Corporations Law: Duties of Directors in Good Faith and Proper Purpose

Running head: CORPORATIONS LAW
CORPORATIONS LAW
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CORPORATIONS LAW
Introduction
The creation and the operations of a company or an organization are to be regulated and
governed by the Corporations Act, 2001. It also provides certain kinds of duties to the directors
and the officers along with the other members who work in the organization and who are
considered to be a part of the organization. It looks over the different kinds of takeovers and
other affairs of the companies such as fundraising and others. The companies are governed by at
both the state level as well as the national level. The civil liabilities of the directors are a
significant part of the Act which are mentioned or laid down under Section 181. This particular
section mentions that the directors who are a part of the company or the organization has a
responsibility to perform their duty in good faith which would help them achieve the best interest
for the organization or the company. The act of the directors should be done with a reason which
is proper and reasonable.
This paper mainly discusses the provisions which are laid down or mentioned under
section 181 of the above-mentioned Act and it will mainly focus on the area of good faith and
proper purpose. An analysis of the corporate governance principles have also been made. This
paper further tries to concentrate on a dispute which is in connection to identification of the
determining issues which are regulating the principles of good faith to proper purpose. In
conclusion, it summarizes the points that have been discussed in this paper.
Discussion
The provisions which have been laid down in the Act discusses the duties which are to be
performed by the directors while working in a company or an organization as they have certain
duties which needs to be performed which form a part of both the statutory provisions as well as

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CORPORATIONS LAW
the common law. In all fairness the directors of a company or an organization shares a certain
kind of fiduciary relation due to which the directors are considered to be loyal towards the
company or the organization (Fienman 2014) . These loyalty are showcased by the directors both
positively and negatively. The positive thing for the directors of the company or an organization
are mentioned in section 181 of the above-mentioned Act. The directors have certain duty of care
towards the company or the organization which the directors work for. These are considered to
be common law duties. These are also seen in the section 180(1) of the Above-mentioned Act.
The innovative statement in section 181 has its development and origin in the decision which
was provided in the important case of Re Smith and Fawcett Ltd [1942] Ch 304 at 306. In this
case the judgment given by the judge stated that the company’s interest is of utmost importance
and it is essential for the directors to act “bona fide” in the interests of the company or the
organization. Later it was clear after scrutinizing several cases that the duty that the director has
towards the interests of the company is not considered to be referred to the good faith always.
The reason for such an assumption is to understand that the directors have several duties to
perform and the directors can at times try to violate their duties by acting on behalf of the
company’s interest whether or not the directors were performing their duties in an honest way.
The reason for such was due to the fact that those directors were not able to comprehend
properly as to what was stated or mentioned in the court on behalf of the company’s interest.
Section 181 (1) (a) was considered to be inconsistent with the common law principle and
method which mentioned the best interests of the company according to the Advisory
Committee. It is considered to have an objective facet. There was a comparison which was being
made by the Advisory Committee far along where the comparison was on the basis of diligence
and due care of duty along with the duty of good faith which was mentioned in section 181. The