Business Law: Comparison of Directors' Duties in Australia and UK

This report provides a comparative analysis of the duties of company directors in Australia and the United Kingdom, focusing on the legal frameworks that govern their actions. It examines the provisions of the Companies Act 2006 (UK) and the Corporations Act 2001 (Australia), specifically comparing Section 172 of the UK Act with Section 181 of the Australian Act. The report explores the evolution of directors' duties, the consideration of stakeholder interests versus shareholder interests, and the impact of corporate social responsibility. It discusses the arguments for and against adopting the UK's approach in Australia, considering the potential effects on investors, corporate governance, and the broader business environment. The analysis includes relevant case law and scholarly opinions, offering insights into the complexities of directors' responsibilities and the ongoing debate surrounding corporate governance.

Running Head: BUSINESS LAW
BUSINESS LAW
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The duties of the directors are those recommendations that are enforced on directors
through laws in relation to the procedure of carrying out their actions. These duties of the
directors have come from the provisions of common law and these provisions are the part of
many of corporate legislations all over the world. The basic purpose of these duties is to assure
that there is no misuse of the powers that they have been provided with by the directors and they
should be assured with integrity, honesty, care, and diligence and must be genuine with their
intentions towards the company. The section 172 of the Companies Act 2006 (CA 2006), it
belongs to the United Kingdom and there are some laws that have been included in the
companies of the country. If the company adopts these legislations of this section then it will be
able to include the factors that are non-exhaustive that have to be considered by directors to
encourage the achievement of the company1. However, the question that has risen over here is
whether Australia by the Corporation Act 2001 (Cth) must adopt the provisions that have been
set out in section 172 in relation to section 181 that enforces the same director’s duties.
According to the section 172 of CA 2006, there is a negotiation among the approach of
pluralistic stakeholders that makes directors consider the stakeholders by taking legal decisions
and the basic approach of the shareholders that puts emphasis on the apprehension of the
market2. This section simplifies the directors’ duties to pursue and assure the achievement of the
company. This section provides them with directors' actions of the company must be bonafide
that will help in the promotion of the company. Relatively, the directors of the company must
consider the effects of the decision and interest of the employees who work in the company.
However, it does not mean that decisions that are made by the directors are not challengeable. It
1 Phillip Lipton, and Abe Herzberg, Understanding Company Law, (18th edition. Thomson Reuters, 2015)
2 Hannigan, Brenda. Company law. Oxford University Press, USA, 2015.

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helps in developing the relationship of the customers with the company and the suppliers and the
impression that the company has in public while maintaining the reputation and to deal with the
members of the organization3. The requirements of this section have been closely examined the
lays down the recent business practices and the legal provisions that are available and in general
they are applied to all the corporations in the whole world. The duties of the directors of the
general laws are reinforced through the statutory duties. This is because of the fact that fiduciary
law has the aim to prevent inappropriate manner rather than the remedy of the consequences.
According to this section, it has been explained that the directors are required to consider
stakeholders' interest when this interest has complied with the shareholders' interest. Milman
(2017) has pointed out that this section presents a move from “permission to obligation” while
demonstrating the ancient common law as given in the case named Hutton v West Cork Railway
Co (1883) 23 Ch D 6544 to provide the directors with the permission in consideration with the
interest of stakeholders although the actions are basically for company’s interest5. The dominant
obligation that has been provided in section 172 the interest of the company in compliance with
the obligations, there must be some considerations that the directors should take that is the non-
exhaustive factors6. An argument was made by Flower that this section does not provide the
stakeholders with the individual value that is present under the approach of the pluralist. Under
the section, there are some tests that assure the dominance of shareholders over stakeholders that
prevail strongly and therefore the narrow view of the CSR has been clearly portrayed. There are
various cases that have interpreted this section and have an opinion that it does not come under
3 Kraakman, Reinier, and Henry Hansmann. "The end of history for corporate law." Corporate Governance. Gower,
2017. 49-78.
4 Hutton v West Cork Railway Co (1883) 23 Ch D 654
5 Milman, David. "Stakeholders in modern UK company law." Sweet and Maxwell's Company Law Newsletter 397
(2017): 1-4.
6 Gerner-beuerle, Carsten, et al. "The Law Applicable to Companies in Europe: Study and Possible
Reform." European Company Law 14.4 (2017): 148-149.

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the part of CA 2006 through the litigation the parliament want to address like in the case of R (on
the application of People & Planet) v HM Treasury [2009] EWHC 30207. Further, there was an
argument made by Wells (2015) that there was an essential issue with the necessities of section
172 with respect to increasing the factors, objectivity is needed, no remedial right and in the
decision making of the business, there must be some judicial reluctance8. The ethical part of this
section is different to the one that is provided and it also explains that "A profession that is liable
to all is basically liable to none."9
Like that of United Kingdom, in the other way Australia has taken the review with
respect to the governance of corporate has taken the initiative to meet the crisis of the corporate
governance as stated in the Enron Case10. There were two reports that have been published by the
country with respect to Corporate Social Responsibility which states that ‘Enlightened
Shareholder Value’ approach has been rejected11. An argument was made which laid down the
emphasis on "soft law"12. The main section that resembles the section 172 in Australia is the
section 181 of the CA 2001. This section provides that the director's duty is to act bona fide and
for a good use. For the purpose to search whether the duties of the directors in Australia or to be
said that the section 181 of the CA must be amended and the main requirement is to know the
duties of the directors that are contemporary and are present by the general statute and law. The
powers of the shareholders are not limited and the directors' power is extensive in the country
named Australia. The courts had to take the decision to spread the powers widely to the directors
7 R (on the application of People & Planet) v HM Treasury [2009] EWHC 3020
8 Wells, Philip J. "Executive remuneration: regulatory reforms in UK company law." International Journal of Law
and Management 57.4 (2015): 300-339.
9 Kraakman, Reinier, and John Armour. The anatomy of corporate law: A comparative and functional approach.
Oxford University Press, 2017.
10 McLaughlin, S. (2015). Unlocking company law. Routledge
11 Schwartz, Mark S. Corporate social responsibility. Routledge, 2017.
12 Hannigan, Brenda. Company law. Oxford University Press, USA, 2015.

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to manage the organization13. The court confirmed according to the case named Howard Smith
Ltd v Ampol Petroleum Ltd [1974] AC 82114. that the law gives the directors the power to decide
that does not comply with the desire of the shareholders. The same thing has been provided in
the case named Imperial Hydropathic Hotel Co, Blackpool v Hampson (1883) 23 Ch D 115 and it
explains that directors' decision cannot be overruled by the purpose of its members where the
powers were granted to them to manage company's affairs. However, it does not state that the
directors' decisions cannot be tested. This can be done by imposing the section 180- 184 of the
CA 2001. The interest of the company is focused on the duties that are given in section 181.
Various requests have been done to amend the statutory duties so that they can make it clear that
the directors can consider the activities and interest of the stakeholders. The codification of the
duties of the directors was introduced first in the legislation of Australia through the Companies
Act 1958 (cth) and it was the first type that came into the English speaking world. Under
Corporate Social Responsibility according to the case named Australian Securities &
Investments Commission v Hellicar & Ors [2012] HCA1716, there was a statement that was
presented by the court the directors will be responsible to breach the duty provisions that did not
consider the maximization of profit. It has also been said that an avenue has been provided for
the government through Australian Securities and Investments Commission (‘ASIC’) to enforce
the breach of the duties of the directors. The ways of dealing with corporations with the
corporate social responsibility have changed since many years and it is still coming up. The
organizations have taken the corporate social responsibility truly. There was an argument that
was held by Milton Friedman is that the companies who are in relation to corporate social
13 Coffee Jr, John C., Hillary Sale, and M. Todd Henderson. "Securities regulation: Cases and materials." (2015).
14 Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
15 Imperial Hydropathic Hotel Co, Blackpool v Hampson (1883) 23 Ch D 1
16 Australian Securities & Investments Commission v Hellicar & Ors [2012] HCA17

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responsibility have their profits maximized17. Afterward, this statement was critically analyzed
and it was stated that these corporations must make their profits at every cost. In order to make
their profits maximized, the companies should take all the interest of the stakeholders into
considerations. There are various reasons of why the corporations consider the interest of the
stakeholders. It will help them in gaining benefits financially and being attentive towards the
consumers will make them learn and innovate new products. It may increase the competitiveness
of the company. If a company is a “good corporate citizen” then it may result in goodwill and
public approval may also increase18. It may also result in a positive way if the interest of the
employees is taken into consideration .
In order to consider the interest of the stakeholder by the directors, in Australia, there
were no appellate decisions made in respect to the degree. However, the company might be
liberal with the people who are in relation to it and so the company must do this while assuring
that it is getting his own interest19. The section 181 of the Corporation Act 2001 does not provide
the directors' obligation to another stakeholder. It has also been stated by Flower that there is the
major advantage that this section provides is the flexibility that is provided by it . The
replacement of the provisions of section 181 of the Corporation Act 2001 with the provisions of
section 172 of the Corporation Act 2006 will be having some negative impact on the community
of Australia. For example, the organization may prevent from choosing Australia as an
incorporation place. Further, it has been stated that it may have a negative impact on the
confidence of the investors if these provisions do not consider the shareholders' interest. The
investors of Australia have recently known that their currency is transferred in the direction of
17 Deegan, Craig, and Marita Shelly. "Corporate social responsibilities: Alternative perspectives about the need to
legislate." Journal of Business Ethics 121.4 (2014): 499-526.
18 Du Plessis, Jean Jacques, Anil Hargovan, and Jason Harris. Principles of contemporary corporate governance.
Cambridge University Press, 2018.
19 Shepherd, Chris, and Ann Ridley. Company Law. Routledge, 2015.

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their own advantage and if any change is brought then the shareholders' confidence will be
affected. Further, it has been stated that the provisions of section 172 do not operate to assure the
interest of the stakeholders as it has been discussed before and therefore there is no worth of its
addition. In addition, there was an argument by Glover (2016) which stated that the enforcement
of the duties through the section 172 might prevent the people who are talented from performing
as directors20. In a similar manner if this section is applied it might lead to an opinion that the
legal proceedings might be simply originated against the directors for the decisions that are made
by them and afterward thee business growth stays still. In the provisions of the sections that are
introduced in the system of Australia, there might be some reductions in the accessibility of the
insurance.
There must be no amendment of section 181 of the CA as in the same manner of section
172 of the Companies Act. The directors of the company are the guardians of the money of
shareholders. Further, it has been stated that the duties of the directors have been brought up to
protect the interest of the shareholders. Section 181 needs all the directors to perform in
compliance with corporation's interest and their purposes21. If any of the stakeholders are not
mentioned then it cannot be thought that the directors will not take any interest in them. In order
to make the company in the long run then the directors of the company should take the interest of
the other stakeholders into consideration. There are some directors who do not act well and are
breaching their duty and are not managing the risk properly are stated to be in breaching because
of diligence duty as mentioned in section 180. There are several companies in Australia indulge
only to gain their profits and not looking at the stakeholders’ interest. These actions will result in
negative aspect of the company. By not regarding the stakeholder's interest, it will not only result
20 Glover, John. "Public Officials, Public Trusts and Fiduciary Duties." Fiduciary duty and the Atmospheric trust.
Routledge, 2016. 79-108.
21 Puchniak, Dan W., and Cheng Han Tan. "Company Law (2015)." (2016).

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in the argumentative reaction but also some litigations, government inquiries, and regulatory
interventions22. The section 181 of the Corporation Act 2001 has been criticized and it has been
stated that they do not provide them with the obligations to other stakeholders of the directors.
The major advantage of this section is the elasticity that has been given to it. The decisions that
are made by the directors are best for the interest of the company. The directors of the company
are the experts and are more knowledgeable in the making of the decision. The directors have
been provided with flexible authority to adopt the changes and values and the expectations of the
community. There was an essential issue with the necessities of section 171 of the Corporation
Act 2006 with respect to increasing the factors, objectivity is needed, no remedial right and in the
decision making of the business there must be some judicial reluctance. Further, this section
contains various concepts and phrases that have not been tested by the court and they seemed to
be unclear. Furthermore, the prescribed interests that have been listed which the directors should
consider sums up with the process of decision making and adds a little benefit to it. Worst of all,
the liability of the directors in respect to the company is concerned by the list of interest that has
been prescribed that provides them with the threat the enforceability of duty. Although
Corporation Act is an easy target, it not the correct place to consider the interest of the
stakeholders by business23. No such reason has been provided to the stakeholders to oblige and to
apply to new companies and not on another business entities. Therefore the idea to alter section
181 of the Corporation Act 2006 must not be taken into consideration as it is sustained by some
strong reason and must be correctly repelled.
22 McQueen, Rob. A Social History of Company Law: Great Britain and the Australian Colonies 1854–1920.
Routledge, 2016.
23 French, Derek, et al. Mayson, French & Ryan on company law. Oxford University Press, USA, 2014.

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Bibliography
Australian Securities & Investments Commission v Hellicar & Ors [2012] HCA17
Coffee Jr, John C., Hillary Sale, and M. Todd Henderson. "Securities regulation: Cases and
materials." (2015).
Deegan, Craig, and Marita Shelly. "Corporate social responsibilities: Alternative perspectives
about the need to legislate." Journal of Business Ethics 121.4 (2014): 499-526.
Du Plessis, Jean Jacques, Anil Hargovan, and Jason Harris. Principles of contemporary corporate
governance. Cambridge University Press, 2018.
French, Derek, et al. Mayson, French & Ryan on company law. Oxford University Press, USA,
2014.
Gerner-beuerle, Carsten, et al. "The Law Applicable to Companies in Europe: Study and
Possible Reform." European Company Law 14.4 (2017): 148-149.
Glover, John. "Public Officials, Public Trusts and Fiduciary Duties." Fiduciary duty and the
Atmospheric trust. Routledge, 2016. 79-108.
Hannigan, Brenda. Company law. Oxford University Press, USA, 2015.
Hannigan, Brenda. Company law. Oxford University Press, USA, 2015.
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
Hutton v West Cork Railway Co (1883) 23 Ch D 654
Imperial Hydropathic Hotel Co, Blackpool v Hampson (1883) 23 Ch D 1

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Kraakman, Reinier, and Henry Hansmann. "The end of history for corporate law." Corporate
Governance. Gower, 2017. 49-78.
Kraakman, Reinier, and John Armour. The anatomy of corporate law: A comparative and
functional approach. Oxford University Press, 2017.
McLaughlin, S. (2015). Unlocking company law. Routledge
McQueen, Rob. A Social History of Company Law: Great Britain and the Australian Colonies
1854–1920. Routledge, 2016.
Milman, David. "Stakeholders in modern UK company law." Sweet and Maxwell's Company
Law Newsletter 397 (2017): 1-4.
Phillip Lipton, and Abe Herzberg, Understanding Company Law, (18th edition. Thomson
Reuters, 2015)
Puchniak, Dan W., and Cheng Han Tan. "Company Law (2015)." (2016).
R (on the application of People & Planet) v HM Treasury [2009] EWHC 3020
Schwartz, Mark S. Corporate social responsibility. Routledge, 2017.
Shepherd, Chris, and Ann Ridley. Company Law. Routledge, 2015.
Wells, Philip J. "Executive remuneration: regulatory reforms in UK company law." International
Journal of Law and Management 57.4 (2015): 300-339.