Director Duties and Remedies for Minority Shareholders under the Corporations Act

Company Law

Question 1 – (a)
Issue
Whether any of the person mentioned in the case study has violated the director
duties?
Law
The duties which are imposed on the directors of a company are given under Part
2D.1 of the Corporations Act 2001 (Cth). These duties are imposed in order to govern the
operations of their directors while they are discharging their duties. Section 180 of this act
provides that directors have to maintain care and diligence (AICD, 2017). They have to
maintain a standard which is expected from a reasonable person while operating in such
position. Section 181 of the act imposes the duty of acting in good faith. The directors have
to ensure that they act in good faith because they owe a fiduciary duty towards the
company. They should prioritise the interest of the corporation above their personal
interest while taking business decisions. Section 182 of the act provided that directors
should use their position only for proper purposes. Directors operations at the apex position
in the company based on which they have immense powers. They should use these powers
for proper purposes only which means that they should avoid taking business decisions
which could be detrimental for the company or its members.
Section 183 imposes a duty on the directors to properly use the information. The
directors should ensure that they use this information for proper purposes and avoid using
it in a way which could be detrimental for the company or its members. In case these duties
are violated, the court can impose penalties on the directors. In ASIC v Narain (2008) FCAFC
120 case, the director failed to maintain a standard of care. In this case, the director
authorised the issues of the letters to the public in which misleading information was given
(Hargovan, 2010). The director was also involved in the process of drafting such letters,
therefore, the court provided that the director has failed to maintain a standard of care.
Section 588G of the Act provides that directors have a duty to ensure that they should not
involve in any trading practices which could result in making the company insolvent. In
Morley v Statewide Tobacco Services Ltd (1993) 1 VR 423 case, the court provided that
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directors must stop from signing a debt or incurring any expense if they have the suspicion
that the company will become insolvent (Golding, 2012).
Application
In the given case study, Dion was acting as the executive director of the company. He
failed to inform the company the organic food business which could bring significant profit
for the enterprise. He thought that other directors would reject this proposal; therefore, he
decided not to tell them about this business venture. Dion violated the provisions of section
180 since he failed to maintain a degree of care which any reasonable person would be
asking other directors regarding the business. Moreover, he entered into transaction with
Organica Limited by his own company Lifestyle Today Pty Ltd for gaining person profits due
to which he violated section 181. He also misused his position and information while making
this decision, thus, section 182 and 183 are violated. Moreover, the directors failed to
consider the advice given by Rita that they should not engage in any activities which could
result in making the corporation insolvent. Since they acted even when knowing that their
decision might result in making the company insolvent, they violated the duties given under
section 588G.
Conclusion
Dion, Larry, and Vance have violated the director duties given under the
Corporations Act.
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