the draft of the ASX Announcement and
that he had placed the contents of this draft before the board, instead of the actual draft. He
failed to inform the board that the borrowings were characterised as being non-current ones
due to which, the final instalment repayment could not be rolled over to the next year. Apart
from this, an approval over the Final ASX Announcement was also not undertaken by him.
Applying the verdict given in Australian Securities and Investments Commission v Macdonald
(No 11) to the facts of this case, these failures of Bond would be deemed as a breach of his
director duties, particularly as he was neither careful, not diligent in his work.
Apart from section 180(1), there also has been a contravention of section 182 and 183.
This is because he obtained information about the takeover of Casino as a result of being the
CEO of the company, which he misused and asked his assistant to purchase shares. On the basis
of ASIC v Stephen William Vizard, this would make Bond liable for misuse of position and
information of the company. Even though the shares did not result in a profit for Moneypenny,
but the information was nonetheless misused and this was a conflict of interest, as a result of
which Bond breached his duties.
13 Kim Reid, Civil penalty and disqualification orders: An overview of the Vizard case (2017)
<http://www.findlaw.com.au/articles/1970/civil-penalty-and-disqualification-orders-an-overv.aspx>

QUESTIONS 5
Conclusion
To conclude, there had been a contravention of both statutory and common law
director duties, by Bond.

QUESTIONS 6
Bibliography
Articles/ Books/ Journals
Cassidy J, Concise Corporations Law (The Federation Press, 5th ed, 2006)
Cases
ASIC v Stephen William Vizard [2005] FCA 1037
Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287
Legislation
Corporations Act, 2001 (Cth)
Others
Czoch K, and Mulder M, Australia: The James Hardie Decision: Australian Securities &
Investments Commission v Macdonald (No. 11) [2009] NSWSC 287 (2010)
<http://www.mondaq.com/australia/x/106690/Corporate+Governance/The+James+Hardie+De
cision+Australian+Securities+Investments+Commission+v+Macdonald+No+11+2009+NSWSC+2
87>
Jacobson D, ASIC v James Hardie Decision: Company, Directors And Officers Were Misleading
(2009) <https://www.brightlaw.com.au/asic-v-james-hardie-decision-company-directors-and-
officers-were-misleading/>

QUESTIONS 7
PwC, A guide to directors’ duties and responsibilities for non-listed public companies and
proprietary companies in Australia (2008)
<http://etraining.communitydoor.org.au/pluginfile.php/608/course/section/95/
GuideDirectors_Apr08.pdf >
Reid K, Civil penalty and disqualification orders: An overview of the Vizard case (2017)
<http://www.findlaw.com.au/articles/1970/civil-penalty-and-disqualification-orders-an-
overv.aspx>