Responsibilities of Directors and Officers under Corporations Law and Corporate Governance Principles

This report discusses the responsibilities of directors and officers under Corporations Law and Corporate Governance Principles. It covers the duties and obligations of directors and officers under the Corporations Act 2001 (Cth) and the principles of corporate governance. The report also provides recommendations for better corporate governance.

Corporation Law
Running Head: Corporations Law 0
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Student’s Name

Corporations Law 1
Contents
Findings...........................................................................................................................................2
Responsibility under Corporations Act 2001 (Cth).........................................................................2
Responsibility under Corporate Governance principles..................................................................3
Recommendation.............................................................................................................................6
Conclusion.......................................................................................................................................7
Bibliography....................................................................................................................................8
Legislations 9
Cases 9
Books/journals 9
Other Resources 9

Corporations Law 2
Introduction
A company is a business structure that works with the minds of its directors and officers.
Directors and officers of a company do act on behalf of the company and therefore considered as
agents of the same. This is the reason that these people have a fiduciary relationship with the
company1. They are required to act in the best interest of the company. In every nation, a
separate legislation is there to regulate the affairs of the company. Corporations Act 20012s is the
federal level legislation of Australia. This act imposes liabilities on officers and directors of an
Australian company under various sections.
However, in the recent times, many of the cases have been reported the cause of which the scope
of this act has been questioned. Many of the section such as 180, 181, 182, 183, 674, 1043 and so
on are there in which a director/officers of corporations are required to perform their duties. Most
of these sections are there to protect the interest of shareholders only. This is a major issue in the
field of corporate governance. According to the principles of corporate governance, a company
must act in a manner keeping the interest of all stakeholders in view but not only the
shareholders. The report presented hereby consist a snap of current scenery, the expectations of
stakeholder from the act and conclusion thereof.
Findings
Responsibility under Corporations Act 2001 (Cth)
This act provides a set of duties and obligations for the directors and officers of the company.
The reason behind the imposition of duties is that these people are liable to manage the affairs of
the company. A company is an artificial person, which depends on its directors. Although in
addition to being an artificial person, a company is also a separate legal personality. The same
can enter into a contract with a third party. Further, the same can also run the business in it is
own name. Law gives birth to a company. A person who deals with a company actually deals
with the directors of the same. A company can sue and can be sued by a person. As directors
have huge powers to take decisions on behalf of a company, the same is liable to perform their
duties in a manner that brings the best positive results to the same.
Some general duties of a director and officer of a company are defined under the Division 1 of
Part 2D of the act3. Section 180 (1) of the act says that a director and officer of a company that
they must discharge their obligation and duties with due care and diligence. The section
1 James Sheedy and Stephen Baker, Litigating Trust Disputes in Jersey: Law, Procedure & Remedies ( Bloomsbury
Publishing, 2017)
2 Corporations Act 2001 (Cth)
3 Legal.Thomsonreuters.com, Chapter 2d – Officers And Employees (2015) <
https://legal.thomsonreuters.com.au/browse/law-annuals/pdf/corps_leg_extract.pdf>.

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ultimately demands such people to act like a reasonable person. Section 181 of the act is also an
important one in the area of director duties. This section says that it is expected from every
director and officer of a company to do the acts in the good faith of the company and for an
appropriate purpose. On the other side, section 182 of the act states that no director, secretary,
employee, or an officer of a company must ever misuse their position in the company to earn
personal benefits4.
Where section 182 prohibits the improper use of position, similarly section 183 of the act
prohibits the improper use of available information and provides that an officer, an employee, a
director, or the secretary of the company must not use the business information for their personal
benefits5.
The duties mentioned under section 180 to 183 are the general duties. There are many other
sections, which describes the duties of directors and officers. These sections included 191, 195,
209, 588G and many others. Directors and officers of every Australian company are required to
follow the provisions of discussed section, elsewhere they will be held liable for the breach of
duty6.
Responsibility under Corporate Governance principles
Duties of directors are not limited upto the scope of Corporations Act 2001, but they are also
required to keep the principles of corporate governance in minds. Corporate governance is a
subject that is closely connected to ethics. This subject focuses on the factor that being a director
of the company, a person should work for the betterment of all the stakeholders. No there is a
need to understand the term stakeholder.
Stakeholder: - This is a wider term then the shareholder. Every person who has some interest in
the affairs of a company will be treated as a stakeholder of the company, For instance,
4 Austlii, Corporations Act 2001 - Sect 182 (2018) <
http://www5.austlii.edu.au/au/legis/cth/num_act/ca2001172/s182.html>.
5 Australia, Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related
regulations. (CCH Australia Limited, 2011), 222.
6 AICD, The role of a company director is to govern a company on behalf of the shareholders or members of that
company. (31 October 2017) < https://aicd.companydirectors.com.au/resources/director-tools/practical-tools-for-
directors/duties-of-directors/general-duties-of-directors>.

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employees, government, suppliers, consumers, and investors of a company7. A shareholder is one
of the most important stakeholders of a company. The reason for that they have their interest in
the profits of the company and therefore it becomes the liability of directors to consider their
interest while taking business decisions.
However, according to the principles of corporate governance, the directors should consider the
interest of every stakeholder and not only shareholders. In the year 2003, Australian Stock
Exchanges has published these principles on the subject of corporate governance8. These
principles require a director to do following tasks.
 Recognising and managing risks
 Structuring the board
 Providing responsible and fair remuneration to directors9
 Laying down a strong foundation for effective management and oversight
 Acting responsibly and ethically
 Making balanced and timely disclosures
 Safeguarding integrity in corporate reporting
According to the rules and principles of corporate governance, every stakeholder is
important for the company in some of the manners. The corporate governance principles
motivate the directors of the company for using a stakeholder approach while taking
decisions of the company.
Stakeholder Theory: - As the name implies, this theory focuses on the fact that a company
should not only consider the interest of the shareholder but the same is required to work for the
7 Business Dictionary, stakeholder (2018) < https://www.economicshelp.org/india/problems-indian-economy/>/.
8 R. I. (Bob) Tricker and Robert Ian Tricker, Corporate Governance: Principles, Policies, and Practices (Oxford
University Press, 2015), 123.
9 ASX Corporate Governance Council, Corporate Governance Principles and Recommendations (2018)
<https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf>.

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betterment of it is every stakeholder. The theory says that no doubt a company works for the
profits and shareholders are the most valuable stakeholder of every company as the same invest
money to the business, yet they are not the only stakeholder10. A company needs to understand
that as capital is important to run a business, similarly other factors such as the supply of goods
and purchase of raw material are also important. A company cannot run it is business depending
upon shareholder and hence it becomes the responsibility of directors of a company to take their
decision wisely adopting a broader approach.
Many of the cases have been reported in past few years in which it has been noted that directors
of a company breached their duties and further stated that they were liable towards the
shareholders and not the customers or any other stakeholders. Some of the cases where directors
of a company considered only the interest of shareholders is mentioned hereunder.
ASIC v Cassimatis11:- In this case, two persons Mr. and Mrs. Cassimatis Were directors of the
company named Storm Financial Limited. The company was engaged in the business of
providing financial advisory services to the company. Mr. Cassimatis has prepared and suggested
a financial model to it is customers, which have been, approved a big failure later on. When the
proceedings have initiated against him, he has stated that he is not liable for any kind of breach
under Corporations Act, 200112. In the arguments, he said that Corporations Act 2001 only
requires a director to act in the interest of the shareholder but not in the interest of customers. In
the decision, the court held that director was liable under the act as act provided that being a
10 Smart Sheet, What is stakeeholdee thery and how does it imoacts an organisation? (2018) <
https://www.smartsheet.com/what-stakeholder-theory-and-how-does-it-impact-organization>
11 ASIC v Cassimatis (No 8) [2016] FCA 1023
12 D. Gordon Smith and Andrew S. Gold, Research Handbook on Fiduciary Law. (Edward Elgar Publishing, 2018),
315

Corporations Law 6
director one must perform the duties in the best inters of the company and company refers to all
stakeholder and not only shareholders.
Commonwealth Bank of Australia v Royal Commission case:- In the recent findings of
Royal commission, it has been noted that one of the most popular banks of Australia has
committed a serious breach of corporate governance principles. As the bank is a listed entity, the
corporate governance principles prescribed by ASX are applicable to the company. Royal
Commission made an allegation to the bank stating that directors of the same failed to provide
some important disclosure regarding 54000 accounts13. They have focused to maximize the
profits and kept the interest of shareholders in mind. Director and officers of this bank were
required to perform their duties for the betterment of all the stakeholders but they did not
consider the interest of society and government14.
In addition to above two cases, many of the other cases are also there where directors only
considered the interest of shareholder or have argued that they are only liable for the
stakeholders of the company and not for the stakeholders. This is the reason that amendments in
the current law seem to be required.
Recommendation
In order to grant the recommendations, this can be stated that there is no need to make any
amendment in current Law. The present sections say that a director and officer of a company
13 The Guardian, Commonwealth Bank charged fees to dead clients, royal commission hears <
https://www.theguardian.com/australia-news/2018/apr/19/commonwealth-bank-charged-fees-to-dead-clients-royal-
commission-hears>.
14 Stephanie Chalmers, Banking royal commission: commonwealth Bank delayed wiring to overcharged business
customers < http://www.abc.net.au/news/2018-05-24/banking-royal-commission-commonwealth-bank-overcharged-
business/9797120>

Corporations Law 7
must perform his/her obligation for the good faith and best interest of the company. Nowhere
the term shareholder is mentioned. These are the directors and officers who are misinterpreting
this term “Company”. Furthermore, to ensure the good corporate governance in an origination
the authorities can develops plans and programmes. In addition to authorities, this is also the
individual responsibility of every director to check that whether they are breaching any of the
duties while taking a decision or doing any business.
In conjunction with aforesaid, the government can bring some clarification rules in order to
clarify the terms and scope of the act. Authorities can initiate some new actions similar to ASX
principles to notify the directors and officers that the corporate governance is just another aspect
and to follow at each step of working.
Conclusion
As stated above, this is to conclude that many of the directors are not aware of the requirement of
the act and in those cases where they are aware, the same has some misunderstandings. These
misunderstandings are majorly related to scope and applicability of the act. In many of the cases,
directors of a company did something that they have not considered as a breach of duty. People
think that shareholders are the most valuable stakeholder as they invest the money in a company.
However, this is not true. In every case where such officers and directors failed to perform their
duties with respect to other stakeholders, the court has held them liable. The procedure of
amendment in an act is a long procedure and therefore the government can initiate something
more in this area. No doubt that every officer and director of the company must consider the
interest of stakeholders equally. Hence, this is to be stated that amendments in the act is a later

Corporations Law 8
stage and firstly government and other authorities should take necessary steps to ensure the use
of the stakeholder approach rather than a shareholder.
Bibliography

Corporations Law 9
Legislations
Corporations Act 2001 (Cth)
Cases
ASIC v Cassimatis (No 8) [2016] FCA 1023
Books/journals
Act 2001, related regulations (CCH Australia Limited, 2011).
Australia, Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC
Sheedy, James and Stephen Baker, Litigating Trust Disputes in Jersey: Law, Procedure &
Remedies ( Bloomsbury Publishing, 2017)
Tricker, R. I. (Bob) and Robert Ian Tricker, Corporate Governance: Principles, Policies, and
Practices (Oxford University Press, 2015)
Other Resources
AICD, The role of a company director is to govern a company on behalf of the shareholders or
members of that company. (31 October 2017) <
https://aicd.companydirectors.com.au/resources/director-tools/practical-tools-for-directors/
duties-of-directors/general-duties-of-directors>.

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ASX Corporate overnance Council, Corporate Governance Principles and Recommendations
(2018) <https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-
recommendations-3rd-edn.pdf>.
Austlii, Corporations Act 2001 - Sect 182 (2018) <
http://www5.austlii.edu.au/au/legis/cth/num_act/ca2001172/s182.html>.
Business Dictionary, stakeholder (2018) < https://www.economicshelp.org/india/problems-
indian-economy/>/.
Legal.Thomsonreuters.com, Chapter 2d – Officers And Employees (2015) <
https://legal.thomsonreuters.com.au/browse/law-annuals/pdf/corps_leg_extract.pdf>.
Smart Sheet, What is stakeeholdee thery and how does it imoacts an organisation? (2018) <
https://www.smartsheet.com/what-stakeholder-theory-and-how-does-it-impact-organization>
Smith, D. Gordon and Andrew S. Gold, Research Handbook on Fiduciary Law. (Edward Elgar
Publishing, 2018), 315
Stephanie Chalmers, Banking royal commission: commonwealth Bank delayed wiring to
overcharged business customers < http://www.abc.net.au/news/2018-05-24/banking-royal-
commission-commonwealth-bank-overcharged-business/9797120>
The Guardian, Commonwealth Bank charged fees to dead clients, royal commission hears <
https://www.theguardian.com/australia-news/2018/apr/19/commonwealth-bank-charged-fees-to-
dead-clients-royal-commission-hears>.