Analyzing Director Duties and Corporate Governance in Company Law

This case study delves into several critical aspects of company law, focusing on the duties and responsibilities of directors within Adventure Ltd. The analysis addresses key issues such as the proper appointment of managers, the distinctions between limited and private limited companies, and the legality of issuing company shares to non-shareholders. It further examines whether the directors breached their fiduciary and statutory duties, particularly in the context of potential insolvent trading. The case study applies relevant sections of the Corporation Act 2001 and precedents from Australian Securities and Investment Commission cases to determine the liability of directors for financial mismanagement and non-compliance. The conclusion assesses the potential consequences for the directors, emphasizing the importance of adhering to corporate governance principles and legal obligations to ensure the company's financial health and ethical operation. Desklib provides students access to similar solved assignments and past papers.

Running head: COMPANY LAW
Problem and Solution
Name of the Student
Name of the University
Author Note

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Question two
Issue:
Considering the facts of the case, three issues have been cropped up in this case which
are as follows:
 Whether the appointment of Fred and Trevor for the post of manager has attracted the
provisions of the Corporation Act or not
 Whether there is any differences in between limited company and private limited
company or not
 Whether the directors of the present company have made any breach by issuing
company’s share to Eddie
Rules:
The issues of the case are based on the provisions of the Corporation Act 2001 and on the
provisions of Australian Securities and Investment Commissions. According to section 180 of
the Corporation Act, it is the duty of every director to perform their duties with due care and
diligence. It has been stated that no directors are allowed to act in any way that goes against the
interest of the company. The directors under section 201J of the Corporation Act appoint the
managers or the managing directors. However, the directors are taking the decision in a meeting
and after such appointment; they should inform the Australian Securities and Investment
Commissions.
The second issue is based on the difference in between limited and private (pty) limited
company. If the shares of a company can privately be owned and limited in the private hands, it

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is regarded as private limited and when the shares are open in nature, they are called as public
limited company. There are certain differences present between the two. The maximum number
of shareholders in case of private limited companies is fifty while in public limited company,
there is no limitation in case of public limited company. It is also to be remembered that the rules
of public limited companies are quite strict compared to the private limited companies. Further,
in a private limited company, the members can cast their vote if the constitution of the company
allows them to do so. On the other hand, in case of public company, the member cannot cast
their vote for every matter.
According to the Corporation Act, the directors of a company can issue their share to the
shareholders only and not to any other person. This is the preemptive right of the shareholders.
Application:
It is not clear from the case study whether the directors of the company have informed
the Australian Securities and Investment Commission or not; however, by giving advertisement,
they have made an invitation to treat for the post of the Managers. Further, if the present
company will be a private limited company, they may not give an advertisement for the post of
Manager; rather they will call a meeting and choose the manager by casting their vote. In this
case, the directors of the company have decided to transfer their share to Eddie, who is not the
shareholders of the company and by this the directors has violated the preemptive right of the
shareholders.

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Conclusion:
Therefore, it can be stated that the directors of the company have made certain mistakes
regarding the share allotment of the company, whereas, Fred and Trevor can apply for the post of
Managers.
Question 3
Issue:
Considering the case study from different aspects, the main issue that has been cropped
up is whether all the directors will be held liable for the insolvent trading of the company or not.
Rules:
Corporation Act has given certain limitations on the power and duties of the Directors
and these duties are known as the fiduciary duties and statutory duties. According to section 181
of the Corporation Act, every director is required to perform their job with good faith and they
should not earn illegal profit from their business. When in a company there are more than one
director, conflicts of interest can be observed in between them. in the case of Regal (Hastings)
Ltd v Gulliver [1942] UKHL 1, the court has been observed that the directors of a company
should not violate their duty of loyalty and should not misuse the corporate opportunities. In
Australian Securities and Investments Commission v Adler (2002) 168 FLR 253, it has been
held that no director is required to use their position improperly and in ASIC v Vizard [2005]
FCA 1037; (2005) 145 FCR 57, it has been decided that the directors are restricted to use any
improper information for the gaining any personal profit. According to section 191 of the
Corporation Act 2001, in case of any conflict of interest, the directors must inform other
directors by issuing notice. If they have successfully issued notice, they can take the plea of

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retain extra profit under section 194 of Corporation Act. Further, it has been mentioned under
section 180(1) of Corporation Act that the director should have to be careful while making
decisions and the outcome of the decision must not be harmful for the future and interest of the
company. The principle has been established in the case of ASIC v Cassimetis [2012]. On the
other hand, the non-executive directors are not a part of the executive team but they can take
active part in the policy making process of a company. The duties are applicable for every class
of directors and no one can take any excuses as against it.
Application:
‘ In this case, it has been observed that there are three directors in this company where two
of them are non-executive in nature. However, it has been observed from the case study that the
directors have failed to perform their duties in good faith and Jack, who was responsible for all
the financial transaction of the company, had not maintain the obligations mentioned in the
Corporation Act persistently. Further, it should be the duties of the other directors to perform
their duties respectively; however, they have also failed to comply with all the instructions.
Further, the directors of the company should held liable under section 588G (1) © of the
Corporation Act for continuing insolvent trading.
Conclusion:
It can therefore be stated that every directors of the company will jointly be responsible
for the winding up process of the company.