Directors' Duties and Liabilities: Gold Dig Ltd Case Study - ACU Law

This case study examines the directors' duties within Gold Dig Ltd, focusing on the obligations of care, skill, diligence, and loyalty expected of directors under the Corporations Act 2001 (Cth). It analyzes whether Clive and Andrew exercised reasonable judgment in pursuing exploration activities, considering the concerns raised by Helen and Alice. The study applies relevant legal principles from cases such as Re City Equitable Fire Insurance Co Ltd, ASIC v Adler, and Regal (Hastings) Ltd v Gulliver to assess potential breaches of fiduciary duty and the duty of care. The analysis concludes by evaluating whether the directors acted in the best interests of the company and its shareholders, particularly in light of the company's financial situation and exploration outcomes. Desklib provides access to similar solved assignments.

Gold Dig Ltd Case Study 1
DIRECTORS’ DUTIES: GOLD DIG LTD CASE STUDY
[Author(s) name(s):]
LEGL 201: Company Law
Thomas More Law School
Faculty of Law and Business
Tutor(s) name(s):
Australian Catholic University

Gold Dig Ltd Case Study 2
Rules
In exercising their powers and executing their duties, directors are tasked with the obligation
of adopting a reasonable degree of care, skill and diligence.1 This duty is incorporated in
statute under s 180 of the Corporations Act 2001 (Cth) which provides that a director should
discharge their duties with care and diligence to the extent that a reasonable person would
under similar circumstances failure to which they attract a civil penalty under s 1317E of the
Act.2 Under the provisions of s 180, directors have the freedom to make business judgments
and decisions, however, these decisions should be made in good faith, for a proper purpose
and in undertaking the decision; the directors should ensure they are reasonably informed as
to the subject matter at hand.3
Romer J in Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 sets the traditional
approach for this duty. In this case, the degree of care, skill and diligence expected of a
director is that of a person with the same level of knowledge and experience under the same
circumstances. However, as Romer J notes, a director was not bound to continuously concern
themselves with the affairs of the company. The modern approach, as illustrated in ASIC v
Adler [2002] NSWSC 171, places a higher standard on directors. Santow J stated that by
taking up the appointment of a director, a person is expected to have the skills of a reasonably
competent person and engage with reasonable care, skill and diligence. Further, they are
expected to reasonably guide and control the affairs of the organisation.
Directors also have a duty of loyalty and good faith; they should act in the company’s best
interests and for a proper purpose. This is a fiduciary duty provided for under s 181(1) (a)
whereby contravention is considered a criminal offence under s 184 of the act and also
attracts a civil penalty under s 1371E.4 As illustrated in Regal (Hastings) Ltd v Gulliver
1 Rosemary Teele Langford, Directors’ Duties: Principles and Application (Federation Press, 2014).
2 Corporations Act 2001 (Cth) s 180; Corporations Act 2001 (Cth) s 1317E.
3 Corporations Act 2001 s 180(2); See also Paul Latimer, Australian Business Law (CCH Australia Ltd, 2012)
698.
4 Corporations Act 2001 (Cth)

Gold Dig Ltd Case Study 3
[1967]2 AC 134, directors hold a position of trust; in this case, the directors bought property
in the organisation’s name without informing the shareholder’s or seeking their consent.
Failure to inform the shareholders was held as a breach of fiduciary duty. Essentially, in the
fulfilment of this duty, directors should avoid circumstances that would be detrimental to
shareholder interests or the company as a whole.5
Application
In the case study provided, Clive and Andrew were expected to employ a reasonable degree
of care, skill and diligence, in determining whether to proceed with the exploration activities.
In doing so, they were to ensure their decision was in the best interests of the company and its
shareholders. Helen and Alice, both directors at Gold Dig Ltd were not as convinced as to the
viability of the exploration. The hesitance by Helen and Alice illustrates that the decision by
Clive and Andrew was not that of a reasonable director. They also failed to act in the best
interest of their shareholders and the company as a whole as by failing to consider the
findings of the survey and as such leading to the exhaustion of the company’s capital without
significant discoveries.
Bibliography
A. Articles/Books/Reports
5 Ibid s 181

Gold Dig Ltd Case Study 4
Langford, Rosemary Teele, Directors’ Duties: Principles and Application (Federation Press,
2014)
Latimer, Paul, Australian Business Law (CCH Australia Ltd, 2012)
B. Cases
Re City Equitable Fire Insurance Co Ltd [1925] Ch 407
ASIC v Adler [2002] NSWSC 171
Regal (Hastings) Ltd v Gulliver [1967]2 AC 134
C. Legislation
Corporations Act 2001 (Cth)