Company Law Case Study: Director's Duties and Liabilities Analysis

This case study examines the duties and liabilities of company directors under the Australian Corporations Act 2001, focusing on the actions of Clive Palmer as a shadow director. The report analyzes the legal provisions, including sections 180, 181, 182, 183, 184, and 588G, in relation to Palmer's role in the insolvency of a company. The case highlights failures in prudent decision-making, leading to financial losses, job losses, and legal action by ASIC. The court held Palmer liable for his actions, freezing a significant portion of his assets. The study concludes with recommendations for directors to adhere strictly to the Corporations Act and avoid any breaches of its provisions. The report also outlines the roles of key individuals like the administrators of Queensland Nickel and ASIC in the case.

Running head: COMPANY LAW
CASE STUDY
Name of the Student
Name of the University
Author Note

1COMPANY LAW
Abstract
The main subject matter of the case has been discussed about the director’s duties under the
Corporations Act 2001. Various legal facts have been discussed in this report. The role of the
director in case of making decisions for the betterment of the company has been discussed and
certain case laws have been provided to understand the scope and necessities of the provisions.
This report is based on a case study and the acts of the alleged director of the company have been
discussed in the light of Corporations Act. Further, the penalty provisions regarding the case
study has been discussed. Certain recommendations have been made in this report.

2COMPANY LAW
Table of Contents
Introduction:....................................................................................................................................3
Facts of the case:..............................................................................................................................3
Legal provisions involved:..............................................................................................................4
Decision of the court:.......................................................................................................................5
Role of the individuals:....................................................................................................................6
Conclusion:......................................................................................................................................6
Recommendation:............................................................................................................................7
Reference:........................................................................................................................................8

3COMPANY LAW
Introduction:
The directors are playing an important role in Australia, as all the company related
problems and decisions are taken by the directors. The Corporations Act 2001 regulates the acts
of the directors and the terms of the Act are mandatorily applicable on the directors. According
to the Act, the directors of a company have certain duties that are to be followed and in case of
any breach, the directors will face legal provisions. There are certain possibilities that the court
may suspend their directorship under section 206C of the Act. However, this depends on the
veracity of their offence. In this report, the duty of the director under section 183 and section 184
has been discussed and liability of the directors through a case study has been mentioned.
Facts of the case:
The case is based on the wrongful act of Clive Palmer who was acted as a shadow partner
in a company and his role in the insolvency of the company has been discussed. According to
report submitted by administrator of Queensland (2016), Mr. Palmer had failed to take any
prudent decision regarding the payment of the company to the shareholders and due to his
decision; extra burden has been imposed on the taxpayers. He has done all the payments of the
company and he dictated how to spend the money. Further, the company had incurred a lump
sum amount of loan and he had made many non-commercial transactions. Due to the
unreasonable acts of the directors, the company has become insolvent. He wanted to build the
replica of Titanic and spent lots of money. Further, it has been observed that irresponsible
decision of the director has left the company indebted and many workers jobless. Mr. Palmer had
failed to act in accordance with the provisions of the Corporations Act and the company has been
collapsed due to it. Australian Securities and Investment Commission has made an investigation

4COMPANY LAW
over the same and filed case upon the company with an observation that the company is liable
for criminal penalties.
Legal provisions involved:
Considering the case, it has been observed that certain provisions like sections 180,
section 181, section 182, section 183, section 184 and section 1317E of the Corporations Act are
involved in this case. In Australia, companies are regulated by the provision of Corporations Act
2001 and certain duties and liabilities have been imposed on the directors, auditors and other
management bodies who play significant role in the daily operation of the company (Whincop,
2017). The term director has been defined under section 9 of the Act. The directors are regarded
as the mind of the company and they take all the necessary decisions regarding the company.
According to Corporations Act 2001, the directors of the company are required to
perform their duties in such a manner so that the interest of the company and the interest of the
shareholders can be secured. According to section 180 of the Act, a director should perform his
duties with due care and diligence and he has to take all the decisions prudently. However,
considering the wide liabilities of the director, certain safeguards have been given to the directors
so that they can protect their position. One of such safeguards is business judgment rule
mentioned under section 180(2) of the Act. Further, every director should act in good faith and
they should not act for their personal gain or profit (section 181). The director of a company
positioned in a high place and all the confidential information are nurtured by the director. Under
section 182 of the Act, the directors are restricted to use their position inappropriately and they
should have to take decisions in reasonable manner so that such decision could not harm the
interest of the company. All the confidential information regarding the operation of the company

5COMPANY LAW
has been improperly placed. According to section 183 of the Act, the directors are not required to
share the confidential information of the company with any third party. However, in this case,
the alleged non-executive director has failed to maintain this obligation.
Further, if the director knew the fact that the financial condition of the company is not
good, he has to take all the prudent decisions for the benefit of the company and he is not
allowed to take any wrong decision for securing his personal interest. In addition to this, a
director of a company will be held liable under the Corporations Act in case they are taking any
decision regarding insolvent trading of the company. Relevant provisions regarding the matter
have been given under section 588G of the Corporations Act 2001. Further, according to
Corporations Act, in case a director has failed to act in accordance of the Act, he will be
penalized under section 1317E of the Act 2001 (Rauterberg & Talley, 2017). However, there is
another penalty provisions mentioned under the Corporations Act, where the director of a
company will be liable for criminal offence under section 184 of the Act. In case a director of the
company has been committed a crime with the knowledge that he is doing wrong and his acts
violate the provision of the Corporations Act 2001, he has to face penalties under this section.
Decision of the court:
Considering the case, it has been observed that Clive Palmer has failed to act in
accordance with the Corporations Act 2001 and a case has been filed against the company by
ASIC. It has been alleged that being the shadow director of the company, Palmer used to take all
the transaction related decisions and was responsible for all the monetary related settlement.
Further, according to the report made against him showed that the condition of the company was
solvent but due to the decision of Mr. Palmer, the company became insolvent and the taxpayers

6COMPANY LAW
had to incur liabilities. Many of the employees became jobless and the director of the company
had failed to take any reasonable steps or decisions regarding the same. Further, Mr. Palmer had
failed to submit any firm evidence to prove his innocence. Therefore, the Court had held him
liable and approx $200 million assets of Mr. Palmer had been freeze by the government
liquidators.
Role of the individuals:
In this case, certain individuals have been inter-related to each other. The accused of the
case is Clive Palmer who was a politician and shadow director of the alleged company. He has
alleged for non-performing his duties according to Corporations Act 2001 and the company
became insolvent due his unreasonable decisions. He has misused his position and failed to act
for the interest of the company and for the interest of the shareholders (Gelter & Helleringer,
2015).
Administrators of Queensland Nickel play a significant role in this case. He has disclosed
many important documents and information regarding Clive Palmer and his responsibilities on
the business. A close vigil over the case proved the fact that the autocratic leadership skill of Mr.
Palmer has compelled the company incurs loss and the company became insolvent due to this.
Further, the amount of political distribution has also been come into light by the report made by
Nickel.
Australian securities and Investment Commission (ASIC) has also played an important
role in this case. It has made a thorough investigation of the issue and sued Mr. Palmer for
making such a breach under Corporations Act 2001 (Du Plessis, Hargovan & Harris, 2018).
Further, they have identified the fact that he had regulated all the transaction related concerns

7COMPANY LAW
and had made decisions arbitrarily. All these had forced the company for becoming insolvent and
extra burden had been imposed on the taxpayers, and Palmer has been held liable.
Conclusion:
Therefore, it can be stated that no directors of any company are allowed to go against the
policies of the Corporations Act 2001 and they should secure the interest of the company and the
shareholders. In case they have failed to perform their duties, they should have to adjudge with
necessary provisions of the Act.
Recommendation:
It is therefore recommended that the directors should maintain the rules and policies of
the Corporations Act 2001. Further, they are recommended not to make any breach as against the
provision.

8COMPANY LAW
Reference:
2018 "Clive Palmer & Nephew Sued Over Queensl& Nickel". ABC News,
http://www.abc.net.au/news/(2017)-07-05/clive-palmer-mensink-queensl&-nickel-
breach-duty-sue/8679470. Accessed 17 May 2018.
Du Plessis, J. J., Hargovan, A., & Harris, J. (2018). Principles of contemporary corporate
governance. Cambridge University Press.
Gelter, M., & Helleringer, G. (2015). Lift Not the Painted Veil: To Whom Are Directors Duties
Really Owed. U. Ill. L. Rev., 1069.
Rauterberg, G., & Talley, E. (2017). Contracting Out of the Fiduciary Duty of Loyalty: An
Empirical Analysis of Corporate Opportunity Waivers. Columbia Law Review, 1075-
1151.
Whincop, M. J. (2017). Corporate governance in government Corporationss. Routledge.