Corporate Law Assignment: Director's Duty and Safe Harbour Analysis

This corporate law assignment delves into the intricacies of director's duties, particularly concerning insolvent trading and the safe harbour provisions outlined in the Corporations Act of 2001. The report analyzes the obligations of directors to prevent insolvent trading, emphasizing fiduciary duties and the importance of due diligence. It examines the application of Section 588GA, exploring the defenses available under safe harbour and the measures directors must undertake to avoid liability. The assignment further addresses the limitations of safe harbour and the implications of amendments to the Corporations Act, referencing a case study involving Mr. Daly and other directors. The analysis covers potential breaches of duty, the responsibilities of co-directors, and the concept of insolvent trading within the company. Finally, the assignment concludes that safe harbour has been justified and appropriate, including the breach of fiduciary duty on the part of the director as far as insolvent trading of a company is concerned taking account of Section 588 GA of the Corporations Act of 2001 with regard to the exemption of liabilities on part of the director of a company accordingly.

Running head: CORPORATE LAW 1
Corporate Law

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Table of Contents
Introduction................................................................................................................................3
Part A.........................................................................................................................................3
Answer to Question 1.............................................................................................................3
Answer to Question 2.............................................................................................................3
Answer to Question 3.............................................................................................................4
Answer to Question 4.............................................................................................................4
Answer to Question 5.............................................................................................................4
Conclusion..............................................................................................................................5
Part B..........................................................................................................................................5
Answer to Question 1.............................................................................................................5
Answer to Question 2.............................................................................................................6
Answer to Question 3.............................................................................................................6
Answer to Question 4.............................................................................................................6
Answer to Question 5.............................................................................................................7
Conclusion..............................................................................................................................7

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Introduction
There have various kinds of reformations of laws related to corporations in Australia.
These kinds of reformations have been influenced by the hearings in the parliament and the
decisions of the courts accordingly. The Corporations Act of 2001 has played an extremely
important role with regard to the transformation of the system pertaining to the legalities
governing corporations in the desired manner accordingly. The main aim of the assignment is
to present an overview of the aspect relating to the breach of duty as director with regard to
the Corporations Act of 2001 accordingly as far as insolvent trading is concerned. The
concept of safe harbour would also be demonstrated with regard to exception of the liabilities
for breach of duty as a director with reference to the prevention of the company form trading
in an insolvent manner accordingly. As a result, Section 588 GA of the Corporations Act of
2001 would be analysed in an effective and efficient manner as far as the application of the
exception related to safe harbour. It would help in the determination and identification of the
feasibilities involved in the application of the concept of safe harbour in an effective and
efficient manner. The case study focusing on Mr. Daly would also be taken into account as
far as the aspect of the breach of duty as a director is concerned accordingly. It would help in
the identification of the aspect relating to safe harbour as far as insolvent trading is concerned
accordingly. In the case study, it is to be taken into consideration whether the other directors
are liable for breach of duty or not.
Part A
Answer to Question 1
The obligation of the director of the company is to ensure that the company does not
plunge into a situation which involves insolvent trading. Such an aspect implies fiduciary
duty on part of the director as far as the exercising of good faith is concerned accordingly
taking account of Sub-section1 of Section 181 of the Corporations Act of 2001 and the
common law of England and Wales with reference to the aspect of due-diligence. Section 588
GA of the Corporations Act of 2001 would facilitate the ease of the aspect related to
exemption accordingly as far as safe harbour is concerned taking account of the aspect
pertaining to reasonable steps being taken accordingly. If the director does not undertake any
kind of reasonable step with reference to the prevention of the company from trading in an
insolvent manner, then it would constitute a breach of duty with reference to the provisions

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enshrined and incorporated in the Corporations Act of 2001 (Bottomley, 2016). As a result,
the facts and circumstances of the scenario are to be analysed in a proper and appropriate
manner in order to apply the concept of safe harbour accordingly.
Answer to Question 2
The defences pertaining to the aspect of safe harbour state that as per Section 588 GA
of the Corporations Act of 2001, there is a provision with regard to the waiver of liabilities
for directors as far as insolvent trading is concerned accordingly. It would help the director to
capitulate upon their defence pertaining to their averment as far as the facts and
circumstances of the case are concerned accordingly. However, the key thing with regard to
the application of the exemption in the desired manner would be the undertaking of the
measures and steps in order to imply the prevention of insolvent trading accordingly as far as
Sub-section 3 of Section 588 GA of the Corporations Act of 2001 is concerned (Marsh &
Roberts, 2017). The onus with regard to the furnishing of credible evidence pertaining to the
reasonable measures and precautions being undertaken lies on the director. Such reasonable
measures and precautions must have been undertaken in order to prevent the company form
trading in an insolvent manner. As a result, it would help in the derivation of a
comprehensive solution in a proper and appropriate manner accordingly in the interest of
equity and justice.
Answer to Question 3
The directors are protected by the virtue of Sub-section 3 of Section 588 GA of the
Corporations Act of 2001 as far as insolvent trading of the company is concerned. In this
regard, the facts and circumstances must be analysed in an effective and efficient manner in
order to determine and identify that the director concerned undertook reasonable measures
and precautions accordingly as far as the prevention of the company form insolvent trading is
concerned. Section 180 of the Corporations Act of 2001 implies good faith which is contrary
to the concept of safe harbour.
Answer to Question 4
The limitations pertaining to the application of the defence of safe harbour are implied
by Sub-Section 4 and Sub-Section 5 of Section 588 GA of the Corporations Act of 2001
accordingly with regard to the breach of obligations and responsibilities on part of the
concerned director of the company. These provisions imply that the defence of safe harbour
is not applicable on the grounds pertaining to the non-repayment of debts incurred upon the

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company with reference to the wages of the employees accordingly. As a result, it would help
in the misuse of the aspect of safe harbour accordingly.
Answer to Question 5
If there are amendments in Division 3 of the Corporations Act of 2001, there would
be stringencies with reference to voluntary insolvencies as far as Australia is concerned. It
would help in the protection of the fiancés of the investors in an effective and efficient
manner thereby leading to penalties to be imposed over the directors of the company in a
stringent manner accordingly. The exception in this regard would be to imply that the director
concerned had undertook the necessary steps and measures to seek help in the desired manner
accordingly as far as the requirements of Sub-section 3 of Section 588 GA of the
Corporations Act of 2001 are concerned accordingly (Parkin, 2015). As a result, it is quite
vital to delve into the facts and circumstances of the case in a proper and appropriate manner
accordingly in order to reach a conclusion accordingly as far as the insolvency of a company
in a voluntary manner is concerned. It would help in the application of Sub-Section 4 and
Sub-Section 5 of Section 588 GA of the Corporations Act of 2001 in the desired manner as
far as the facts and circumstances of the case are concerned accordingly along with the
grounds for the same. The concept pertaining to mitigating circumstances may also be taken
into account by the Federal Court of Australia provided the requirements under Sub-section 6
of Section 588 GA of the Corporations Act of 2001 are fulfilled accordingly. It would imply
equity and fairness as far as the basic principles with reference to the concept of natural
justice is concerned accordingly thereby leading to the elimination of the barriers and
limitations to the application of safe harbour by Sub-Section 4 and Sub-Section 5 of Section
588 GA of the Corporations Act of 2001 (Tiba, 2019). In the case of Australian Securities
and Investment Commission v Cassimatis, Mr. and Mrs. Cassimatis were the directors of the
financial consultancy Storm Financial Limited which eventually became insolvent
accordingly. In this case, Mr. and Mrs. Cassimatis were held liable for breach of duties as
directors under the Corporations Act of 2001 as decided by the Federal Court of Australia
accordingly since many of the investors lost a major chunk of their financial assets to great
extent. As a result, it is imperative that there should be changes in Division 3 of the
Corporations Act of 2001.
Conclusion
In consideration of the aforesaid part, it can be concluded that the aspect pertaining to safe
harbour has been justified accordingly and is appropriate. In this regard, the aspect pertaining

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to the breach of fiduciary duty on part of the director of the company has been analysed in a
proper as far as insolvent trading of a company is concerned taking account of Section 588
GA of the Corporations Act of 2001 with regard to the exemption of liabilities on part of the
director of a company accordingly. The aspect pertaining to reasonable steps has also been
discussed and demonstrated accordingly in accordance with Sub-section 3 of Section 588 GA
of the Corporations Act of 2001. The restrictions and limitations pertaining to safe harbour
have also been discussed and demonstrated with reference to Sub-Section 4 and Sub-Section
5 of Section 588 GA of the Corporations Act of 2001. The aspect of mitigating
circumstances in accordance with Sub-section 6 of Section 588 GA of the Corporations Act
of 2001 has also been taken into account accordingly as far as the approach to be undertaken
by the Federal Court of Australia is concerned in this regard.
Part B
Answer to Question 1
The facts and circumstances of the case imply that there has been a breach of duty on
part of Mr. Daly as a director as the money of the company was used for his own personal
interests such as trips and not for the benefit of the company accordingly. As far as the
provisions envisaged and incorporated in the Corporations Act of 2001 are concerned, it is
the duty of the director to act in such a manner in order to imply the beneficial aspects of the
company accordingly failing which liabilities would be imposed accordingly. As a result, it is
imperative form the facts of the case that there should be penalties imposed on Mr. Daly for
misusing of funds accordingly thereby acting in a deceptive manner which is in blatant
contravention of the relevant provisions enshrined and incorporated in the Corporations Act
of 2001 as far as the duties and obligations of a director are concerned. The investors have
started to fear that they would lose a major portion of their money as a result of the
malpractices committed by Mr. Daly as a director of the company.
Answer to Question 2
It is to be taken into account by the analysis of the facts and circumstances of the case
in an effective manner for the purpose of drawing a reasonable inference with reference to the
aspect that the other directors also acted in breach of duty along with Mr. Daly accordingly.
The evidence for the purpose of implying the breach of duty must be credible in nature in
order to comprehend upon the aspect relating to the imposition of penalties on the other

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directors for breach of duty with regard to the respective provisions of the Corporations Act
of 2001. If it is observed from the facts of the case that the other directors were influenced by
Mr. Daly, then they would be exempted from liabilities as far as Section 588 GA of the
Corporations Act of 2001 is concerned. As a result, it would lead to a comprehensive solution
to be provided to the other directors by the Federal Court of Australia. However, it is the onus
of the other directors to prove that they were influenced by Mr. Daly with reference to the
malpractices with regard to Sub-section 3 of Section 588 GA of the Corporations Act of
2001.
Answer to Question 3
The company was involved in insolvent trading as observed from the facts and
circumstance of the case accordingly. It is to be taken into consideration whether the other
directors had undertaken the reasonable steps in order to imply the prevention and reduction
of the aspect of insolvency as far as Sub-section 3 of Section 588 GA of the Corporations Act
of 2001 is concerned accordingly. It would imply the application of the concept of safe
harbour on the other directors in a proper manner accordingly. Since the burden of proof lies
on the other directors accordingly, the details for the same have to presented in the desired
manner accordingly with respect to the reasonable steps being undertaken by them for the
purpose of the stopping of the company from trading insolvent accordingly (McGirr, 2017).
Mr. Daly would not be eligible to avail the exemption related to safe harbour as it is
established on a prima facie basis that he acted in breach of duty as a director of the company
as far as the facts and circumstances of the case are concerned.
Answer to Question 4
The defence of safe harbour under Section 588 GA of the Corporations Act of 2001 is
applicable on the directors only on the grounds that they acted in such a manner that
reasonable steps were being undertaken by them for the purpose of the prevention of the
company form insolvent trading which is a fiduciary duty of the director of a company
accordingly as aforesaid. Such kind of defence is not applicable on Mr. Daly as it is already
evident in a credible manner that he acted in violation of his obligations and duties as a
director as prescribed by the relevant provisions incorporated and enshrined in the
Corporations Act of 2001 accordingly (Horne, 2017). It is implied that Sub-Section 4 and
Sub-Section 5 of Section 588 GA of the Corporations Act of 2001 would be taken into
account accordingly as far as the limitations of the aspect of the safe harbour is concerned
with regard to the actions of Mr. Daly accordingly. The malpractices committed by Mr. Daly

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have misled the investors to a great extent as far as the loss of finances is concerned
accordingly. As a result, the exemption of safe harbour cannot be availed by Mr. Daly.
Answer to Question 5
As aforesaid, the aspect of safe harbour is applicable on the grounds that the directors
had undertaken the measures and steps with reference to the stopping of the company from
trading in an insolvent manner in the desired manner as far as the beneficial interests of the
company are concerned. As a result, the requirements stipulated and prescribed by Sub-
section 3 of Section 588 GA of the Corporations Act of 2001 are to be met and fulfilled
accordingly in a proper and appropriate manner. In this regard the aspect pertaining to
mitigating circumstances may also be taken into account with regard to Sub-section 6 of
Section 588 GA of the Corporations Act of 2001 as far as the discretionary powers of the
Federal Court of Australia are concerned accordingly (Nietsch, 2018). The restrictions of the
application of safe harbour under Sub-Section 4 and Sub-Section 5 of Section 588 GA of the
Corporations Act of 2001 are also to be analysed in the desired manner as far as the facts and
circumstances of the case are concerned accordingly. It is established that stringent action is
to be initiated against Mr. Daly accordingly on grounds of breach of duty as a director.
Conclusion
As observed form the aforesaid part, it can be deduced that Mr. Daly is to be held
liable by the Federal Court of Australia accordingly as he had deceived and misled many
investors by utilizing their financial assets in an improper manner as far as his personal
interests and benefits are concerned accordingly (ABC, 2019). The penalties are to be
imposed accordingly with regard to the provisions of the Corporations Act of 2001. The
exemption of safe harbour under Section 588 GA of the Corporations Act of 2001 also cannot
be availed by him due to such kind of breaches as far as the insolvency involved with respect
to the trading activities of a company. Additionally, he also did not undertake any reasonable
action with regard to the prevention of such kind of insolvency accordingly. It is to be
determined and identified whether the other directors had undertaken reasonable measures
with reference to the prevention of insolvency of the company with regard to trading as far as
Sub-section 3 of Section 588 GA of the Corporations Act of 2001 is concerned. As a result,
the duty of the director to prevent the company in question from insolvent trading in is
justified and appropriate accordingly.

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References
ABC, (2019). Update: The Talented Mr. Daly. Background Briefing. Retrieved form
Bottomley, S. (2016). The constitutional corporation: Rethinking corporate governance.
Routledge.
Horne, A. (2017). Call for review of Corporations Act. Governance Directions, 69(8), 450.
Marsh, S., & Roberts, S. (2017). Risk management: Insolvency safe harbour
for'honest'directors. Governance Directions, 69(5), 275.
McGirr, M. (2017). Advocacy: Is safe harbour a safe bet?. Company Director, 33(10), 20.
Nietsch, M. (2018). Corporate illegal conduct and directors’ liability: an approach to personal
accountability for violations of corporate legal compliance. Journal of Corporate Law
Studies, 18(1), 151-184.
Parkin, C. (2015). Proportionate liability under the Corporations Act and the ASIC Act. Bar
News: The Journal of the NSW Bar Association, (Winter 2015), 21.
Tiba, F. (2019). Safe Harbor Carve-out for Directors for Insolvent Trading Liability in
Australia and Its Implications. USFL Rev., 53, 43.