Director’s Duty ASIC Report 2022

Running Head: Director’s Duty
Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2)
[2019] FCA 354 (Director's breach of duty)
Name of the Student
Name of the University

DIRECTOR’S DUTY
2
Introduction:
Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq)
(No 2) [2019] FCA 354 is a case regarding the breach of director’s duty wherein the defendants
were alleged to have breached the director’s duties by implementing the Distribution Policy and
using the reserve money for the payment of the expenses regarding the same.
Issue:
The issue in the case is whether the Directors are liable for the breach of their duty and
compensation to claim under 1317H of the Corporation Act 2001.
Laws applicable in the Scenario:
Section 180-183 of the Corporation Act 2001 deals with the directors duty towards the
company to act in good faith, honesty and secrecy towards the company and its intricate matters.
In other words, duties of the directors have been explicitly laid down to act in good faith and
honesty towards the company, not to make improper use of the position of the directorship of the
company for personal gains (ASIC vs. Adler [2002] 41 ACSR 72), not to make improper use of
the details of the company which is gained by the directors by way of their position as a director
(ASIC vs. Flugge [2017] ALR 1). Section 180 explicitly lays down that the directors of the
company should act with care, skill and due diligence towards the matters of the company (ASIC
vs. Maxwell [2006] NSWSC 1052). However, the duties are also dependent upon the size and
nature of the company in accordance to its Constitution and hence the duties can be varied
depending on the Company Constitution and related factors to the size and nature of the

DIRECTOR’S DUTY
3
company (ASIC vs. Mariner Corporation Limited [2015] FCA 589). Thus, being the
managers of the company, the duty forms the founding stone for the good faith and honesty
towards the interest of the company.
Section 1317H of the Act states the scheme for the civil penalty orders by the court.
Application of Laws to the Case:
It has been alleged by Termite Ltd that the director owed duty of care and due diligence
under section 180 towards the company as a whole. The company has also alleged that the
directors owe general duties as laid down in the common duties of the directors as laid down in
section 181 to 183 of the Act but the acts of the directors has amounted to the breach of such
duties. However, referring to McGrath: HIH Insurance Ltd [2010] 266 ALR 642, it has been
explained by the defendants that the directors of the company are a member of a corporation and
hence, they owe their duties to a particular corporation and not to the company as a whole. Thus,
the company appointing such directors for management and governance is entitled for their
duties and not the whole group of company.
Termite has further pleaded that following actions of the directors has amounted to the
breach of their duty:
 Distribution policy entered into by the company
 Permitting the company to act according to the Distribution policy to making payments
 Failure to review, revoke or revise the Distribution Policy