Case Study on Director's Duties and Corporate Governance Analysis

This case study analyzes a situation involving the potential breach of director's duties under the Corporations Act 2001 (Cth) concerning the flight booking company Bestjet. The Australian Securities and Investments Commission (ASIC) is investigating claims that directors may have failed to act in good faith and in the best interest of the company, leading to its collapse. Key issues include potential insolvent trading, incomplete financial records, and the removal of company assets. The analysis references sections 180-184 and 588G of the Corporations Act 2001, which outline directors' general duties and the prevention of insolvent trading. Court cases such as Daniels V Anderson and Advance Bank v FAI Insurance Ltd are used to critically analyze the application of these duties. The case highlights the importance of directors understanding and fulfilling their obligations to ensure the company's best interests are protected and to prevent insolvent trading.

Running head: BUSINESS AND CORPORATION LAW
BUSINESS AND CORPORATION LAW
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Article Details
Claims regarding the breach of duties under the Corporations Act 2001 (Cth). Have been
brought to the Australian Securities and Investments Commission against the directors of the
flight booking company Bestjet. The administrators and partners of the collapsed company
believe that the obligations to act in good faith and in best interest of the company may have
been breached by former and current directors of the company which led up to the collapse of the
company. The administrators statement reported by ASIC further include that the company may
have been trading even after insolvency from early December 2018 and the financial records
were incomplete and unreliable. There has been report of removal of security equipments from
the company’s headquarter. The collapse of the company has left around 4,684 ordinary and
unsecured creditors with claims estimated to be of almost 10.8m.
Issues identified through Article
The primary issue that can be identified in regard to the article is the breach of director’s
duties by the current and former directors. The breach of duties of directors is required under the
Corporations Act 2001.
Another issue that can be identified in the article is that the continuation of trading even
during insolvency.
Rules identified in association with the article
Section 180-184 of the Corporations Act 2001 states the general duties of the directors of
a company. Section 180 of the act states that a director must exercise their duties with care and

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diligence. Section 181 requires the directors to act in good faith and in interest of the company.
Section 182 restricts the directors’ improper use of position. Section 183 restricts the improper
use of information gained by a director. Section 184 discusses dishonest and reckless conducts.
For the breach of the duties section 1317G of the act has laid down provisions relating to the
penalties.
Section 588G of the Act states the statutory duty of a director in relation to prevention of
trading. Under section 588G of the Corporations Act 2001 the statutory duty of a director is
discussed as to prevent the company from trading during insolvency.
Critical Analysis
The report published by ASIC against the collapsed budget flight booking company has
raised issues relating to breach of duties of directors. The courts have discussed the rules
relating to the breach of directors’ duties in a number of cases. In the case Daniels V Anderson it
was found by the Court of Appeal that the directors were guilty of negligence and it was held
that the directors need to understand the nature of their duties and perform according to them.
Another example of breach of duty lies in the case Advance Bank v FAI Insurance Ltd. In this
case it was stated by the court that duty of a director to act in a good faith has an objective
element. The director’s consideration of best interest of a company may not comply with court’s
considerations for the best interest of a company. Consideration of best interest of the company
should be rational.

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References
Advance Bank Australia Ltd & Ors v FAI Insurances Ltd & Anor 1987 9 NSWLR 464
Daniels v Anderson (1995) 37 NSWLR 438
The Corporations Act 2001
The Guardian. (2019). Bestjet: directors of collapsed travel company referred to regulator.
Retrieved from https://www.theguardian.com/australia-news/2019/jan/23/bestjet-directors-
referred-to-regulator-for-potential-breaches-of-corporations-act