BA623 - Legal and Ethical Issues

Legal & Ethical Issues
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LEGAL AND ETHICAL ISSUES
Hypothetical ILAC case study
Issue
The conduct of the directors is regulated by the Corporations Act 2001 which bestows certain
duties. Taking the given facts into consideration, the issue is to determine if there has been a
violation of these duties which can potentially lead to civil liability. Additionally, the conduct
of the directors needs to be viewed in the light of the common law.
Law
The Corporations Act 2001 bestows certain duties on directors which they are required to
comply with these duties or for some of these civil liabilities could be applicable. The various
duties whose breach tends to lead to civil penalties are highlighted below.
 In accordance to Section 181, the directors are supposed to discharge their duties in
good faith and requisite due diligence. This arises from common law where the agent
is required to exhibit duty to care towards the principal (ASIC v Adler (2002) 20
ACLC 576)
 In accordance to Section 182, the directors are not supposed to use their position and
the underlying influence for bringing gains to self, others or to the detriment of the
company.
 In accordance to Section 183, the directors are not supposed to use any information
which they gain due to their position for bringing gains to self, others or to the
detriment of the company.
 In accordance to Section 191, the directors are supposed to disclose any particular
personal interest that they might have in any contract that the company may intend to
enter into (ASIC v Adler (2002) 20 ACLC 576)
 In accordance to Section 192, for a proprietary company, the director having personal
interest can only participate in the deliberations of a matter of personal interest or
conflict of interest only when the same has been disclosed to the board prior to the
meeting
Violation of any of the duties highlighted above would lead to civil penalties particularly in
terms of monetary fines for the erring director along with disqualification for a limited period
or indefinitely by ASIC.
Application
The conduct of the two directors has been analysed through the lens of the relevant law
described above to resolve the issue.
 Hermione – It is apparent from the given fact that she got the information regarding
NQT entering into a contract with the government for supply of 20 tractors from the
CEO on account of her privileged position. Clearly, the information is of confidential
nature as it is not available in the public domain. However, Hermione tried to benefit
from this information by buying shares of NQT in the hope of capital appreciation.
This amounts to violation of s. 183 of Corporations Act 2001.
 Ginny – In the given case, Ginny had a personal interest in the company entering into
a contract with Ethical Ads Pty Ltd since the company was owned by his husband and
sister-in-law. However, Ginny violated s. 191 by not disclosing this personal interest
to the board. Considering that Ethereal Energy is a proprietary company, s. 192 has
also been violated by Ginny since she participated in the board meeting dealing with