Corporate Law: Duties and Consequences for Breach by Directors

Running head: CORPORATE LAW
Corporate Law
Name of the Student
Name of the University
Author Note

1CORPORATE LAW
Issue
Whether Lilian and Gumpta have breached their duties as directors. Whether there are any
possible consequences for their conduct.
Rule
The Corporations Act 2001 provides for the duties that a director of a company must
discharge. The duties are enumerated in section 180, 181, 182 and 183 of the Corporations
Act.
According to section 180(1) of the Corporations Act, a director must exercise its powers
and discharge its duties conferred upon him by virtue of being a director with proper care and
diligence. The care and diligence will imply the amount of care and diligence that a
reasonable person would maintain under similar circumstances. The same can be supported
with the precedent ASIC v. Rich.
According to section 181, the director of a company is under an obligation to exercise his
duties and powers in good faith, which will ensure the best interest of the company. The
actions of the directors must also be for a proper purpose.
According to section 182 of the Corporations Act, a director is prohibited to utilize their
position in the company to serve their personal interest. The actions of a director should not
be detrimental to the company. The same can be illustrated with the case of ASIC v. Hellicar.
According to section 183 of the Corporations Act, a director is restricted to make use of
the information, which became accessible to him by virtue of his position in the company to
serve personal interest resulting in detriment to the company. The same rule has been
discussed in the case of ASIC v. Vizard.

2CORPORATE LAW
The directors of a company are under an obligation to abide by the duties conferred upon
him by the Corporations Act. The violation of any of the provisions regarding the duties of
the director will incur a civil penalty for the directors in compliance with section 1317E of
the Corporations Act. The same can be illustrated with the case of ASIC v. Lindberg. In the
event of the violation of the duties being reckless and reflects intentional dishonesty, the
directors will be rendered liable under section 184 of the Corporations Act. Section 184
provides for criminal sanctions. In the case of AISC v Flugge & Anor, an incurrence of
criminal penalty by the director was sentenced with 10years of imprisonment.
The directors involved in such a breach of duty will also attract the section 206B of the
Corporations Act. This section contains provisions relating to automatic disqualification of
the directors in the event of conviction for the breach of duties. Any director who will be
convicted for any offence under the Corporations Act will be rendered disqualified
automatically from carrying out position as a director. He will be disqualified from being a
director. Section 206C provides for the suspension of the director alleged to have breached
his duties as a director.
However, the Corporations Act provides for certain defences that are available to the
directors alleged to have breached his duties as a director under section 180(2) and section
1317S. Section 180(2) of the Corporation Act contains the business judgement rule, which
states that if the director alleged to have breached his duties as a director can prove that he
has acted in good faith for a proper purpose, such actions have not incurred any benefit to
him and he had a reasonable belief of the action to be appropriate, then he may take resort to
this section for defence. Section 1317S of the Corporations Act confers a discretionary power
to the court to excuse the director of his breach of duties if the court is satisfied that the
director has exercised his powers honestly and it would result in injustice if the director is not
excused.