Directors’ Duties: Gold Dig Ltd Case Study

Gold Dig Ltd Case Study 1
DIRECTORS’ DUTIES: GOLD DIG LTD CASE STUDY
[Author(s) name(s):]
LEGL 201: Company Law
Thomas More Law School
Faculty of Law and Business
Tutor(s) name(s):
Australian Catholic University

Gold Dig Ltd Case Study 2
Rules
In exercising their powers and executing their duties, directors are tasked with the obligation
of adopting a reasonable degree of care, skill and diligence.1 This duty is incorporated in
statute under s 180 of the Corporations Act 2001 (Cth) which provides that a director should
discharge their duties with care and diligence to the extent that a reasonable person would
under similar circumstances failure to which they attract a civil penalty under s 1317E of the
Act.2 Under the provisions of s 180, directors have the freedom to make business judgments
and decisions, however, these decisions should be made in good faith, for a proper purpose
and in undertaking the decision; the directors should ensure they are reasonably informed as
to the subject matter at hand.3
Romer J in Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 sets the traditional
approach for this duty. In this case, the degree of care, skill and diligence expected of a
director is that of a person with the same level of knowledge and experience under the same
circumstances. However, as Romer J notes, a director was not bound to continuously concern
themselves with the affairs of the company. The modern approach, as illustrated in ASIC v
Adler [2002] NSWSC 171, places a higher standard on directors. Santow J stated that by
taking up the appointment of a director, a person is expected to have the skills of a reasonably
competent person and engage with reasonable care, skill and diligence. Further, they are
expected to reasonably guide and control the affairs of the organisation.
Directors also have a duty of loyalty and good faith; they should act in the company’s best
interests and for a proper purpose. This is a fiduciary duty provided for under s 181(1) (a)
whereby contravention is considered a criminal offence under s 184 of the act and also
attracts a civil penalty under s 1371E.4 As illustrated in Regal (Hastings) Ltd v Gulliver
1 Rosemary Teele Langford, Directors’ Duties: Principles and Application (Federation Press, 2014).
2 Corporations Act 2001 (Cth) s 180; Corporations Act 2001 (Cth) s 1317E.
3 Corporations Act 2001 s 180(2); See also Paul Latimer, Australian Business Law (CCH Australia Ltd, 2012)
698.
4 Corporations Act 2001 (Cth)