Corporations Law

Running head: CORPORATIONS LAW
Corporations Law
Name of the Student
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Author Note

1CORPORATIONS LAW
Issue
The first issue arising from the given scenario is whether Rocky, Drago and Clubber have
breached any directors' duties. The second issue arising from the given scenario is whether
Rocky, Drago and Clubber have an arguable defence. The third issue arising from the given
scenario is whether the same standard will be applied to Drago, as the company's chief
financial officer.
Rule
Under the Corporations Act 2001 (Cth) as well as under the common law, directors are
considered to have a fiduciary relationship with that of the company. The same can be
illustrated with the case of Mills v Mills (1938) 60 CLR 150. The directors are required to
ensure the matters, which are beneficial for the company and refrain from indulging into
matters that will cause detriment to the company. The same can be illustrated with the case of
Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193.
Under section 180(1) of the Act, the directors of a company are imposed with duty to
exercise their powers as a director with the application of proper and just care and ensure
their actions to be carried out diligently. The same can be illustrated with the case of
Australian Securities and Investments Commission v Healey. [2011] FCA 717. The standard
of care that a director is required to exercise is to be assessed with respect to the actions of a
reasonable man when put in similar circumstances. The same can be illustrated with the case
of AWA Ltd v Daniels (1992) 7 ACSR 759.
Under section 181 of the Act, the directors are required to ensure good faith in acting for
the company and all the actions of the directors needs to be for the best interest pertaining to
the company. Under this section, the directors are also required to make their actions in

2CORPORATIONS LAW
conformity with the proper purpose. The same can be illustrated with the case of Darvall v
North Sydney Brick and Tile Co Ltd (1988) 6 ACLC 154.
Section 182 of the Act would restrain any act of the directors that are solely committed for
the purpose of accruing personal benefit to the directors and does not cause any benefits to
the company and cause detriment to the company. The same can be restricted with the case of
Walker v Wimborne (1976) 137 CLR 1.
In the present situation, the directors of a company, under the Corporations Act 2001
(Cth), are required to exercise their powers as a director in compliance with duties mention
by the Act. However, any director, who has been alleged to have acted in contravention of the
duties as a director, can avoid liability, if he can establish his acts to be in compliance of
section 180(2) and section 1317S of the Act. These sections contains defences that are
available to the directors of a company in case they have been alleged to have acted in a
manner, that is in violation of their duties that they have under the Act (Omar 2018).
Section 180(2) of the Act provides for the best judgement rule. This can be considered to
be a defence that a director alleged to have violated his duties may seek resort to. For the
purpose of taking resort under this defence, the director needs to prove that the breach that
has been committed was a consequence of an action that has been carried out by him in a
good faith and he has tried to ensure that his acts are for a proper purpose. He also needs to
establish that there was no material benefit that he might have accrued in the personal
capacity from the decision that he has taken. The directors, seeking resort under this section,
is also required to establish that he had a genuine belief that the decision he has taken is the
most appropriate one in the given circumstances. For seeking resort under this section, he
also need to establish that he has acted in a rational manner and his main objective was to
ensure the interest of the company. Section 1317S of the Act confers discretionary power