Corporations Law - Director's Duties, Breach, and Liabilities

This assignment delves into the complexities of corporations law, specifically addressing the duties and responsibilities of company directors. The analysis encompasses various scenarios, including breaches of duty, potential liabilities for actions such as insolvent trading, and the application of relevant legal principles. The assignment explores case studies, examining the actions of directors in different contexts, and assessing their adherence to legal standards. Key areas of focus include the duty of care and diligence, conflicts of interest, and the implications of decisions made by directors, particularly in situations of financial distress. The assignment also touches upon shareholder rights and the roles of auditors and other officers within a company. The analysis is structured to identify legal issues, discuss relevant laws, apply these laws to the facts of each case, and reach conclusions regarding potential breaches and liabilities. The assignment provides a comprehensive overview of director's duties and their implications under corporations law.

Running head: CORPORATIONS LAW
Corporations Law
Name of the Student
Name of the University
Author Note

2CORPORATIONS LAW
Lecture 10
Answer
a) Issue:
Whether the Chair obliged to allow Byron time to ask questions.
Relevant laws:
Section 250S states that a reasonable opportunity must be given by the Chair of AGM to the
members to ask questions about the management of the company.
Application:
As per the said section, the Chair must give reasonable opportunities to Bryon to ask
questions about company’s offshore drilling operations as per section 250S.
Conclusion:
Hence, Chair is obliged to allow time to Bryon to ask questions.
b) Issue:
Whether the Chair of the meeting or the auditor has breached the Corporations Act.
Relevant laws:
Section 250RA states that the auditor has contravened this section if he does not attend the
AGM and he does not make arrangements to be represented at AGM by an individual who is
a suitable qualified member of the audit team which prepared the audit and can answer the
questions of the audit.

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According to section 250T of the said Act, a reasonable opportunity must be given by the
chair of an AGM to the members to ask questions or to make comments regarding the
contents of the audit report to the auditor or their representation of the company. If the chair
violates this provision, he is liable of the strict liability offence.
Application:
In the case study, it is seen, that the auditor was represented by a very junior employee, who
gave brief oral answers to the questions given by shareholder Toby. Thus it violates section
250RA as the auditor did not make arrangements for proper representation by a qualified
suitable member.
Again, the Chair did not allow Toby to ask any further questions. Thus section 250T is
violated.
Conclusion:
From the above discussion, it can be inferred that both the Chair of the meeting has breached
section 250T and the auditor has breached the provisions of section 250RA of the
Corporations Act.
c) Issue:
The issue involved here whether the Company can allow shareholders to call for meeting.
Rules:
As per section 249N, at least 100 members who have been entitled to cast vote at a general
meeting shall give a company notice of such resolution that they are proposing to move in the
general meeting. Section 490O states that when a company is given notice of such resolution,
it must be considered at the next general meeting. The company must give such notice to all
other members as soon as practicable.

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Application:
From the facts of the case, it is seen that more than 100 members request the directors of the
company to call for a meeting to consider resolution proposing changes to environmental
policies of the company. As per the said section, they must give notice of such resolution.
The company after getting the notice, it must consider it at the next general meeting after
intimating all other members.
Conclusion:
The Company can allow shareholders to call for meeting.
Answer 2
Issue:
The issue involved here is whether Mark can claim defences for his absence in the meeting.
Relevant rules:
Section 249H states that at least 21 days notice has to be given of a meeting of the members
of the company. Moreover, if there is a constitution, it can mention about a minimum longer
period of the notice.
Section 249J states that written notice of any meeting of the company must be given
individually to every member who is entitled to vote in the meeting and to each director. It
also states that a company can give notice of a meeting either personally, or by sending by
post or to fax number or any other method that has been nominated by the member. It further
states that notice of meeting sent by post is assumed to be given 3 days after is has been
posted.

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Application:
From the facts of the case, it is seen that Will, Chris and Mark are the shareholders as well as
the directors of a company. Will and Chris called for a general meeting to remove Mark from
the board. The notice of the meeting was sent to Mark by post. From the facts of the case, it is
not known whether 21days notice was given to Mark as per section 249H. However, since the
notice was given by post so as per section 249H it will be assumed to be received within 3
days. Hence, Mark cannot waive his duty to present in the meeting.
Conclusion:
Hence, Mark cannot claim that he was absent due to delay in the post.
Lecture 11
Issue 1
Whether the liquidator should pursue any of the non-executive directors for compensation.
Rule
U/s 180 of the Corporations Act 2001 (Cth), the directors of a company are required to act
diligently as well as be careful while acting under the designation that they have been
conferred with by virtue of being a director of the company. In assessing the degree of
adherence of the director to the provisions of this section the actions of a reasonable man
under a similar situation needs to be referred to. Breach of such a provision is likely to attract
civil penalty.
It has been held in the case of ASIC v Macdonald [2009] NSWSC 287 that a director
whether executive or non-executive needs to examine any action the company has been
undertaking and should not merely act rely upon the other directors of the company.

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It has been held in the case of Kregor v Hollins (1913) 109 LT 225 that a director has the
authority to enter into any agreement, which restrict their exercise of duties as a directors but
the same would amount to a breach of their duties as a director.
Application
In the present instance, Go-Carts Ltd is a newly registered company, where Earl is the
managing director and the other directors include Elisabeth Deal, Enid Patton and Eleanor
Arnold, who were acting in a non-executive capacity dealing with the planning as well as the
policy making of the company. A liquidator has been appointed to the company and his
investigation in the company has disclosed a probable shortage of funds of over $3 million.
There were certain probable causes that the liquidator has pointed out to have contributed to
the shortage of funds. This includes the purchase of a $4 million chateau in France with funds
from Go-Carts that represented an expected net loss of $1 million. This endeavour of a
company directors can be treated to be in breach of their duty to ensure due diligence. The
purchase of new motorised sweepers designed to collect litter on the go-karting tracks has a
high hope of cost savings but has eventually failed. An amount of $200,000 is due from
Shrewd Advisers Ltd (Shrewd) where Earl was a governing director as well as a majority
shareholder. There is a guarantee by Shrewd in favour of Go-Carts for $100,000 but no more
than $70,000 is likely to be recovered from Shrewd. This can be treated as a breach of the
duty of a director to abstain from indulging into transactions that involves conflict of interest.
Moreover, the non- executive directors being aware of the same as well as failing to prevent
the same has been in breach of duties as a director under the principles established in the case
of Kregor v Hollins. Moreover, Earl had himself fraudulently misappropriated about $1
million to finance his extravagant lifestyle. This needs to be treated as a breach of duties of
the directors acting in non-executive capacity by not preventing the same and relying upon

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the actions of Earl, which can be supported by the case of ASIC v Macdonald. Hence, the
non-director can be held liable.
However, Eleanor can be discharged from liability as he has not been aware of the affairs
being ill since 2008.
Conclusion
The liquidator should pursue all the non-executive directors for compensation except
Eleanor.
Issue 2
Whether Rose has breached any of her general law or statutory duty of care and diligence
as a director. Whether her decision to agree to the purchase of the new premises would be
protected by s 180(2). Whether she has any possible liability for insolvent trading under s
588G if Growfast became insolvent.
Whether Peter has breached any of his duty of care and any possible liability for insolvent
trading if Growfast becomes insolvent.
Rule
U/s 180(1) of the Corporations Act 2001 (Cth), the directors of a company are required to
act diligently as well as be careful while acting under the designation that they have been
conferred with by virtue of being a director of the company. In assessing the degree of
adherence of the director to the provisions of this section the actions of a reasonable man
under a similar situation needs to be referred to. Breach of such a provision is likely to attract
civil penalty.

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U/s 180(2) of the Corporations Act 2001 (Cth), a director is extended with the defence
from the liability of the breach of s 180(1), if it can be established that he has been acting in a
good faith.
U/s 588G of the Corporations Act 2001 (Cth), a director has a duty to prevent the
company from indulging insolvent trading.
U/s 588H of the Corporations Act 2001 (Cth), provides a defence to the directors
indulging into insolvent trading in case they have acting in good faith.
In the case ASIC v Sino Australia Oil and Gas Limited [2016] FCA 42, lack of
understanding owing to no education or language problem would nob b treated as a defence
to the breach of director’s duties.
Application
In the present instance, Rose has breached her duties as a director u/s 180(1) of the Act as
she has been doubtful regarding the decision of the executive director but failed to prevent
the same as well as to act in a diligent manner.
She did not acted in good faith as she had a doubt regarding the endeavour that the
managing director has been undertaking but failed to prevent the same and thus failing to
ensure care and due diligence.
As the company has already been incurring losses, it was not prudent for the directors to
proceed with an expansion and the same is likely to render the company insolvent and as
Rose had the suspicion regarding the appropriateness of the action, she has the liability to
prevent the same failure of which is a breach of duty.

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Peter has breached his duty of care and prevention of insolvent trading if Growfast
becomes insolvent as he cannot deny liability of the liability of his breach of duty as a
director solely based upon his lack of understanding.
Conclusion
Rose has breached any of her general law or statutory duty of care and diligence as a
director. Her decision to agree to the purchase of the new premises would not be protected by
s 180(2). She has liability for insolvent trading under s 588G if Growfast became insolvent.
Peter has breached his duty of care and is liable for insolvent trading if Growfast becomes
insolvent.
Issue 3
Whether Apollo and Rocky breached their directors' duties. Whether Apollo and Rocky
have an arguable defence. Whether Clubber, as the company's chair, breached any duties.
Whether Drago, as the company's chief financial officer, breached any duties.
Rule
U/s 180 of the Corporations Act 2001 (Cth), the directors of a company are required to act
diligently as well as be careful while acting under the designation that they have been
conferred with by virtue of being a director of the company. In assessing the degree of
adherence of the director to the provisions of this section the actions of a reasonable man
under a similar situation needs to be referred to. Breach of such a provision is likely to attract
civil penalty.
U/s 181 of the Corporations Act 2001 (Cth), the directors are under an obligation to ensure
their actions to be backed by proper cause as well as good faith that assures the interests of
the company being ensured.

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U/s 180(2) of the Corporations Act 2001 (Cth), a director is extended with the defence
from the liability of the breach of s 180(1), if it can be established that he has been acting in a
good faith.
It has been held in the case of ASIC v Macdonald [2009] NSWSC 287 that a director
whether executive or non-executive needs to examine any action the company has been
undertaking and should not merely act rely upon the other directors of the company.
It has been held in the case of Kregor v Hollins (1913) 109 LT 225 that a director has the
authority to enter into any agreement, which restrict their exercise of duties as a directors but
the same would amount to a breach of their duties as a director.
Application
In the present instance, Apollo and Rocky are to in breach of their duties as a director as
their acts cannot be said to have carried out to ensure the best interest of the company. They
have ignored the expert report for the purpose of imposing their own will.
Apollo and Rocky cannot seek resort under the defence as they have not been acting in
good faith while carrying out their endeavour by ignoring the expert opinion.
Clubber will be liable for the breach of his duty as he has been doubtful regarding the
endeavour but has failed to oppose the same merely to avoid a heated conversation. This can
be treated as a breach of duty that has been carried out by Clubber.
Drago was the company's chief financial officer who will be liable for the breach of his
duty as he has been doubtful regarding the endeavour but has failed to oppose the same
merely to avoid a heated conversation. This can be treated as a breach of duty that has been
carried out by Drago.

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Conclusion
Apollo and Rocky has breached their directors' duties. Apollo and Rocky does not have an
arguable defence. Clubber, as the company's chair has breached his duties. Drago, as the
company's chief financial officer has breached any duties.
Lecture 12
Issue
The primary issue in the case is if the clause of ‘transfer of shares’ in the constitution
of Petrotide Pty Ltd is valid and legally enforceable. The second issue is if the registration of
shares of Mavis can be refused by the directors. The third issue is if Mavis can challenge the
refusal of the registration of the transfer of her shares.
Rule
Under section 181 of the Corporations Act 2001(Cth) a director of a company has a
duty to act in good faith for the best interest of company as discussed in the case Greenhalgh
v Arderne Cinemas Ltd [1951].
Section 136(4) of the Corporations Act provides for the power of a company to
modify or repeal the constitution or any provision of the constitution if the requirements
specified in the constitution are complied with.
Under the general law two duties have been imposed upon the directors. These duties
are duty for exercising active discretion and duty for retaining director’s discretion. The
limits on this duties are mentioned under the sections 189-190, section 198C and198D of the
Corporations Act.

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Application
In this case it is seen that a company named Petrotide Pty Ltd was incorporated in the
Albury-Wodonga region for waste management handling. The company’s constitution has a
provision regarding transfer of shares which states that the directors have the ability to refuse
the transfer of shares in their discretion. After the death of one of the shareholders Phoenix
his sole beneficiary Mavis attempted to transfer his shares in her name which was refused by
the board of the company. It was found by Mavis that Phoenix was not liked because of his
aggressive pursuit and his responsibility for bringing certain workplace arrangements that
were highly controversial.
Thus it can be seen that the directors of the company had been in breach of section
181 of the Corporations Act by not acting in the good faith of the company as seen in the case
Greenhalgh v Arderne Cinemas Ltd [1951]. The directors were also in breach of their duties
in using their power properly. This was discussed in the case Parke v Daily News Ltd [1962].
In the case Percival v Wright [1902] it was mentioned that the duties of the directors are
owed to the members, creditors, employees and beneficiaries of trust.
Conclusion
Thus it can be concluded that the transfer clause in the company’s constitution is valid
and enforceable. The directors cannot refuse the registration of transfer of shares of Mavis
because it is a direct breach of section 181 of the Corporations Act. Mavis can challenge the
refusal under the general law regarding director’s discretion.