Directors and Officers Duties and Consequences of Breach

Running head: DIRECTORS AND OFFICERS DUTIES AND CONSEQUENCES OF
BREACH
DIRECTORS AND OFFICERS DUTIES AND CONSEQUENCES OF BREACH
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1DIRECTORS AND OFFICERS DUTIES AND CONSEQUENCES OF BREACH
Executive Summary
Directors and officers are an integral part of any organization. They owe certain duties
towards the company and its members. It is the duty of directors and officers to maintain
proper communication about the daily affairs of a company with the board and management.
Though the officers are bound to act according to the orders of the board of directors, they
still owe some managerial duties for the companies. Every director and officer act within
their prescribed limit. The study aims to discuss the duties and liabilities of directors and
offices and also discusses the scenarios in cases of breach of their duties.

2DIRECTORS AND OFFICERS DUTIES AND CONSEQUENCES OF BREACH
Table of Contents
Introduction................................................................................................................................4
Liabilities of directors................................................................................................................4
Liabilities of officers..................................................................................................................4
Consequences of breach of duty in ASIC v Hellicar & Ors.......................................................4
Conclusion..................................................................................................................................4

3DIRECTORS AND OFFICERS DUTIES AND CONSEQUENCES OF BREACH
Introduction:
In any corporation, there exist two important groups: directors and officers, in the
management of a company. As per Section 9 of the Corporations Act 2001, a director is an
individual who has been chaired as a director or a substitute director; or as a de-facto director
without proper appointment, an individual who performs the work of a director under the
instructions of another person and without any valid appointment as shadow director, or any
other person who can be considered as a director1. On the other hand, an officer is a person
concerned about the management of the organization and they also take active participation
in the decision-making2. They have certain rights, duties discussed below;
Liabilities of directors:
Every company’s board of directors has a certain task to perform like; set goals, frame
strategies, approve budgets and approve business designs for the company, monitor
performance of management and employees, analyze business results3. Under common law,
every director is individually and collectively responsible for acting in good faith and for the
profit of the company4. Directors of a company owe a duty towards the employees, individual
members, creditors, corporate groups and wholly-owned subsidiaries5. The extent and
limitation of liabilities are discussed below;
1 Horne, Andrew. "Call for review of Corporations Act." 69.8 (2017): Governance Directions :450.
2McCoy, Noel, Gabe Perrottet, and Oliver Perrottet. "Safe harbour: legal update: Understanding the'better
outcome test'in s 588GA of the corporations act." 31.3 (2019): Australian Restructuring Insolvency &
Turnaround Association Journal :18.
3 García-Sánchez, Isabel-María, Luis Rodríguez-Domínguez, and José-Valeriano Frías-Aceituno. "Board of
directors and ethics codes in different corporate governance systems." 131.3 (2015): Journal of Business
Ethics : 681-698.
4 Terjesen, Siri, Eduardo Barbosa Couto, and Paulo Morais Francisco. "Does the presence of independent and
female directors impact firm performance? A multi-country study of board diversity." 20.3 (2016). Journal of
Management & Governance : 447-483.
5 Naniwadekar, Mihir, and Umakanth Varottil. "The stakeholder approach towards directors’ duties under Indian
Company Law: a comparative analysis." (2016): Mahendra Pal Singh, The Indian Yearbook of Comparative
Law 95-120.