Duties breach by the directors of a university

Running head: DIRECTORS DUTIES
Directors Duties
Name of the Student
Name of the University
Author note

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DIRECTORS DUTIES
Table of Contents
Introduction......................................................................................................................................2
Case Facts........................................................................................................................................2
Duties breach by the directors.........................................................................................................3
Decision of the court........................................................................................................................3
Conclusion.......................................................................................................................................5
References........................................................................................................................................7

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DIRECTORS DUTIES
Introduction
One of the most popular restraints which is imposed on the directors of the company in
relation to discharging their duties is the duty to act in good faith and proper purpose of the
company (Knepper et al. 2016). The duty exists both in common law as well as in the provisions
of the Corporation Act 2001 (Cth) through section 181. People who have been serving as the
directors of an organization for a long time tend to forget that the company is a separate legal
entity. The company however cannot function on its own and therefore require the help of the
directors (Farrar 2016.). The directors have to therefore comply with legal provisions while
discharging their duties in relation to the company (Keay 2014).
Case Facts
The case of Whitehouse v Carlton Hotel Pty Ltd [1987] 162 CLR 285 had to address the
question in relation to the duty of directors to act bona fide. In this case it had been ruled by the
court that a subjective test of “good faith and honesty” have to be applied in order to determine
whether the directors had complied with the duty of good faith or not. Whether good faith is
present or absent is determined based on the circumstances which are present in the case (this is
why the court cannot pin precise rules in relation to it). There are no fixed set of uniform rules
which can be applied to determine whether the element of good faith was present in the actions
of the directors or not. Depending upon the circumstances, a transaction which is carried out by
the directors in relation to the company will be considered to be in bad faith if it is outside the
purpose of the company. In case a director of the company willingly and knowingly agrees to go
against the law, t is most likely to be deemed as not done with the observation of good faith.
In this case the governing director of the company was Charles Whitehouse. He owned
class A shares which had voting rights, his wife owned class B shares which had partial voting
rights and his children held class C shares which had no voting rights. He got divorced with his
wife who aligned with his daughter and he aligned with his son. He was concerned about the
fact that on his death the control of the company would likely be taken by his wife and daughter
and thus to prevent such a thing from happening he issued class B shares to his son. However he