Company Law: Analysis of Director Duty Breaches in a Case Study

This report examines a case involving Nathan Tinkler and his breaches of director duties under the Corporations Act 2001. The analysis focuses on Tinkler's failure to prevent insolvent trading in multiple companies and his lack of care and diligence. The report highlights the consequences of these breaches, including a ban from managing companies for almost four years. The case study references relevant sections of the Corporations Act, such as sections 180, 181, and 588G, as well as the civil and potential criminal liabilities associated with these breaches. The report emphasizes the importance of directors fulfilling their fiduciary duties to prevent insolvent trading and act in good faith to avoid repercussions, as demonstrated by the ASIC's actions in this case. The conclusion reinforces the significance of responsible company management and the legal ramifications of director misconduct.

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Company Law
Breach of Director Duties
23-Oct-17
(Student Details: )

COMPANY LAW 2
Introduction
A recent news article, which appeared in the ABC News, covered the Nathan Tinkler being
banned by the ASIC for managing the company, where he failed in his duties as a director (Letts,
2017). The following parts elucidate upon the breaches which took place in this case, particularly
in context of the director duties.
Analysis of Case
The key issue in this case was related to the breach of provisions covered under Part 2D.1 and
PART 5.7B of the Corporations Act, 2001 (Cth).
It is the duty of the directors in Australia, to prevent the company from trading where the
incurring of a particular can result in the company being insolvent; or undertaking a debt when
the company was already insolvent; particularly when there were reasonable grounds of
believing that the company is insolvent, or would become insolvent as a result of indulging in the
transaction as per section 588G of this act (Cassidy, 2006). In short, the directors have a duty to
prevent insolvent trading by the company. The breach of this section not only attracts civil
liabilities, but criminal liabilities as well. The civil penalties are covered under section 1317E,
where upon the court making a declaration of contravention, the ASIC can apply for pecuniary
penalties as per section 206C or can apply for the disqualification of the director from holding
such post in any company for a certain period, as per section 1317G of this act (Australian
Government, 2013).

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In the given case, Nathan Tinkler was barred from managing the business for a period of 3 years
and nine months, as he allowed the company to trade while it was insolvent in 11 different
companies, and allowing one company to continue its operations at loss. As per section 588G,
Tinkler had the duty to not indulge in such insolvent trading, which he did, and whereby the
ASIC got him banned from managing any company based on section 1317G. The incident came
to light when the liquidators analysed the collapse of these companies (Letts, 2017).
Apart from this breach, Tinkler also breached the duty as a director where he was required to
show care and diligence in managing those 11 companies, based on section 180 of this Act.
However, he failed to do so by involving his portfolio of interest in thoroughbred sports and
racing, and mining. He also failed in showing good faith towards 11 different companies, was
required on his part, based on section 181 of this act (Federal Register of Legislation, 2017). The
breach of these two sections also attract civil penalty under section 1317E, which was a
contributory factor to Tinkler being barred from managing the affairs of the company in the
nation for almost 4 years. The disqualification order was deemed as a teaching for the
companies, regarding the consequences which they would have to bear for managing the
company in a poor manner, which results in the fiduciary duties of a director being contravened
(Letts, 2017).
Conclusion
From the discussion carried on above, it becomes clear that by managing the company in an
improper manner, where insolvent trading was involved, Tinkler breached his director duties,
resulting in a disqualification order being passed against him.

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References
Australian Government. (2013) Corporations Act 2001. [Online] Australian Government.
Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 23/10/17]
Cassidy, J. (2006) Concise Corporations Law. 5th ed. NSW: The Federation Press.
Federal Register of Legislation. (2017) Corporations Act 2001. [Online] Federal Register of
Legislation. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed
on: 23/10/17]
Letts, S. (2017) Nathan Tinkler banned by ASIC from managing companies over serious failures
as a director. [Online] ABC News. Available from:
http://www.abc.net.au/news/2017-05-24/former-rich-lister-nathan-tinkler-banned-by-asic/
8554224 [Accessed on: 23/10/17]