LAW205 Assignment 2: DEF Ltd Director Duties and Legal Breaches

This case study analyzes a scenario involving DEF Ltd, a mining and exploration company, and the actions of its directors: Rocky (CEO), Drago (Chairman), and Clubber (CFO). The directors are assessed for potential breaches of their duties under the Corporations Act, specifically concerning the continuation of an uncommercial mining venture. The analysis examines whether the directors fulfilled their fiduciary responsibilities, acted in good faith, and exercised reasonable care. The case explores issues of conflict of interest, financial mismanagement, and the directors' potential liabilities under sections 180(1), 181, and 182 of the Corporations Act. Furthermore, the study investigates whether the directors have arguable defenses for breaching their duties, considering the 'business judgment rule' and other relevant provisions of the Act. The conclusion is that the directors breached their duties and do not have any arguable defenses.

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

1BUSINESS LAW
Issue 1
Did Rocky, Drago and Clubber breach Duties of Directors?
Rule
The different directors of the organization are constructed to become the major
mediators of organization and they owe fiduciary natured relationship for the organization.
From the above, it can be analyzed that there should be a trust like relationship which the
director requires to have with the entire organization and the directors need to ensure that the
different matters should be advantageous for the organization. The same can be demonstrated
with the Commonwealth Bank of Australia v Friedrich 1991 ACSR 1151 case. From the
above case, it can be assumed that the same has been levied by the directors through virtue of
common law which is in accordance to provisions of Corporations Act 2001 (Cth)of the
Corporations Act2. Under the respective responsibility, the directors of company should
confirm that the conducts are done in accordance to indulgingconventionality with various
benefits of organization. Additionally, the directors should refrain themselves from
panderingin activity that can damage the entire company. The same can be reinforced with
Gambotto v WCP 182 CLR 432 1995 127 ALR 41473 case.
Moreover, the directors who are connected to the organization needs to ensure that
their conduct of exercising the different functions are required to beaffected of appropriate
usage. The same is can be carried out by directors with proper care and it should be the
replication of conscientiousness in activities of different directors. The respective duty which
is relating to the different directors are provided with in section 180 (1) of Corporations Act4.
1 Commonwealth Bank of Australia v Friedrich 1991 ACSR 115
2 The Corporations Act 2001 (Cth)
3 Gambotto v WCP 182 CLR 432 1995 127 ALR 4147
4The Corporations Act 2001 (Cth) s. 180(1)

2BUSINESS LAW
The same scenario can be exemplified with the ASIC v Narain [2008] FCAFC 1205 case. The
standard extent which is related to care which the director needs to extend through
conducting the various functions as director can be interpreted towards conscience of the
rational individual who are already been subjected to the situation which has been similar in
case. It can be illustrated with the R v Byrnes and Hopwood (1995) 183 CLR 5016 case.
The proper existence of the faith regarding the director’s actions are required to
ensure that their conduct and functions are in good faith for the organization. The respective
good faith needs the directors to function inrespective manner which will be guaranteeing
best concern in reverence to the organization. The respective acts can be carried in pursuance
of the proper case. The section 181 of CA7contains and the same can be illustrated with
respective case of ASIC v Healy 2011 FCA 717. The respective directors are underneath the
compulsion to abstain from pandering the different activity which has is the main motive of
making the personal advantage without affecting the company’s advantage. The same can be
properly elaborated with the example of ASIC v Fortescue Metals Group Ltd 2001 FCAFC
19 case.
Application
In the present scenario, DEF Ltd has been considered to be one of the mining as well
as exploration-based organization in Northern Territory. The directors of the organization are
Drago, Rocky and Clubber. Rocky is the Chief Executive Officer of organization and Drago
is the chairman of respective organization and lastly, Clubber is the CFO of the respective
organization. With the analysis of the roles, it can be identified that they are considered to be
directors of respective organization along with they are under the proper obligation wherein
5 ASIC v Narain [2008] FCAFC 120
6 R v Byrnes and Hopwood (1995) 183 CLR 501
7 The Corporations Act 2001 (Cth), s. 181

3BUSINESS LAW
they can guarantee the actions and conduct business of organization which will be beneficial
for the organization. Furthermore, three of them needs to take all the means which can be
reasonable to limitkind of damage or loss that can happen to the company. The same is
supported with the Commonwealth Bank of Australia v Friedrich case.
After the overall beginningof the exploration activities of the company as well as the
different sites which are drilled, geological survey that has been specially madethat will result
in mines which have been tested. From the survey, it is disclosed that mines were
uncommercialized in nature as there is low type of the gold deposits and it is considered to be
one of the major disadvantages of the company that can be done by the directors. The
different directors of the company need to refrain themselves from continuing such illegal
kind of activities.
In addition, $5000000 have beenexpended by the respective organization for the
respective venture and the directors wanted to put a stop on such activities and pay the
amount of the capital which is required to be paid to the shareholders. It can be considered to
be the most suitable options that can be adopted in the respective situation which will be
helpful for the company in receiving the different benefits appropriately.
Additionally, Rocky felt and he wished to continue with the respective venture as he
was positive relating to the exploration. Clubber and Drago were not sure, however they tried
to accept the proposal of Rocky as they wanted to avoid the heated kind of confrontation. The
similar can be constitute as contravention of the different duties of directors as Rocky
requires to ensure that the different actions which have been undertaken by him can be of
proper usage. Moreover, Drago as well as Clubber could have stopped Rocky from
performing the respective venture as they were already aware of the negative consequences
of the same.

4BUSINESS LAW
Therefore, in the respective context, the continued type of mining related activities
has exhausted all the different capital which was belonging to the organization and the same
makes the different directors to breached their duties that has been provided in the respective
S. 180(1), 181 and 182 of Corporations Act.
Conclusion
The duties of the different directors have been breached by Clubber, Rocky and
Drago.
Issue 2
Does Rocky, Drago and Clubber have the options of seeking any arguable defense for
breaching their duties
Rule
The different directors of the organization are required to follow the different rules
and responsibilities which are in the virtue of the position as the director. Any kind of breach
of data can lead to liability which can be incurred by the three directors of the organization.
On the contrary, in case of the director who have contravened their duties under the
respective act along with Common Law which can be considered to incur the liability. In
addition, the directors who violated the different duties, the directors can avail defense under
Section 1317 and 180 (2) of the respective act8.
The first and foremost defense which is available for the directors in the respective
regard is the rule of best judgement. The respective defense can be provided U/S 180 (2) of
the respective act. The same requires the directors to showcase the different activities which
8The Corporations Act 2001 (Cth), s. 180(2) & 1317S

5BUSINESS LAW
are performed by them and that has created violation of the respective duties under the
respective act has been taken into consideration for the appropriate purpose and the same
must have the good faith. The directors need to properly establish that he had no personal
interest which is included in the respective activity that is related to violation of the different
duties as the director of the organization. The three directors require to prove that the
different actions are taken into proper cause and the directors must have the belief that the
different actions undertaken by them are the most suitable in the respective scenario.
Furthermore, in the respective section, the directors need to analyze that the different
actions which have been undertaken by them should be for the positive purpose for analyzing
the assistances of the business and they have rationally acted in the situation. The different
directors who will be breaching the duties under the respective act has option of availing the
defense U/S 1317 of Corporation Act. In the respective section, the different courts are
conferred with discretion power in making directors understand that they are not allowed to
contravened their duties under the given act and in extending the respective defense, the
courts that it is proper to render the directors are not liable. In the request of the section, the
court needs to ensure that the actions of directors can be carried out in an honest manner and
it is required to be analyzed that the actions which have been taken by directors in respective
situation can be properly constructed to be the best solution in particular situation and the
similar situation can be explained with Jubliee Mines NL v Riley (2009) 253 ALR 673; 69
ACSR 6599.
9 Jubliee Mines NL v Riley (2009) 253 ALR 673; 69 ACSR 659.

6BUSINESS LAW
Application
In respective case, Rocky, Drago and Clubber are directors of organization and Rocky
is working as the Chief Executive officer of the organization. moreover, Drago is chairman
and Clubber is the CFO of the company. Three of them can be treated as directors of
organization and they have obligation to guarantee the actions through conducting business
which will be advantageous for the organization which is fair and just for the organization.
After the exploration activities are initiated and there is drilling of the number of sites,
the geological survey can be conducted wherein the mines are tested. From the survey, it can
be analyzed that the survey of the mines are uncommercial, as they have gold deposits which
are low in level. From the same, it can be identified that it can be constituted as the venture
by directors which can be detriment which will be caused to organization and directors need
to be away from performing such activities.
Moreover, $5000000 has been spent by the organization for the venture and the
directors were trying to put stop on respective activity and pay the remaining capital to
stakeholders. It can be treated as the positive action which can be taken by directors in
solving the issues. However, Rocky tried to continue with the venture and he was positive
regarding the venture. On the contrary, Drago and Clubber were not sure, however they
accepted the proposal of Rocky in avoiding the heated conflict. From this, it can be
considered that there was breach of duty by directors as Rocky required to ensure that the
activities should have been for the positive cause and Drago and Clubber required to stop him
from performing such activities as this could have dire results in the future.
From the above, therefore, it can be stated that Rocky’s decisions was backed by the
ideas which were stubborn and opinion suppression by other members were backed by the
level of honesty. Therefore, there are no such defenses available to him.

7BUSINESS LAW
Conclusion
Rocky, Drago and Clubber does not have any kind of option of seeking any kind of
defense in breaching of the duties as the director.
Issue 3
Does Drago will be liable for infringement of the duties as director, who is the CFO
of the organization?
The meaning of directors is provided in s.9 of the Corporation Act10. Under the
respective section, the directors are the different individuals who have been employed in
organizations in capacity of becoming director. The individual who have been agreed as the
director can be interpreted as the director under the respective section as well. Moreover,
when the particular individual is acting as the director, however he is not really the director of
the company, in such scenario, he/she shall be conferred and treated as the director under the
respective section. The person who will be considered as the directors are the ones who are
acting as the directors. The acting of the director needs the person to provide the different
instructions to the different directors under the compulsion to safeguard the suspension of the
similar case.
Application
In the current scenario, it can be identified that Drago is in the position of CFO in the
respective company and he is acting as the director of the company as well. He is attending
the different meetings along with he is involved in process of decision-making as well. In
such scenario, it has been stated that in the respective scenario, Drago is considered is the
director of company and he is required to be render the different duties as the director under
10The Corporations Act 2001 (Cth), s. 9

8BUSINESS LAW
the section 9 of respective act. In the respective aspect, being the CFO of the organization, it
will not be relevant with the liability which has been sustained for breach of the duties as the
director.
Conclusion
Therefore, it can be concluded that Drago will be accountable for the contravention of
the different duties as the director, being the CFO of the respective organization.

9BUSINESS LAW
References
ASIC v Narain [2008] FCAFC 120
Commonwealth Bank of Australia v Friedrich 1991 ACSR 115
Gambotto v WCP 182 CLR 432 1995 127 ALR 4147
Jubliee Mines NL v Riley (2009) 253 ALR 673; 69 ACSR 659.
R v Byrnes and Hopwood (1995) 183 CLR 501
The corporations Act 2001 (Cth)