LAW 202: Case Study on Director's Duties and Breach of the Act

This case study delves into the potential breaches of director's duties by Adoni, a director of Desert International Gold NL (DIG), under the Corporations Act 2001 (Cth). It examines whether Adoni violated his duties of care, good faith, and misuse of position and information by purchasing a mining lease for personal gain after learning about the opportunity through his role at DIG. The analysis applies relevant sections of the Corporations Act, including sections 180, 181, 182, 183, and 674, and references case law to support the findings. The study concludes that Adoni breached his duties and explores the remedies available to DIG, such as disqualification and contravention declarations under sections 206C and 1317E of the Act. Desklib provides access to similar case studies and solved assignments for students.

Running head: LAW 202
LAW 202
Name of Student
Name of University
Author Note

1LAW 202
Table of Contents
Issue.................................................................................................................................................2
Rule..................................................................................................................................................2
Application......................................................................................................................................4
Conclusion.......................................................................................................................................6
Reference.........................................................................................................................................8

2LAW 202
Issue
Two issues can be found to be present in this case. Both these issues relate to the
directors’ duties mentioned under the provisions of the Corporations Act 2001 (Cth). the first
issue is to find if there was any breach of the duties of a director by mentioned under the
Corporations Act. The second issue is to find whether any remedy available to DIG under the
provisions of the Act against Adoni and the company formed by Adoni named Adoni Mining Pty
Ltd (AM).
Rule
The director’s duties towards his company have been discussed in various sections of the
Corporations Act 2001. The general duties are also known as the fiduciary duties as the duties of
a director can be seen to be based on faith, respect and mutual liability (Huebner and Klein
2015).
There are four main categories under which the duties of a director are mentioned under
the provisions of the Corporations Act 2001. The four fiduciaries duties of a director towards his
company are-
 Duty of acting in due care and diligence
 Duty to act in good faith for the best interest of interest
 Duty to not misuse his position as a director of the company for his personal benefit or
the benefit of someone else that can be detrimental to the company
 Duty to not misuse the private information of the company for his own benefit or the
benefit of someone else that can be detrimental to the company (Home 2017).

3LAW 202
The general duties of a director are mentioned in the sections 180,181,182 and 183 of the
Corporations Act 2001. In section 180 of the Act the duty of a director to act with a degree of
care and diligence is seen to be discussed. This section requires from a director to be
exercising his power with a degree of care and due diligence that can be expected from any
rational and reasonable person. In section 181 of the Act the duty of a director is mentioned
for the best interest of the company to be acting in good faith. In section 182 of the
Corporations Act a director’s duty is mentioned to be refraining from misuse of his position
in the company for his own interest or the interest of someone else or for detriment of the
company. In section 183 of the Act the duty of a director refraining himself from misusing
any information related to the company’s business for his own interest or for the interest of
someone else or for causing detriment to the company.
Apart from the above mentioned sections a few other sections of the Corporations Act
discuss other fiduciary duties of a director. In section 191 of the Act the duty of a director is
discussed to be liable to disclose the affairs of a company in relation to section 205G and 208
of the Act. In the section 344 of the Act the duty of a director is to take necessary and
reasonable steps to maintain correct financial reports of the company. In section 588G of the
Act the duty of a director is mentioned to be not involving in trading when the company is
either insolvent or has a tendency of becoming insolvent. The duty of a director to disclose
information to the shareholders and investors that affects the shares of the company is
mentioned in section 674 of the Corporations Act 2001.
The remedies for the breach of the duties of a director are also mentioned in various
sections of the Corporations Act. These remedies of the breach of duties are discussed under
the sections 206C and 1317E of the Act. In section 206C of the Act it is mentioned that a

4LAW 202
court can disqualify a director if found guilty of breaching his duties by the application of
ASIC. In section 1317E of the Act a court is mentioned to have the power to declare for
contravention if a director has been found to contravening his duties mentioned in sections
180, 181, 182, 183 of the act.
Application
In the current case Adoni is mentioned to be one of the directors of the company Desert
International Gold NL (DIG). He met the managing director of the Western Mining NL (WM),
Max, at a mining industry conference that was held in Perth. In a casual conversion it was
mentioned by Max to Adoni that his company WM was looking for a mining company in the
Western Australia that would buy the gold mining lease that was sold by his company. After
returning to Sydney, Adoni informed and advised the board of directors about the opportunity.
However the board of directors was not enthusiastic and promised to re-examine the proposal in
a future meeting. In 2018 after getting an ultimatum of three months from the managing director
of the company WM, Max, Adoni further called one of his co-directors Linda to inform her of
the ultimatum. It was told by Linda that she did not have any interest in the matter.
As Adoni lost his patience against his co-directors he went to purchase the lease from
WM under his own name. After three months he sold the lease to his own company Adoni
Mining Pty Ltd (AM) at a substantial rate of profit after he resigned from DIG.
Adoni can be found in the current case to be in breach of his duties as a director under the
sections 180,181,182 and 183 of the Corporations Act 2001 (Cth). Adoni can be further found
under the common law to be in breach of his duty to avoid conflict of interest.

5LAW 202
Adoni used his position in the company for his own interest instead of the interest of the
company. In section 180 of the Act the duty of a director to act with a degree of care and
diligence is seen to be discussed. This section requires from a director to be exercising his power
with a degree of care and due diligence that can be expected from any rational and reasonable
person. In section 181 of the Act the duty of a director is mentioned for the best interest of the
company to be acting in good faith. In section 182 of the Corporations Act a director’s duty is
mentioned to be refraining from misuse of his position in the company for his own interest or the
interest of someone else or for detriment of the company. In section 183 of the Act the duty of a
director refraining himself from misusing any information related to the company’s business for
his own interest or for the interest of someone else or for causing detriment to the company.
Duty to act with care and due diligence was breached by Adoni in the current case.
Provisions for the breach of this section have been mentioned in the case ASIC v Cassimatis
(2016). In this case it was held by the federal court judges that Mr. and Mrs. Cassimatis both
contravened section 180 (1) of the Act by the way of exercising their powers leading to causation
of inappropriate advice to the investors that further caused catastrophe for the company. In the
case ASIC in the matter of Sino Australia Oil and Gas Ltd v Sino Australia Oil and Gas Ltd
(2016) it was held by the court that there was a contravention of section 180 (1) of the Act.
Adoni breached his duty to be acting in good faith for the best interest of the company as
mentioned in the section 181 of the Act. This section was discussed in the case Bell Group Ltd v
Westpac Banking Corp (2008)
In this case Adoni was found to be buying the gold mining lease from WM in the name of
DIG and then later sold it to his own company at a substantial rate of profit from DIG. This
action can be breach of two duties of a director. Firstly he breached section 182 by misusing his

6LAW 202
position as a director for his own interest and benefit instead of the benefit of the company.
Secondly he can be found to be in breach of section 183 by misusing the company’s information
for his own interest and benefit instead of the benefit of the company. The breach of these two
sections can be seen to be discussed in the case MG Corrosion Consultants Pty Ltd v Gilmour
(2014).
Adoni further can be found to be in breach of the of section 674 of the Corporations Act
2001 as he did not disclose the purchase of the mining lease from WM to the directors and he
further hid the sell of the lease to his company AM. In the case Riley (in his capacity as trustee
of the Ker Trust) v Jubilee Mines NL [2006] damage for breach of continuous disclosure under
the section 674 was awarded to a shareholder.
As for the remedies that the other directors can avail from Adoni and his company Adoni
Mining Pty Ltd there are certain provisions under the Corporations Act 2001. These provisions
are discussed under the sections 206C and 1317E of the Act. In the section 206C the power of
the court is mentioned to be disqualifying a person from his position in the company if found to
be guilty of breach of duties. The section 1317E of the Act provides a court with the power to
declare a contravention if a person is found to be contravening his duties mentioned in the
sections 180, 181, 182 or 183 of the Corporations Act. The board of directors of the Desert
International Gold NL (DIG) can apply for damages under the section 206C or apply for a
contravention against Adoni under the provisions of section 1317E of the Corporations Act 2001.
Conclusion
From the above discussion it can be concluded that Adoni has breached his duties under
the Corporations Act 2001. The duties breached by him are duty of care and diligence, duty of

7LAW 202
good faith, duty of not abusing his position and duty to not misuse company’s information for
personal gain as mentioned in the sections 180, 181, 182 and 183 respectively. He can be further
found guilty of beaching his duty to disclose company’s information to shareholders mentioned
under section 674 of the Act and the breach of his duty to avoid conflict of interest under the
common law. For the second issue it can be concluded that the directors can claim for damages
and removal of his position to the court under the provision of section 206C of the act and can
further apply for a decree of contravention by the court for contravening of sections 180, 181,
182 and 183 under the provisions of section 1317E of the Corporations Act 2001.

8LAW 202
Reference
ASIC in the matter of Sino Australia Oil and Gas Limited (in liq) v Sino Australia Oil and Gas
Limited (in liq) [2016] FCA 934
Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA
1023
Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1; 70 ACSR 1; [2008]
WASC 239
Corporations Act 2001 (Cth)
Home, A. (2017). Call for review of Corporations Act. Governance Directions, 69(8), 450.
Huebner, M. S., & Klein, D. S. (2015). The Fiduciary Duties of Directors of Troubled
Companies. AM. BANKR. INST. J., 34, 18-18
MG Corrosion Consultants Pty Ltd v Gilmour [2014] FCA 990
Riley (in his capacity as trustee of the Ker Trust) v Jubilee Mines NL [2006] WASC 199