Corporations Law: Duties of a Director and Recent Statistics

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

CORPORATIONS LAW1
Introduction
Duties of a Director
The Corporations Act 2001 (Cth), s 180(1)1, provides for the duty of a director to undertake the
affairs of the business to be carried out with apt diligence and utmost care. And the aptness of the care
along with diligence needs to be exercised as per the conscience of a prudent individual who have been
subjected to a similar situation as that of the director in question.
The Corporations Act 2001 (Cth), s 1812, requires the directors to ensure the good faith being
inflicted the arrangements they have undertaken to have the probability of achieving the best for the
company and has been undertaken for a proper cause.
The Corporations Act 2001 (Cth), s 1823 requires the directors to refrain from gaining some
personal interest at the cost of the wellbeing of the company.
The Corporations Act 2001 (Cth), s 588G4 requires the person who has been appointed in the
company as director effect the abstinence of the company from incurring any debt when it is probable that
the company has been going into insolvency or might become insolvent if such a debt has been incurred.
The Corporations Act 2001 (Cth), s 1905 requires the director to take liability for all the actions
that has been taken by any delegates acting on behalf of his authority as a director.
Recent Statistics
It has been presented in the reports of the ASIC that there have been an escalated rate of increase
in the reported probable insolvent trading of civil nature. In the year 2017-18, out of the 4505 reported
cases of insolvent trading, 79.3 percent of the budgeted debts has been incurred by the companies when
1 The Corporations Act 2001 (Cth), s 180(1)
2 The Corporations Act 2001 (Cth), s 181
3 The Corporations Act 2001 (Cth), s 182
4 The Corporations Act 2001 (Cth), s 588G
5 The Corporations Act 2001 (Cth), s 190

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the worth of the companies has been below 1 million dollars. The findings of this report has pointed
towards the fact that the breach of s 588G of the Corporations Act 2001(Cth) has been underlying the
most of the reported cases of insolvency of the company. Other than that there are cases that have been
reported discloses the contravention of the provisions contained in s 180 of the Corporations Act
2001(Cth)6.
Fiduciary Duties
The concept of fiduciary duty has evolved from the agency laws, which requires the agents to be
cautious about the wellbeing of the principal while conducting their business under the authorization of
the principal. This requires the agents to have the fiduciary duties being ensured for the principal causing
the agents to act in the favor promoting the welfare of the principal. In case of a company, the directors of
a company are appointed for the purpose of the carrying out the management of the affairs of the
company and this requires them to ensure all their endeavors in relation to the discharge their functions
for the purpose of ensuring wellbeing of the company and act in a way that is apt and proper for the
company7.
General Law & Statutory Duties
The director of a company are required to be imposed with certain duties that are to be ensured
while conducting the business of the company. These are the statutory duties as well as the general duties
of the company8. The discussion of the statutory duties of a company have already been explained
previously in the assignment, however, the general law duties are to be enumerated as follows:
 Good faith guaranteeing the welfare of the company.
 Abstinence of personal benefit.
 Diligence and care.
6 asic.gov.au, Download.Asic.Gov.Au (Webpage, 2019) <https://download.asic.gov.au/media/4936726/rep596-
published-14-november-2018.pdf>.
7 Huebner, Marshall S., and Darren S. Klein. "The Fiduciary Duties of Directors of Troubled Companies." (2015)
AM. BANKR. INST. J. 34: 18-18.
8 Hanrahan, Pamela F. "Directors' Duties and Public Interests." (2018) Available at SSRN 3434936.

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Summary of Issues
In the present situation, Andrew, Brian, and Colin, are the directors of Gemsales Pty Ltd, a
company engaged in the business of importing and supplying jewellery as wholesalers to the local
market. There has been a resolution within the company to lower their prices for the purpose of being
more competitive in the market and escalating the sales of the company. For this purpose the company
has required a loan to fund for this venture amounting to $4million dollars and the same has been applied
to the friendly bank. The resolution for availing the loan has been taken in a meeting as has been
conducted by the company where Andrew has been present and has voted for the same. However,
subsequently there has been an over-extension on the part of the company and has resulted in the
insolvency of the company. This has made the repayment process of the loan towards the Friendly Bank
Ltd to have been hindered owing to the insolvency of the company. The issue arising from the present
case if whether the three of the directors namely Andrew, Brian and Colin are to be held liable for their
breach of the duty of a director under s 180(1) of the Corporation Act 2001 (Cth)9. Whether they are
being liable for the breach of their duties to refrain from the activities that has the effect of putting the
company into the probability of being rendered as insolvent as u s 588G of the Corporation Act 2001
(Cth)10. Whether Andrew has the option of availing any defence under the provisions of the Corporation
Act 2001 (Cth) with respect to the situation.
Part 1
Issue 1
Whether Andrew is to be held liable for his breach of the duty of a director under s 180(1) of the
Corporation Act 2001 (Cth)11. Whether he is being liable for the breach of his duties to refrain from the
activities that has the effect of putting the company into the probability of being rendered as insolvent as
u s 588G of the Corporation Act 2001 (Cth)12. Whether Brian is to be held liable for his breach of the
9 The Corporations Act 2001 (Cth), s 180(1)
10 The Corporations Act 2001 (Cth), s 588G
11 The Corporations Act 2001 (Cth), s 180(1)
12 The Corporations Act 2001 (Cth), s 588G