Directors' Duties and Breach of Law

This assignment focuses on the legal responsibilities of company directors under Australian law, specifically Section 184 of the Corporations Act. It delves into the concepts of good faith, avoiding conflicts of interest, and exercising care and diligence. The analysis utilizes a hypothetical case involving a disagreement among directors regarding new share issuance, exploring potential legal repercussions for directors who fail to fulfill their duties. Penalties outlined in Section 1317E of the Corporations Act are also discussed as they relate to breach of directorial obligations.

Running head: LAW OF BUSINESS
Law of Business
Name of the Student
Name of the University
Author Note

1LAW OF BUSINESS
Table of Contents
Question 1........................................................................................................................................1
Question 2........................................................................................................................................3
Reference.........................................................................................................................................6

2LAW OF BUSINESS
Question 1
According to the case study the issue has been arises when the directors of the Chocolate
Cleaning Products Pty Ltd (“CCP”) Alana and David has decided to fire Max who is the
company solicitor and also owned 5% of shareholders of the Company. Now Max wants to
enforce the clause in the constitution making or as a company solicitor. When Max has been
engaged in the Chocolate Cleaning Products Pty Ltd (“CCP”) Company he has included a clause
in the constitution of the company where he mentioned about himself as the company solicited
and which is not replaceable accept for negligence act by him1.
Now CCP has already a Sol who is an investor and mentor and experience in the cleaning
products industry. Here they think it is enough of having Sol’s advice in regards to proposed
expansion activities and there is no need of Max for other activities in the company where they
also insert new clauses which mentioned the right to expropriate the shareholding of members
owning less than 10% of the total shares issued2.
a) The 136 of Corporation act provides the legislation where a company can form the
constitution which has been effective for the relatable company and every members of it. Under
the section 9 of the Corporation Act has provided the special resolution where the company
members specially the shareholders provide their words and with at least 75% of votes by the
shareholders has passed in favor of the resolution3.
It is also important to mention that when Max has engaged with the company he has
included a clause in the constitution appointing himself as a company solicitor and not replaced
except for negligence 4therefore the directors has the knowledge about the clause and as Max not
engaged with any activities of negligence therefore they cannot replace him. However in the
General Meeting the directors of the company has passed a special resolution which has been
used as a altar for the company’s constitution and also inserted new clause where board has
1 Hiller, Janine S. "The benefit corporation and corporate social responsibility." Journal of Business Ethics 118.2
(2013): 287-301.
2 Knepper, William E., et al. Duty of Loyalty. Vol. 1. Liability of Corporate Officers and Directors, 2016.
3 Coffee Jr, John C., Hillary Sale, and M. Todd Henderson. "Securities regulation: Cases and materials." (2015).
4 Knepper, William E., et al. Duty of Loyalty. Vol. 1. Liability of Corporate Officers and Directors, 2016.

3LAW OF BUSINESS
legislate their rights to Expo create the shareholdings of members who owns less than 10% of the
total shares issued5.
Therefore when Max has included the clauses about the replaceable of his position and
the directors also have the knowledge about such clause. Now they have breach their duties as a
director of the corporation6. The section 181 provided such clause where directors are bound to
do work for the cooperation with care and diligence, good faith and must not misuse their
position. Therefore the section 181,182, 183 and 184 has been breached by the directors of the
company. Therefore Max can take legal action against them7.
b) The special resolution is formed under the Corporation Act where the company can change
their name, types, style or add any other extra clauses which has been related to the company. A
special resolution must make specific criteria before it can be passed or voted by the members of
the board of the company under the special resolution. It must make a notice where the members
will meet and they will vote on the special resolution regarding the clause which has been
changing or adding therefore the date time and proxy information must added. It is important at
least 75% of votes must cast in favor of the special resolution clause where the company or the
board members will give the votes and other shareholders and members are also join in the vote
process. The section 9 of the Corporation Act has defined the special resolution for the
corporation where 75% of vote mast cast by the shareholders and other members of the
company8. For a special resolution there must be a special facts included whether amending or
changing the constitution or adopting a new company name of changing the company type or
selective share buyback of any changes regarding the share capital of the shareholders right.
Now according to the case study David and Alana has already call for an Annual General
Meeting where they pass the special resolution for the alteration of CCP’s Institutions and they
have inserted and new clause giving the board the right to expropriate the shade Holdings of
members who owned less than 10% of the total shares issued9.
5 Corporation law 2nd edition, Jason Harris publication: LexisNexis butterworths Australia 2011
6 Knepper, William E., et al. Duty of Loyalty. Vol. 1. Liability of Corporate Officers and Directors, 2016.
7 Hiller, Janine S. "The benefit corporation and corporate social responsibility." Journal of Business Ethics 118.2
(2013): 287-301.
8 Knepper, William E., et al. Duty of Loyalty. Vol. 1. Liability of Corporate Officers and Directors, 2016.
9 Coffee Jr, John C., Hillary Sale, and M. Todd Henderson. "Securities regulation: Cases and materials." (2015).

4LAW OF BUSINESS
Now according to the case fact and the requirement of special resolution the directors of
the company has changed in share capital or of the shareholders right regarding the shares of
who owned 10% of shares of the company and they are expropriate from their rights10. The
section 249L(c)11 of Corporation Act provide such legislation where the special resolution must
set out the intention to propose the special resolution and state the actual words of the resolution
therefore when and a Annual General Meeting has been held for Casting the votes in favor of the
special resolution it is important that it must fulfill the requirement of section 249L(c). The
passing of a special resolution must be lodged by ASIC on form 205 notification of resolution or
form 2205 notification of resolutions regarding shares. According to the case facts the directors
has passed the special resolution in General Meeting where the shareholders also cast their votes
which allow the directors to expropriate shares of Max even though The Other shareholders have
passed a special resolution12.
Question 2
According to the case facts the issue has been arises when Banjo who is one of the non
executive directors of Aussie Boats Ltd (“AB”) has disagreed with the resolution and issue of
shares which he thinks it will be better to enter into discussion with MWB before the terms of the
takeover also things that the directors have breach there equitable or statutory duties towards the
Corporation13.
Aussie boats Limited is working great marketing strategies from past 25 years but
recently the other new luxury yachts companies has made more hi-tech fit-outs boats which
make difficult competition for Aussie boats Limited in the international markets and they have
due to lack of funds14. As they are failing to running their business the directors has been decided
to buying up stocks from Millionaires on Water Ltd (“MWB”) where they owned 35% with the
plan takeover bid imminent. therefore $500,000 of shares of La La Loopsy Pty Ltd return for the
10 Hiller, Janine S. "The benefit corporation and corporate social responsibility." Journal of Business Ethics 118.2
(2013): 287-301.
11 Corporation law 2nd edition, Jason Harris publication: LexisNexis butterworths Australia 2011
12 Hiller, Janine S. "The benefit corporation and corporate social responsibility." Journal of Business Ethics 118.2
(2013): 287-301.
13 Corporation law 2nd edition, Jason Harris publication: LexisNexis butterworths Australia 2011
14 Hiller, Janine S. "The benefit corporation and corporate social responsibility." Journal of Business Ethics 118.2
(2013): 287-301.

5LAW OF BUSINESS
provision of a report on opportunities for AB to supply boats internationally and $1 million of
shares to the public to be issued for the purpose of raising additional capital for expansion
purposes15.
In the meeting of the company they have immediately engages in previously planned
expansionary activities so as to improve market share and it must be informed by high quality
consultancy and market research16. When Millionaires on Water Ltd (“MWB”) has taken the
shares it helps to reduce 18% of steaks in Aussie Boats Ltd (“AB”) but as Banjo one of the non
executive directors of the company things that Clancy and jack are acting really out of concern
for the position as Millionaires on Water Ltd (“MWB”) is known to terminate the position of
Executive directors after completing or take over17.
It is important for a company when they make any new resolution or changes regarding
the company and the shareholders and other members of the board then the participation of every
member are necessary. The Corporation Act Section 180 defines the care and diligence of the
directors officers and employees where they must act with good faith which has been mentioned
section 181 and section 182 has define the use of positions of the directors said they must follow
some civil obligations for running the company and holding the position of directors of the
company. The section 184 has provided the legislations where the directors’ must act with good
faith must not misuse their position or any information of the company which cause any bad
effect or criminal offences with the company18.
Therefore it is important for the director that they must not reckless or intentionally
dishonest towards the corporation or commit any offensive and they must not fail to exercise
their powers and discharge their duties in good faith in the best interest of the corporation or any
proper purposes19. For running a corporation at directors must not have any personal interest or
benefit out of the Corporation20.
15 Coffee Jr, John C., Hillary Sale, and M. Todd Henderson. "Securities regulation: Cases and materials." (2015).
16 Knepper, William E., et al. Duty of Loyalty. Vol. 1. Liability of Corporate Officers and Directors, 2016.
17 Corporation law 2nd edition, Jason Harris publication: LexisNexis butterworths Australia 2011
18 Hiller, Janine S. "The benefit corporation and corporate social responsibility." Journal of Business Ethics 118.2
(2013): 287-301.
19 Knepper, William E., et al. Duty of Loyalty. Vol. 1. Liability of Corporate Officers and Directors, 2016.
20 Coffee Jr, John C., Hillary Sale, and M. Todd Henderson. "Securities regulation: Cases and materials." (2015).

6LAW OF BUSINESS
It is must for the directors to follow all the obligations which directly or indirectly
gaining an advantage or any detriment of the corporation and towards the other officers and
employees of the company21. They must not breach their duties if they breach the duties and the
section of 181, 182, 183 and 184 therefore the court will make the allegation of breach the duties
which may affect them and provide penalties. The section 1317E of Corporation Act provide
such penalties for the directors who breach their duties and failed to work as care and diligence
good faith use of position use of information or intention to make any criminal offences22.
According to the case facts one of the non executive directors disagreed with the new
resolution of issue of shares by the directors of the company23 if it has found that after the new
company all the positions and then they terminate the executive directors then it will made
disaster for the other executive directors and non executive directors also. If the directors of the
company has failed to hold their positions before they make the resolution and take over the
company to new company with new issue of shares then the other members Banjo the non
executive director also take legal action against them for Bridge there equitable and statutory
duties towards the company24. If Court has found that the directors has failed to maintain their
position of directors in the company then they can we find with penalties and the section 1317E
of the Corporation net will provide such penalties for breach the duties of the position of the
directors25.
21 Hiller, Janine S. "The benefit corporation and corporate social responsibility." Journal of Business Ethics 118.2
(2013): 287-301.
22 Corporation law 2nd edition, Jason Harris publication: LexisNexis butterworths Australia 2011
23 Knepper, William E., et al. Duty of Loyalty. Vol. 1. Liability of Corporate Officers and Directors, 2016.
24 Hiller, Janine S. "The benefit corporation and corporate social responsibility." Journal of Business Ethics 118.2
(2013): 287-301.
25 Coffee Jr, John C., Hillary Sale, and M. Todd Henderson. "Securities regulation: Cases and materials." (2015).

7LAW OF BUSINESS
Reference
Coffee Jr, John C., Hillary Sale, and M. Todd Henderson. "Securities regulation: Cases and
materials." (2015).
Corporation law 2nd edition, Jason Harris publication: LexisNexis butterworths Australia 2011
Donner, Irah H. "Fiduciary Duties of Directors When Managing Intellectual Property." Nw. J.
Tech. & Intell. Prop. 14 (2016): 203.
Hiller, Janine S. "The benefit corporation and corporate social responsibility." Journal of
Business Ethics 118.2 (2013): 287-301.
Knepper, William E., et al. Duty of Loyalty. Vol. 1. Liability of Corporate Officers and
Directors, 2016.
Langford, Rosemary Teele, Ian Ramsay, and Michelle Anne Welsh. "The origins of company
directors' statutory duty of care." (2015).
Lin, Chen, et al. "Directors' and officers' liability insurance and loan spreads." Journal of
Financial Economics 110.1 (2013): 37-60.
Loewenstein, Mark J. "Equity and Corporate Law." SMUL Rev. 68 (2015): 783.
Lunn, Brad. "Strengthened director duties of care for cybersecurity oversight: Evolving
expectations of existing legal doctrine." Browser Download This Paper (2014).
Spamann, Holger. "Monetary Liability for Breach of the Duty of Care?." Journal of Legal
Analysis 8.2 (2016): 337-373.