Liability of Directors under Corporations Act 2001

Question one
Issue: The issues presented in question include the fact is, the directors of First Class Racing Ltd.
have fulfilled their duties towards the company. These duties are imposed on the directors by
common law and also by the Corporations Act, 2001.
Rule: According to the corporations’ law, a breach of duty by the director is not only detrimental
for the company itself, but the directors may also be held in civil or criminally liable under the
law. Therefore, section 180 provides the duty of the directors to act with care and diligence, s181
requires the directors to act in good faith, s182 requires that the directors should avoid improper
use of their position and according to s183, the director should avoid improper use of
information received by them as a result of their position in the company (Heydon, 2006).
According to the duty to act with care and diligence, the directors of the corporation should use
their powers and perform their duties by exercising proper care and diligence that can be
expected from any other reasonable person if such person: (i) were a director of the company and
(ii) held the same office and had similar obligations in the company as the director in question.
However, s180(2) contains the business judgment rule. Therefore, it provides protection to the
directors to make the business judgment that is applicable if the directors have fulfilled their duty
of care and diligence, and it can be established that the judgment was made by the directors in
good faith and for proper purpose (Getzler, 2002).
Application: In this case, the directors of the company, Bill, Simon and Robin had passed a
resolution at the board meeting, according to which the company was going to buy a race horse
for $5 million and the company was going to award the development of software contract to
another company ITZW Pty Ltd.. The other directors of the company found that the resource

belonged to the father-in-law of Bill was forced to sell the horse as a result of impending divorce.
This fact was not disclosed to the directors. Similarly, the cause was not valued or checked by a
vet. ITWZ Pty Ltd belonged to the brother of Simon, who was in need of work. The other two
directors, Bill and Robin had approved the contract without asking any questions.
At the same time, Bill got a chance to invest in another online betting company if he could raise
further funds for the company. As a result, Bill organized further $500,000 for the the company.
In return, he got 50,000 shares of the company worth AUD $5.36 each. Bill also failed to inform
the other directors of the company regarding this conflicts of interest and the personal gain made
by him.
Conclusion: in the present case, the directors of First Class Racing Ltd. are liable for the breach
of their duties imposed by the Corporations Act. Company can recover the loss suffered by it
from Bill, Simon and Robin.